Supply management (Canada)

Milk for sale in a supermarket in London, Ontario.

Supply management (French: Gestion de l'offre) is a policy that regulates supply and enables farmers to collectively negotiate the farm-gate price of milk, eggs and poultry in Canada. Under supply management, farmers manage their production so that it coincides with forecasts of demand for their products over a predetermined period - while taking into account certain imports that enter Canada, as well as some production which is shipped to export markets.^[1] Imports of dairy, eggs, and poultry are controlled using tariff rate quotas, or TRQs. These allow a predetermined quantity to be imported at preferential tariff rates (generally duty free), while maintaining control over how much is imported. The over-quota tariffs are set at levels that allow Canadian farmers to receive a price reflecting the cost to produce in a northern environment.

Supply management allows the federal and provincial governments to avoid subsidizing the sectors directly, in contrast to general practice in the European Union and the United States. Instead, Canadian supply managed farmers derive their returns directly from the market. Other agricultural sectors in Canada (grain, beef, pork, etc.) are not supply managed, and for the most part compete as a normal products on the international market.

Though supported by all three major political parties, supply management has remained fairly polarizing. Critics argue that supply management is an unduly protectionist policy that limits consumer choice; can be a hurdle in international trade negotiations; and leads to inefficiencies in the market to the detriment of the consumer. On the other hand, supporters contend that it increases focus on product quality and standards; fosters investments in research and on-farm infrastructure; and that the system has never once prevented Canada from entering into a free trade deal.

In total, there are about 17,000 Canadian farms that operate under Supply Management; this is about 8% of all farms in Canada. The dairy industry is the largest of the three supply-managed industries in Canada, with about 12,000 farmers. There are about 2,700 poultry farmers, and fewer than 1,000 egg farmers.

How it works

Dairy cattle in a barn in Quebec

The basic idea behind supply management is simple, and is similar to what producers in every industry do. The goal is to manage production so that supply is in balance with demand, and that the farm gate price enables farmers to cover their costs of production, including a fair return on labor and capital.

Each farm owns a number of shares in the market (quota), and is required to increase or decrease production according to consumer demand. Because production is in sync with demand, overproduction is avoided; this enables farmers to earn a predictable and stable revenue, directly from the market.

Supply management is a shared jurisdiction between the Federal and Provincial governments. For example, on a Canada-wide basis, there is the Canadian Dairy Commission, composed mostly of dairy farmers. In Ontario, there is the Dairy Farmers of Ontario, with similar local boards in each of the other provinces.^[2]

The Three Pillars of Supply Management

Producer Pricing

To ensure price stability for farmers, the price received by supply managed farmers takes into account both the costs of production, including capital and labor costs, and the overall conditions of the Canadian economy.

Production Discipline

To make sure that supply equals the demand from consumers, each supply managed farm in Canada owns quota (market share) that allows it to produce a certain amount. Depending on consumer demand, the amount that a quota allows you to produce can increase or decrease; upward and downward quota adjustments are made on an as-required basis. This is an efficient way to avoid overproduction, and to ensure a fair and stable return for farmers.

Import Control

In Canada, imports are controlled using tariff rate quotas, or TRQs. They allow a predetermined quantity of supply managed products to be imported at preferential tariff rates (generally duty free), while maintaining control over how much is imported. The over-quota tariffs are set at levels that allow Canadian farmers to receive a price reflecting the cost to produce in a northern environment.

History

The government of Canada put in place a supply management system in the early 1970s in an effort to reduce the surplus in production that had become common in the 1950s and 1960s, and ensure a fair return for farmers.^[3]

In 1970, the National Milk Marketing Plan came into effect to control supply, with the federal government and the governments of Ontario and Quebec, the two largest provinces, signing on. By 1974 every province except Newfoundland had signed on. Following dairy, a national supply management system was implemented for eggs in 1972, turkey in 1974, chicken in 1978 and chicken hatching eggs in 1986.

See also

• Agriculture in Canada
• Dairy farming in Canada
• Chicken farming in Canada

References