More Butter on your Bread

As heralded by the StarPhoenix in its February 9 Editorial, Canada certainly needs to continue investing in agricultural and agri-food research in order to boost its stature as an agricultural exporter and food-supplier to the world.  However, Canada’s stature is not sure to rise until its protectionist policies change, especially concerning dairy, poultry and egg production.  Canada’s food production capacity, especially on the land-rich, sparsely populated prairies, does not achieve its full potential as a result of the supply-management systems imposed on certain sectors of Canadian agriculture.

For example, prior to 2003, an enterprising collection of roughly 35 Ontario dairy producers decided they could profitably produce dairy for export entirely outside the scope of the Canadian quota system.  Instead of buying the hyper-expensive Canadian production quota, they sunk their money into milk production and marketed their non-quota milk directly to U.S. purchasers.  Their business worked.  And it didn’t impinge on those domestic producers who produced for the domestic market under the quota system.  During the same period, foreign countries, namely the U.S. and New Zealand, had Canada chastised by the WTO for exporting the excess dairy from Canada’s supply-managed system.  It was determined that exports from Canada’s supply-managed system were unfairly subsidized and violated Canada’s trade commitments.  Instead of encouraging the development of an export class of producers who fell outside the quota system, and thus, complied with the WTO ruling, the Department of Foreign Affairs and International Trade, at the urging of the Dairy Farmers of Ontario, proceeded to crush the renegade non-quota milk producers, and with them, Canada’s entire dairy export industry.  The non-quota producers applied for judicial review the new regulations, but were ultimately unsuccessful.

Under Canada’s system, every one of its producers has the majority of its capital tied-up in a government-created piece of intangible property called “quota” – often hundreds of thousands, if not millions of dollars.  This is why dairy farmers work so hard to protect their domestic market shares: the system has required them to lay-out enormous sums of cash for intangible rights to those market shares.  And now, we’ve waded so deeply into our supply-managed system, that politicians and producers, alike, see no alternative but to maintain the status quo.  Canadian consumers are stuck with the results: a series of boards and tribunals across the country that determine who provides your dairy products (especially fresh milk) and at what price, which turns-out to be significantly higher than other industrialized nations.  Furthermore, that block of Italian parmesean you grated onto you pasta last night is roughly double its market price as a result of Canada’s import tariffs on dairy.

If those billions of dollars currently tied-up in quota had been spent on capital improvements related to production, and if Canada had not destroyed the export market for its producers, imagine the potential scope of our dairy production.  It’s the billions of dollars tied-up in quota, and the associated cost of regulatory boards and tribunals, that squelches innovation and growth in the agricultural sector.  Imagine if our legume producers were limited to selling on a protected domestic market: roughly 75% of the current crop is exported.  We’d be eating shockingly expensive lentils, and most producers would be looking for other work.

If Canada is serious about expanding its agricultural presence on the global stage, it must develop a plan for transitioning its supply-managed sectors into efficient export enterprises, eliminating the costs tied-up in quotas, and the administration of those systems.  At the same time, Canada might consider concluding the CWB, which serves a limited purpose at this stage.  Maybe then, we might hold a candle to an agricultural exporting powerhouse like New Zealand, a country with roughly a 10^th of our population and fraction of our land-mass.  Certainly, your butter would be properly priced in proportion to your bread.  And couldn’t we all use a little more butter on our bread?