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Chicken war sets stage for supply management change

It will be difficult to end supply-managed farming. The only practical way to do it might be to do absolutely nothing at all. Market factors that can't be forever suppressed are already producing signs of supply-management irrelevance.

Consider the famous "chicken wars" of New Brunswick. Looking at the supply-managed mess in this single province, former federal agricultural minister Lyle Vanclief asserted that, for chicken producers and chicken processors, "supply management is no longer the status quo in New Brunswick."

If New Brunswick's chicken industry no longer operates on the original rules of supply-managed farming, what rules do they work under? From one perspective, they look remarkably like the limits imposed by cutthroat competition in a laissez-faire capitalist economy.

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"The [Canadian poultry] industry is watching the outcome [in New Brunswick] with well-justified concern," Mr. Vanclief wrote last year in a commentary. "It is abundantly clear that [one of the processor protagonists] is building an American model 'egg-to-plate' fully integrated operation, clearly not a model that was intended by supply-management legislation."

In New Brunswick, two companies have fought for four years to control a market too small for the efficient operation of either, with strategic engagement controlled by out-of-province agents. It's a complicated story. Here is a quick plot guide.

For years, Nadeau Poultry, a New Brunswick company, operated as the province's sole poultry processor: For all practical purposes, a monopoly. Original supply-management regulation, however, stipulated that no single chicken producer could hold more than 10 per cent of the province's chicken quota – thus preventing a processor monopoly from becoming a producer monopoly, too.

Yet Groupe Westco, another New Brunswick processor, abruptly ended Nadeau's monopoly – by buying 51 per cent of the province's chicken quota from some farmers and by forming alliances with others, ultimately giving Westco control over as much as 80 per cent of the province's quota.

With Westco's market control, the Chicken Farmers of New Brunswick, the regulatory body, formally discarded the stipulation that no chicken producer could own more than 10 per cent of the province's quota. It also dropped a provincial registry requirement, the only province ever to do so.

Freed of these regulations, Westco began to ship its chickens to Quebec plants owned by Olymel LP . Operating in Nova Scotia, PEI and Alberta, Olymel is a major player in the Canadian agri-food industry. With annual sales of $2-billion, it exports half of its production to the U.S.

Nadeau Poultry is directly owned by Maple Lodge Farms, a large Ontario-based company that describes itself as "Canada's largest independent family-owned chicken producer" – with product exported to 30 countries.

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Ostensibly a mere jousting for market advantage by two regional companies in a small market, New Brunswick's chicken wars are better understood as strategic conflicts for control of the industry in Eastern Canada – and, ultimately, beyond. Westco is, indubitably, the winner. Nadeau has challenged Westco in the provincial regulatory bodies, in the federal Competition Tribunal, in the federal courts – and achieved no redress. The war is lost.

Yet New Brunswick remains an important outpost in these supply-management conflicts. If all that mattered were whether Westco-Olymel takes more chickens to market than Nadeau-Maple Lodge, they might not be regarded as important. But the chicken wars revealed how far the supply-managed poultry industry has moved from its original 1970s state. The question is: Do these chicken battles portend larger supply-management wars ahead? The answer is: Yes.

It's interesting that former Liberal MP Martha Hall Findlay now publicly condemns the protectionist experiment in agriculture put in place 40 years ago by her own party. But her predecessors did too good a job. Thousands of interlocking laws and regulations will need to be discarded, a process that will take years.

Then there's that other problem: The $35-billion worth of quota that limits Canada's production of milk, turkey, chickens and eggs. Who will pay for those farm asset1s? Would it not be best to let the agri-food companies pay – as Westco did when it bought control of the chicken quota in New Brunswick? Ms. Hall Findlay, please advise.

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About the Author
Neil Reynolds

Neil Reynolds is an Ottawa writer whose columns on national economic issues appear in Wednesday's and Friday's Globe and Mail. He is the former editor-in-chief of The Vancouver Sun and the Ottawa Citizen. More

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