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Canada’s dairy farmers hold quota allocations that have a market value of $30-billion. (Peter Power/The Globe and Mail)
Canada’s dairy farmers hold quota allocations that have a market value of $30-billion. (Peter Power/The Globe and Mail)

Supply management: The 90 per cent solution Add to ...

The big question surrounding the probable end to supply management in the dairy industry is should compensation be paid to the 13,600 dairy farmers. They hold quota allocations that have a market value of $30-billion.

Using a scheme adopted by Australia when it ended supply management (an 11¢ a litre tax on fluid milk for seven years or more) would do the trick, but probably result in an over payment. A fairer scheme would be to compensate farmers for 90 per cent of the value of the quota when they acquired it.

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The quota was originally given out for free, therefore farmers or their direct successors still in the business would receive nothing for their original allocation and then 90 per cent of whatever they paid at the time they acquired additional amounts of quota.

Why only 90 per cent? Well having quota allowed the holders to earn returns on their investment well in excess of the returns that could have been earned in alternative forms of farming. Having enjoyed for more than 40 years these superior returns thanks to their ability to persuade government to protect them from competition it’s time they “enjoyed” some of the costs they foisted upon Canadian consumers.

While the potential beneficiaries of this compensation may complain of shoddy treatment they evidenced little sympathy on the costs they passed on to the consumers much less the harmful impact they had on potential exports of other agricultural and non-agricultural exports because government refused to modify supply management during trade negotiations.

That the scheme carried on so long is a testament to the effectiveness of the dairy lobby and the lack of courage on the part of our elected representatives of all parties. Perhaps MP’s who voted unanimously to retain supply management only few years ago might like to contribute a portion of their pensions to the cost of the compensation plan.

Now its time to end the system and do so quickly and at a reasonable cost to consumers otherwise known as taxpayers who have paid too much for dairy products for more than 40 years.

David Bond is the retired chief economist of HSBC Bank of Canada

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