Canada’s most socially regressive policy: agricultural supply management

According to news outlets, the government of Quebec prepares to cater to the interest groups in the farming sector by criticizing the EU-Canada free trade agreement as long as the increase in the quantity of foreign cheeses that can be imported in the country will not be compensated by financial promises to Quebec dairy farmers. This seems like the right time to wonder what is the cost of  the policy of supply management.

This policy aims at restricting supply by limiting production and imports in order to pump up the prices that domestic farmers can demand. In the end, it is a transfer from consumers to farmers. How much does it cost?

The Food Guide produced by Health Canada points out that Canadians should consume 2 servings of dairy products per day (250 ml of milk or 175 g of yogourt or 50g of cheese) and 2 servings of meat (75 g of cooked fish, poultry, shellfish or lean meat or 2 eggs). Assuming that Canadians try to respect these guidelines, they would require roughly 90 liters of milk per year, 27 kg of chicken per year, 18 kg of cheese and 60 dozens of eggs. The annual cost of this basket of good (at the prices observed in October 2013) is 820.75$ according to the datasets produced by Statistics Canada and Agri-Food Canada. In the United States, where such goods are not subjected to supply management, the cost of this basket (using USDA’s datafile of retail prices) would stand at 485.68$. This translates in a cost difference of 335$. 

This makes supply management a candidate for Canada’s most socially regressive policy. It represents over 5% of the net income of individuals the bottom decile of the income distribution in Canada. Comparatively, supply management costs 0.5% of the net income of Canadians in the top decile of the income distribution (using the Survey of Household Spending of 2009). Image

More importantly, if the poverty line (calculated by Chris Sarlo) was reduced by the amount that supply management costs Canadians, it would be 2.5% below its current level. That tiny reduction translates into the lifting of 76,671 Canadians living in single-person households above the poverty line (still using the Survey of Household Spending). In short, at least 76,671 persons are pushed into poverty because of supply management (I am saying “at least” because I am only considering single-person households).

3 thoughts on “Canada’s most socially regressive policy: agricultural supply management

  1. Vincent, I agree with your assertion that Supply Management raises the retail price which in turn effect lower income families. However I want to raise a few points that I believe you overlooked.

    First Canada’s dairy prices are not by the basic supply and demand model. Instead they are set based on the cost of factors of production to actually produce the milk, the formula set by the CDC allows 70% of farms to break even after labour costs are considered. However the model does not allow all dairy farmers to be successful and rewards those who are efficient in managing costs.

    Secondly you compare and contrast the prices of Canadian and American dairy costs however you fail to mention that the US industry is both subsidized directly and indirectly. The American Farm Bill historically has helped subsidize the dairy industry, and although not widely discussed the use of illegal workers particularly in the southwest helps to lower costs for farms. The reality is what that your numbers are not nearly as accurate as you may suggest.Yes at the level they are probably accurate however if we are looking to evaluate the “true” costs of milk between countries this should be considered as well.

    I agree with your point that our current system in Canada ends up affecting lower income families because Canadians pay the true cost of their milk at retail only, whereas large subsidies and taxpayers dollars in other developed nations help reduce the cost at the retail level. However those who suggest that supply management should be dismissed because its costs to Canadians are far exceeding other nations is simply not evaluating the entire picture.

    Respectfully Submitted,

    Kody Blois

    1. Dear Kody,

      Your argument is absolutely true and well-made. I have a reply on many points.

      A: I don’t have much of a problem to import goods that subsidized by American taxpayers, in a sense we end up importing free money for Canadian consumers.
      B: I accept that the estimate of the price difference may be larger than it would be if the system was phased out (depending on papers, estimates of short-term price reduction is 5%). However, my estimate of 76,000 Canadians in poverty because of SM is conservative. If you consider that I get that estimate only from single-person household (not including other households and taking in the effect of provincial poverty lines) I am biaising my own estimates downwards.
      C: The real issue in my eye is that the current system discourages productivity-enhancing investments, encourages concentration in the later stages of the production process and generates a tendency in favor of increased costs.

      Ideally, I would like farming to be much more large scale on average farm size and even a trend in favor of sky-farms and anything that forces huge productivity increases.

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