For nearly fifty years the price for certain agricultural products including
milk, eggs and poultry have been regulated under a system known as supply
management. This article describes the origins of supply management and
argues that it continues to be in the interest of both producers and consumers.
Food is making the news these days. Pick up any newspaper or listen to
any news broadcast and we read and hear about controversies over our food
supply. Food riots in Asia and Mexico. A North American recall of tomatoes.
The debate over food versus fuel. Significant increases in the costs of
imported food in many countries. Questions about the safety of some food
products that are imported to Canada. Concerns about how the food needs
of a growing global population can be met. And, on top of all that, many
of the farmers who produce our food are facing their most serious financial
crisis since the Depression.
What is Supply Management
Supply management had its origins in the 1960s when farmers were increasingly
facing volatile markets, losing control over their markets, and being squeezed
by processors and retailers. They were vulnerable to one of the fundamental
problems of agriculture the risky roller coaster ride of prices associated
with the unregulated boom and bust cycles of over and under supply.
In a free market, price is established by supply and demand. Agricultural
products are produced by a relatively large number of farmers acting independently.
This resulted in oversupply relative to demand and low prices. The cycle
would be followed by reduced production, periods of short supply and higher
Years of fluctuating prices were responsible for bankrupting farms and
rural economies. Efficient long-term planning was virtually impossible.
Still, these price swings for primary commodities had little effect on
the final costs to consumers as processors and retailers take such a large
percentage. For taxpayers, the consequent farm financial problems meant
millions of dollars in subsidies or bailouts.
There are three basic ways to meet these problems. One is do nothing, thus
continuing with taxpayers subsidization and bailouts. The second strategy
would be to allow or encourage the vertical integration of agriculture
by larger interests who are able to withstand market instability, resulting
in our food production being in the hands of few. The third strategy would
be to give farmers more control over production and pricing.
So it was that in the 1960s, farmers began demanding their governments
establish marketing boards to give them more control over their own affairs.
To do that, they needed control over three vital functions, control of
production, control of imports and control of prices. A national consensus
emerged that the best way to achieve stability was to match supply and
demand. That was achieved through the delegation of federal and provincial
powers that permitted producer-controlled marketing boards to control production,
pricing and marketing on the basis of individual farm production quotas
and single desk selling. Governments provided further support by providing
import protection through a system of tariff rate quotas. Those are the
basic elements of what has become Canadas supply management system.
In 1970, the dairy industry became the first in Canada to operate a national
supply management system. Over the years, the supply management approach
has provided a stable environment within which the dairy industry has evolved
to meet the challenges of changing domestic markets and international trade
rules. As a former dairy producer, I can personally attest to the vital
importance of supply management to the success of the dairy industry.
The poultry industry - producers of eggs, chicken and turkey also benefited
from adopting supply management. Today, supply managed commodities remain
among the most successful of all farm commodities in this country.
Let me briefly outline what supply management means for farmers, for processors
and for consumers. In brief, supply management means that farmers get a
fair market price for their products. The price is established according
to a cost of production formula so that farmers are able to receive a fair
return on their investment and labour. That means they are able to achieve
their returns from the marketplace, not from government subsidies or other
Processors also realize the benefits of supply management. They know how
much product they will receive and at what price. The products they receive
are of the highest quality. This kind of predictability allows them to
invest in their plants, equipment and the development of their markets.
For consumers, the benefits of supply management include access to a safe,
tested and reliable supply of high quality products at affordable prices.
Despite the criticisms that supply managed commodities have built-in higher
costs, retail prices for dairy products, are highly competitive and have
in fact on average been lower than in the United States for the past decade.
With the increased amalgamation in both the processing and retail sectors,
the need for supply management is even more critical than it was when supply
management was first introduced. When a small number of buyers face a large
number of sellers, buyers enjoy enormous clout. In Canada, the three largest
retail food chains control 60 percent of the market. The three largest
processors account for 75 percent of the dairy products processed in this
country. We have seen imbalances created in other non-supply managed commodities
because of increased amalgamation of retail processors. That is why producers
of supply managed commodities are able to act collectively and provide
balance in an increasingly concentrated marketplace.
