It was just this month that the monopoly of the Canadian Wheat Board was abolished; and a new report argues that it ought to be the first step in a continuing trend.
A study released on Thursday by the Montreal Economic Institute argues that agricultural marketing boards do not actually benefit the farmers in their sectors.
These boards have a monopoly in their regions on marketing the agricultural products in their respective industries; dairy, for example, or eggs. That means farmers must either sell their products to the board or follow its rules when selling on their own.
Some boards also control how much of the commodity will be sold to consumers, and its price. To control prices, they impose quotas on farmers’ production. There are currently roughly 80 agricultural marketing boards in Canada, according to Mario Dumais, the report’s author.
But that control on supply can actually put a damper on a product’s marketing plan by reducing flexibility in response to consumer demand. A 2008 report to Quebec’s minister of agriculture, fisheries and food cited complaints from the popular St-Hubert chain of rotisserie chicken restaurants, that it took “several years ... before we were able to satisfy our clients and offer a 100 per cent grain-fed, air-chilled chicken.”
“It’s ridiculous that it would take so much time and be so arduous,” the St-Hubert representative said. “We’re currently in the process of getting approval for antibiotic-free chicken. I’ll spare you the details of all the hurdles that lie in wait for us in the current system.”
The boards aim to increase and stabilize farm income and support farmers by giving small producers more negotiating heft when dealing with large buyers. But the system can also lead to higher prices, according to the report by Mr. Dumais, who is an economist and former director of publications for Quebec’s Union des producteurs agricoles.
Citing data from the International Dairy Federation, for example, Mr. Dumais points out that the farm price of milk in Canada is 72 cents per kilogram on average, compared to 37 cents in the U.S. and 42 cents in the EU. (The farm price does not take into account other costs factored into the retail price, such as shipping.)
But while consumers pay more, farmers must buy quotas in order to start farming or expand their operations. Mr. Dumais argues that the high price of those quotas means that any extra revenue afforded by the marketing board’s monopoly does not actually trickle through.
However, agricultural economist Jean Nolet, whose calculations were among those used by Mr. Dumais, called the report “too simple,” noting that in systems where supply management does not exist, prices may be lower but taxpayers are forced to kick in with farming subsidies. It is an argument many marketing boards make as well.
“If you don’t have any quotas, you get in a situation where you don’t have the benefit of the system as well,” said François Dumontier, a spokesman with the Fédération des producteurs de lait du Québec.
He points to the example of oilseed and grain producers, who do not operate under a supply management system. Their net market income (adjusted for capital cost) was negative for the years 2005-2007, according to Statistics Canada, and while the sector recovered and grew significantly in 2008 and 2009, the numbers demonstrate the volatility of a system outside of supply management, he said. By comparison, the same net income for dairy producers in that period was far steadier.
According to Statistics Canada, the total value of agricultural quotas across the country is roughly $30-billion. And the price of quotas has risen. In Manitoba for instance, the clearing price for producing one kilogram of butterfat per day – the standard used for dairy quotas – was $8,800 in 1995, but had risen to an average of $25,774.94 by 2009. Starting in 2009, provinces east of Manitoba began an attempt to cap that quota at $25,000.
The issue has been a prominent one for Canada on the international stage as well. When Canada was admitted into the Trans-Pacific Partnership in June, U.S. Chamber of Commerce president Thomas Donohue said that continuing negotiations would need to address this country’s policies on supply management.
The U.S. has scaled back on quotas, such as those in its tobacco and peanut industries. The report argues that Canada should follow its example, along with that of Australia, which abolished quotas on its milk producers.
Because many of the Canadian farmers in production right now had to buy their quotas, as opposed to those who received them for free when the program began in the 1970s, the report proposes that the government implement a temporary tax to buy those quotas back.
“We don’t criticize any voluntary aggregating of marketing activity. What we criticize is the monopoly power of the marketing boards,” Mr. Dumais said. “The rigidity we have in our system is a problem.”
The Canadian Dairy Commission and the Farm Products Council of Canada both declined to comment on the report.