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barrie mckenna

For a brief, shining moment in the early 2000s, Canada had a small but thriving milk export business.

Georgian Bay Milk Co., based in Barrie, Ont., would buy milk from a clutch of farmers operating outside Canada's tightly controlled supply managed dairy industry and ship it to dairies in New York state.

The business was profitable, and it generated jobs and exports – everything the federal Conservative government says it's all about.

But the Ontario Superior Court declared the exports illegal, ruling in 2008 that farmers must sell their milk exclusively through the province's official dairy marketing board, the Dairy Farmers of Ontario.

"We could be exporters of milk and cheese, instead of importers," laments Chris Birch, a former dairy farmer who started the now-shuttered company. "It's ridiculous."

Now, suddenly, there's a glimmer of hope that Mr. Birch's lost dream of a free market just might come true – not just in milk, but in eggs and chickens, too.

Last week, Canada joined the Trans-Pacific Partnership after Prime Minister Stephen Harper agreed to put supply management on the table in the regional free trade talks.

The TPP's major agrifood players – the United States, Australia and New Zealand – will obviously demand full access to the Canadian market, and by implication, an end to supply management.

It's not at all clear how far Ottawa is prepared to go. The government may not even know itself as it takes stock of the mood, within the TPP, and more importantly, at home.

If ever there was a right time to scrap supply management, this is it – not because foreigners want us to, but because it's in our own economic self-interest. There are plenty of sound policy reasons to deregulate, and a number of viable ways to get there.

Inflated prices of cheese, chicken and the like are costing Canadians nearly $5-billion a year, according to the Organization for Economic Co-operation and Development. A new report by the University of Calgary's School of Public Policy puts the cost to the average family at $300 per year, just for milk.

It's not clear whether the closed system is even good for farmers. It discourages large farms and coddles inefficiency. Food processors are shut out of global markets because their input costs are too high. Innovation is stifled.

Getting rid of supply management, which has been with us since the early 1970s, would mean confronting some thorny issues – none more so than how to compensate the country's roughly 15,000 dairy, egg and poultry farmers.

Production quotas are one of the key pillars. Farmers need quotas to sell into the system. Initially, the government doled out quota to farmers for free, based on historic level of production. Now, quota is bought, sold or swapped.

Acquiring enough quota to milk a single cow can cost up to $28,000. The average Canadian dairy farm has about 70 cows, leaving the typical farmer with $2-million tied up in quota. And that's before the cost of buying, feeding, milking and housing a herd. Farmers often use their quota as collateral to borrow money from banks, not unlike a home line of credit.

Buying out quota holders at current values is a non-starter. That would cost more than $30-billion.

But some form of compensation is inevitable. In the past, governments have paid grape growers and tobacco farmers to adjust to new market realities.

One way out would be to gradually flood the supply management sector with newly auctioned quota while lowering the wall of import tariffs, now set at up to 300 per cent. That would avoid "massive short-run trauma" and lead to "revolutionary" change, the C.D. Howe Institute argued in a 2010 report.

Mr. Harper could also look to Australia for inspiration. Australia, which eliminated its dairy production controls in the 1990s, put an 11-cent-per-litre levy on retail milk for eight years to help farmers make the transition. Consumers never felt it because deregulation caused prices to fall by even more.

Canada could similarly fund the end of supply management over a five- to 10-year phase-out period.

There's no reason Ottawa must buy up farmers' quota. Farmers have already been paid a fair return via higher prices.

Instead, compensation should be targeted at getting farmers to expand their operations and tap new export markets in the United States and Asia.

Shame we killed off Georgian Bay Milk.