Letter
in reaction to the latest conference board study on dairy supply management
I salute the interest and resources the
Conference Board of Canada (CBOC) has dedicated to the dairy sector and
subsequently all supply managed productions.
What’s unfortunate is the negative attitude that transpires from its
messages in recent media activity. In fact, I had difficulty linking the press
release with the latest report they published with the help of some Canadian academics.
For
instance, they concentrated on a supposed $2.6 billion or $276 per family gain
if we were to dismantle supply management. These numbers were not developed by
my Canadian colleagues, it is an OECD measure of price support. OECD indicates
that this is the differential between world price and Canadian price at the
farm gate. The OECD measure is not a transfer from consumers which is why it is
wrong to transpose that number to savings for families. Consumers, in the OECD language,
is the first buyer – which is the processor, not a family.
Thus,
the CBOC study wrongly implies that every cent taken from farmers would be
given to Canadian families. Numerous studies demonstrate this does not happen. For
example, as recently as last year, when pizza makers got a break on the price
of mozzarella last year, they were not shy to admit they had no intention of
passing any of the savings along to their customers.
Supply management often seems to be the
scapegoat for price differentials with US products, but the reality is a bit
more complicated. For instance, beef producers in both countries do not work
under supply management. Yet, at regular price lean ground beef in Quebec is 35%
more expensive than in upstate New York. Canada is a significant world exporter
of pork, but boneless pork chops at regular price are 135% more expensive in
Quebec City than in Upstate NY. Similarly,
a bottle of Heinz ketchup is 86% more expensive in Quebec City than in upstate
NY. This is common across a number of industries, as a Toyota RAV4 AWD limited
made in Ontario (one might say with Canadian taxpayers subsidies) cost $42,700
in Canada and $35,000 in upstate NY[1].
Nevertheless, the CBOC suggests by dismantling supply management, the price of dairy,
poultry and eggs in Canada would be at least the same as in the US.
Another triumph the CBOC claims in the
media was how positive and easy dismantling supply management would be. That’s
not what I got from reading its report, which talks of options where the
taxpayers will have to pay for the transition. It also ignores the generous
insurance program mostly subsidized by the government that US dairy farmers just
received in their new Farm Bill. US experts expect this program to be very
expensive and generate false market signals. If Canada dismantled supply
management, Canadian taxpayers would be asked to pay for the transition
payments and for programs as generous as the ones in the US, to allow our
farmers to compete with American farmers
I also found the CBOC
report quite optimistic regarding the capability of Canada to be a significant
player (larger than New Zealand) in the export market of dairy commodities. Don’t
get me wrong, I believe in our Canadian farmers are world class, but the
climate in New Zealand means farmers don’t need barns for their cows. In
comparison, the average winter temperature in Montreal is colder than in Oslo,
Norway.
The report
rightly points out that New Zealand will reach a production limit, but other
low cost exporters are not likely to sit idle. While I believe we should and
can do more export wise, we need to look at more value added products for which
the higher costs related to our climate are compensated by our good product
quality, innovation and knowledge. While it’s not the only example, Canadian
cheeses have a growing global reputation with numerous international prizes.
Note that supply management does not prevent exports per se.
Lastly, the CBOC has ignored the current
era of consumer awareness regarding how and where food is produced. In the US,
one egg producing company has more than enough capacity to supply all of Canada
year round. Domestic egg producers, the vast majority of which are family
farms, could not hope to compete with such economies of scale. Under this
scenario we might pay less for our eggs, but as indicated previously with my
examples, it’s not a sure thing. More importantly, according to recent surveys,
Canadians want more local food.
I believe supply management needs reform
and evolve, but to eliminate it and hope for the best does not seems
appropriate for a sector that contributes more than $25 billion to GDP and provides
in excess of 300,000 jobs across Canada.
