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On supply management, the Americans should be careful what they wish for

Martha Hall Findlay is president and CEO of the Canada West Foundation.

Canada should dismantle its supply-management system for dairy, poultry and eggs – the only sectors in Canadian agriculture that receive extraordinary government protection – for a whole lot of reasons.

But we shouldn't do so because the United States wants us to. Indeed, the Americans should be careful what they wish for.

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A key reason for Canada to dismantle supply management is to allow Canadian dairy to compete – with the Americans – for global markets. In particular, the already huge and rapidly growing Asian markets, with millions and millions of people now able to afford higher-end, high-quality food, beckon. The Americans want more access to the Canadian market – but we should be wanting access to the much larger opportunities abroad.

At home, the main problem caused by supply management is that Canadians pay two to three times more than necessary for basic nutrition. Worse, it hurts poor families with children the most, while the now relatively few dairy farmers are, on average, millionaires. Although it didn't start that way in the 1970s, it has become a major, government-supported wealth transfer from low-income families to members of the "1 per cent." And thanks to that wealth, Canada's dairy producers fund a powerful lobby that almost all of our politicians are afraid of. It is a vicious circle, paid for by consumers, that ensures the dairy self-interest is upheld.

Another problem with supply management is it removes leverage in trade negotiations, most obviously right now with the North American free-trade agreement. Canada, rightly, is upset at the recent wave of U.S. protectionism – yet, our hypocrisy is astounding when we then insist on ultraprotecting this small part (only 6 per cent) of our agriculture sector. The Americans are right to call us out on it. Protecting supply management not only is a betrayal of everything we say we stand for in terms of trade, but more practically, it significantly reduces the negotiating leverage that we so deeply need to ensure open trade access for the rest of our economy.

Which brings us to the U.S. demand that we dismantle supply management. These are negotiations and we should use what chips we have to ensure the best result for Canada's overall interests. And although U.S. subsidization of dairy is far less than it used to be, and far, far less than our own, the Americans are no angels when it comes to dairy – we must still insist on a level playing field. But if Canada dismantles supply management, and as a result can start exporting to those far bigger markets, the Americans may regret having pushed it in NAFTA.

Today, because of supply management, Canadian producers and processors cannot competitively sell abroad. However, without it, Canadian producers would be extremely well-positioned to take the Americans on – and win – in the far larger global markets. The lost opportunity is significant, as highlighted by the recent report by Canada's Advisory Council on Economic Growth(see full report). But the New Zealanders, Australians, Dutch – and now, increasingly, the Americans – have these markets to themselves. Canada is being left behind.

Canadian cows produce very good milk. Canadian processors produce high-quality dairy products using that good milk. But we are only producing and processing in Canada, for ourselves – a small market. Because of supply management, if you want to expand, you have to leave Canada. Indeed, two of Canada's major dairy processors, Saputo and Agropur, process more dairy products outside of Canada (meaning lost processing jobs for Canadians) using non-Canadian milk (meaning lost farming jobs for Canadians) in order to sell abroad. Saputo has operations in Australia and South America; Agropur's expansion has been in the United States. Isn't it ironic that, notwithstanding all the fuss about NAFTA and dairy, Agropur, a Canadian co-operative owned by about one-third of Canada's dairy farmers, now processes more U.S. milk than Canadian milk, creating more jobs in the United States than in Canada.

Opening up some of our domestic market to competition is the right thing to do for all sorts of reasons. But having to compete for some of our own market is a small price to pay for access to the global opportunities that we have so far been denying ourselves. The real prize is the rest of the world.

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Let's take this opportunity to dismantle supply management. Just don't tell the Americans why we're doing it.

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