It is sometimes suggested that supply management, because of the level
of protection and stability it affords to producers, creates less efficient
operations. Nothing could be further from the truth. Since 1971, the average
herd size in Canada has tripled. Over that same period shipments of milk
per farm have increased 5 fold. The productivity gains of Canadian dairy
producers are comparable to or better than those made by producers in the
rest of the world. The level of milk produced per cow increased by 120
percent in Canada. That compares to an increase of 91 percent in the United
States, 69 percent in the United Kingdom and 39 percent in New Zealand,
where supply management does not exist.
As well, because of the stability afforded by supply management, Canadian
dairy producers have developed stringent testing, milk recording and genetic
evaluation programs. This has resulted in a cattle population with the
best genetics in the world. Because dairy producers receive a fair return,
they are not being forced into the kind of factory farming model that has
become increasingly common in some areas of the United States. Cows are
given greater individual attention, meaning healthier herds and safer milk.
Stable incomes means that Canadian dairy farmers can invest in long-term
care, feed, housing and equipment to preserve the health of their herds.
And when it comes to measures to protect the environment, dairy producers
are second to none, investing in good stewardship and sustainable production
Canadian supply management also provides benefits for other countries. In
a global trade environment which is increasingly characterized by dumping
and export subsidies, it is worth noting that because supply management
is concerned primarily with the domestic market, it does not distort or
disrupt production in other nations, including the developing nations.
In short, supply management has been good for producers, good for processors
and good for consumers. Today, producers of supply managed commodities
are some of the most efficient and self-sufficient producers in Canada.
At a time when government across this country have invested billions of
dollars, since the year 2000, in farm support payments, producers of supply
managed commodities have not asked for any support from taxpayers. At a
time when producers of many other commodities are facing a real crisis,
producers of supply managed commodities continue to enjoy stability. Thats
the real difference that supply management has made in this county.
Producers of supply managed commodities are able to realize a greater share
of the food dollar.
When compared to the returns received by producers of other commodities,
it is not hard to understand why they look at supply management with some
degree of envy. By way of illustration, over the past 20 years, the average
retail price of beef has increased by $5.67 per kilogram. During that same
period of time, farm prices for beef increased by just 14 cents. In the
case of pork, average retail prices have increased by $3.51 per kilogram
while the average price received by producers actually declined by 15 cents.
With dairy products, on the other hand, producers have been relatively
better off keeping up their share of the consumer price. Over the same
20 year time period retail milk prices have increased by 110 percent and
dairy producers have seen a 44 percent increase in their returns.
Canadians are fortunate in that we enjoy some of the lowest food prices
in the world. At the present time, the cost of food accounts for just under
10 percent of total incomes. Ten years ago that was 12.5 percent of income.
In the past 20 years food production has increased by 13.8 percent, while
farm incomes, including support payments from governments (and tax payers)
have gone up by just 2.1 percent. It is little wonder that we are experiencing
a crisis in many sectors of the agriculture industry in this country.
That is why it is so important that our system of supply management be
maintained and protected during the current round trade negotiations under
the World Trade Organization. In past rounds, Canada was able to achieve
protection for its dairy and poultry industries. I remain confident that
in the current round, Canada will continue to defend its position. I am
pleased to note that the leaders of our four national political parties
have also publicly endorsed supply management.
Supply management has demonstrated its benefits for close to 40 years now.
It has worked, it continues to work, and I have every confidence it will
work in the coming years. Ensuring farmers receive a stable income in exchange
for producing high quality food, while not costing tax payers a penny,
has been the major success of supply management. The system of supply management
also ensures stability of prices and supply, and also ensures consumer
prices. I believe as well it is time that the marketplace provides greater
recognition and rewards to all producers in Canada who work hard and long
to bring us safe, high quality food products.
I urge all parliamentarians to support supply management . If there was
ever a time when this country needed to defend its farmers and the security
of its food supply, the time is now.