With President Trump’s “America First” rhetoric it looked like NAFTA renegotiations would end in a stalemate, but Canadian give-aways to appease Trump are keeping NAFTA alive. Farmers and consumers must not be complacent regarding the federal government’s political commitments to defend supply management against Trump’s demands.
Supply Management, a Canadian innovation created in the 1960s, regulates the supply of dairy products, chickens, eggs and turkeys. Committed farmers in every region produce the required quantities in exchange for a farm-gate price that reflects the cost of production. Supply Management creates stability in the farming community, eliminates the need for government farm bailouts, allows processors to maximize plant capacity utilization, reduces food miles and prevents waste. Consumers are offered a wide range of high quality products for prices that are on par with countries without supply management.
To understand supply management, it is critical to recognize the difference in responses to depressed prices by industrial goods manufacturers versus farmers. The industrial manufacturer reduces variable costs by laying off workers, idling or reducing production and storing inventory until the market improves. In contrast, a farmer depends on predominantly family labour, absorbs labour costs and tries to pay the other bills with increased production, despite the smaller margins. Farmers working with animals, soils and plants, generally in annual cycles, have a very limited ability to stop or reduce production. While it can make sense for individuals to increase production to maintain household income, when everyone does, the market is glutted and prices drop. A vicious circle of over-production and declining prices quickly becomes a crisis.
Systemic over-production has produced crises everywhere dairy farmers produce for the international market. Even processors that have invested in more capacity to process lower-priced milk are finding that the market cannot absorb their products, no matter how cheap. At a recent dairy conference in New Zealand, Lino Saputo, CEO of Montreal-based international dairy giant Saputo, urged the world to reign in milk production to stamp out price volatility. In dairy exporting countries without Supply Management, massive permanent government bailouts are paid out to prevent disaster.
Canada’s supply management system is a beacon of success, increasingly recognized and envied around the world as an elegant solution to overproduction, price volatility, and rural economic vitality. The European Parliament is presently dealing with a resolution to reintroduce supply management after abandoning it in 2012, as member states increasingly see no other solution. Yet our political leadership has a history of trading it away in bits and pieces.
When the World Trade Organization (WTO) was founded in the 1990s, Canada was forced to replace 5% of our domestic market with imports. Since then, the American processors have used tariff loopholes to export dubious new products into Canada — butter oil blends for ice cream, casein concoctions as pizza ingredients and diafiltered milk to replace Canadian milk in cheese production. Canada did not enforce border control measures and sat idly by while these imports caused havoc. Farmers were forced to manage the situation by absorbing quota cuts and providing discounts to Canadian processors. Consequently, the farm gate price is now well below the cost of production formula Canada committed to when to the system was established.
Upon signing CETA, the Comprehensive Economic Trade Agreement with Europe, Canada agreed to import 17,000 additional tonnes of European cheese, taking the production of 400 Canadian farms out of our economy. Although significant here, it will do nothing to help European dairy farmers swamped by over-production.
With the Trans Pacific Partnership, the Canadian government agreed to gradually increase imports for all supply managed products and immediately eliminate tariffs for milk protein imports displacing even more Canadian poultry, eggs and dairy – another major blow to Canadian farmers.
The Canadian government’s eagerness to promote globalization by giving away critical pieces of our economy is surely apparent to American NAFTA negotiators. Although many US dairy farmers and other experts acknowledge that the problems in the US dairy industry are due to over-production and access to Canada’s market will not solve their problems, there are always a few willing to lobby on behalf of processors and traders with the expectation of future rewards.
Canadian milk is produced without genetically modified hormones and to higher quality standards than US milk. American excess production would fill the Canadian market overnight, while our retailers could continue charging current prices. Farmers, rural economies and the Canadian public have a lot to lose if our dairy sector is sacrificed to appease Trump.
Canada should proudly and definitively uphold our supply management system for the great policy innovation it is. We must not allow NAFTA negotiators to give away our dairy, poultry and egg farms with a wink and a nudge by chipping away at Supply Management’s foundations to the point that it can no longer stand.
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