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jeffrey simpson

It is intellectually easy to question, if not demolish, the economic case for supply management for certain food products. It is harder to think through how to get away from it.

Supply management has been built over several generations. It has signalled to farmers where to invest their money, how to build their enterprises, what to expect from governments. Farmers have made rational choices within an irrational system, for which they lobbied and from which they have benefited.

The same is true of seasonal unemployment benefits, which the Harper government wants to change. Seasonal unemployment benefits began in the early 1970s, at roughly the same time as supply management. Both had an unstated imperative: to blunt the free market.

The market, left to its own devices, would have played with prices by allowing more foreign competition. It would have benefited some producers (or processors) and penalized others. It would have tried to match supply and demand in a rational way, which is what markets are meant to do, thereby producing winners and losers.

Groups agitating for supply management and seasonal unemployment benefits figured that the risks of losing from market competition were too great. So they lobbied successfully for help: protection and very limited foreign imports in the case of supply-managed farmers; easier access to unemployment insurance in the case of seasonal industries.

Once market signals were eased or removed, a new kind of internal rationale was established in these industries and the regions that supported them. In the case of fisheries, for example, more processing plants were licensed than if the market decided. At least some companies played the game by allocating fish so as to provide limited work for the largest number of people, who could then claim seasonal unemployment benefits. It was a rational set of decisions within a world the market would consider irrational.

Supply management became a racket in the literal sense of the word, albeit a rational racket for those involved. It limited production, restricted competition and set prices according to what the producers thought they needed rather than what consumers wanted.

Predictably, the "rents" from this anti-market behaviour were collected by the producers, in part by driving up the value of what they produced, and in part by allowing the quota they owned for production to be captured in inflated values for their land, buildings and animals.

This is straightforward to explain and to condemn in classic economic terms. But we haven't been dealing with anything like classic economies in these areas for several generations.

Instead, people made what to them were rational decisions, even if these systems were and remain irrational from society's wider perspective. So the question now becomes: How to extricate those who work within these systems?

There is no easy alternative work for supply-managed farmers on hardscrabble land in, say, rural Quebec or Eastern Ontario. And try finding a full-time job in an outport or fishing village in Atlantic Canada. It is all well and good to tell people to move, but their homes aren't worth much and their skills sets are limited.

No one knows what it would cost over a decade, say, to wean producers from supply management, but it must run into the tens of billions of dollars. Who would pay?

In Australia, a tax was placed on milk and dairy products with the proceeds used to rationalize the industry. Would Canadian consumers like to pay for a decade so they might pay less later for these products? Short-term pain for long-term gain has defeated governments. Or should government somewhere, somehow find several billions of dollars a year to start rationalizing these industries?

It is no defence of supply management to observe that European and U.S. producers are also heavily subsidized, as all sorts of reports from the Organization for Economic Co-operation and Development have shown.

All of which is to say that, having built these systems on political decisions taken many decades ago, extricating ourselves from them is far harder and costlier than critics suggest, when they think of these problems at all.

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