Supply management stunts agricultural growth

The agricultural and agri-food sector represents a substantial part of the Canadian economy, thanks to the fact that Canadian producers and processors can sell their products in the global marketplace. However, this remains foreign ground for the 8% of farms under supply management, a system that makes both exporting and importing practically impossible and that limits production levels to domestic consumption.

In order to justify the continued existence of supply management, producers’ associations state that they could not actually compete on the American market, and that without this system, they would even lose their shares of the domestic market. Yet the vast majority of Canadian farmers succeed on the world market, without benefiting from such protectionist measures.

A limited domestic market

When a sector is subject to a system of quotas and tariffs, as is the case for dairy products, eggs, and poultry, the level of production is generally equal to just about 100% of domestic production, which varies according to consumers’ habits. Dairy production has thus remained relatively stable since the introduction of supply management in 1971, because despite a growing population, milk consumption per capita keeps decreasing.

Canadian dairy producers are therefore unable to benefit from the increase in global consumption to expand their production. As for dairy processors, the saturation of the Canadian market has pushed them to set up shop outside the country in order to meet the global demand.

In contrast, those sectors not subject to these kinds of constraints can produce much more than the level of domestic consumption. The levels of production of soybeans and wheat, for example, have increased considerably over the past fifteen years, totalling 886% and 666% of domestic consumption in 2016, respectively. This means that for each tonne of soybeans consumed in Canada that year, Canadian farmers produced 8.9 tonnes.

Faced with international competition, agricultural producers also have strong incentives to innovate in order to reduce their production costs and thus respond to global demand for the highest value-added products. Over the past twenty years, the average yield per acre of canola harvests has almost doubled, whereas for soybeans, oats, and wheat, it has grown by 15%, 52%, and 71% respectively.

This has occurred despite the fact that subsidies and support measures for producers outside of supply management have been considerably reduced and in recent years have represented less than 3% of gross revenues, compared to 43% for milk production. Indeed, for many types of products, Canadian farmers actually receive much less government support than their main competitors in the United States and the European Union.

Canada is nonetheless the 3rd biggest exporter of oilseeds in the world, and 5th in terms of beef and veal. In all, nearly 60% of Canada’s agricultural and agri-food production is destined for foreign markets, more than half of which heads to the American market. This places Canada 5th in the world in terms of exports of agricultural and agri-food products.

Free trade is clearly a good thing for Canadian agriculture. For this reason, the renegotiation of NAFTA should be seen as an opportunity to abolish the supply management system, with financial compensation for affected producers, and to pursue the liberalization of the agricultural and agri-food sector in general.

Alexandre Moreau est analyste en politiques publiques à l’Institut économique de Montréal et l’auteur de « Le Point – La prospérité agricole passe-t-elle par la gestion de l’offre? ». Il signe ce texte à titre personnel.