For the most part, Canada is a country with an admirable degree of economic freedom. We have free trade agreements with over 40 countries (well, maybe not for long with NAFTA), established protection of property rights (in the Canadian Bill of Rights), and an open, competitive market. But there’s one area where Canada doesn’t live up to its high standards of personal and economic liberty: hiding in our agricultural industry is a Soviet-style, protectionist racket from a bygone era. Welcome to supply management, circa 2018.
Farms that produce dairy, poultry and eggs are subject to a scheme called “supply management”. Supply management is a regulatory system that includes price fixing, tariffs on imported products, and production control quotas. It’s an indirect subsidy to a small group of farmers paid for by consumers at large in the form of higher prices at the grocery checkout. It protects these industries from things considered normal elsewhere in the Canadian economy; in other industries, competition, variable prices, and imports are par for the course. But, it would seem that if these elements were present in the dairy, poultry or egg industry it would bring about some kind of dystopian hellscape.
Our economic system works because the price of goods reflects their relative scarcity. Hidden beneath the simplicity of this concept is a marvelous, underappreciated elegance; for example, drought in California may reduce tomato yields which raises the price of tomatoes. Some consumers see this price increase and decide to eat something other than tomatoes or otherwise alter their behaviour. An immeasurable amount of factors and decisions like this are taken into account every single day and are reflected in the prices we see at the store. Millions of such threads of information stitch together and result in an efficient distribution of scarce goods. This is the basis of capitalism and also the reason for its success.
Supply management removes key components from this process. Instead of selling for a price that reflects the scarcity of their product, the price on a farmer’s product is set artificially based on production costs. Why should producers be isolated from price changes to the detriment of everyone else? Why must only these select industries be sheltered from the harsh world of competition while others are expected to rise above it? Competition is an economic virtue that is present for a reason. We need to trust that our farmers have the ingenuity, dedication, and grit to thrive in a competitive marketplace.
Another element of supply management is production controlling quotas. In Canada, starting a dairy farm is not easy. It’s not enough to have the start-up capital and meet the necessary health regulations. You have to purchase quota from farmers getting out of the business. The average price for the privilege of selling the milk from a single dairy cow is $30,000. Why buy the cow when selling its milk has such a hefty fee? To put this in perspective, an average dairy farm with 77 Holstein cows requires a whopping $2.3 million of quota to operate! This creates an artificial barrier for new farms that stifles competition, discourages innovation, and asks consumers to foot the bill.
Being forced to pay for the right to produce milk is unacceptable. Entrepreneurs deserve the freedom to set up a business in the dairy industry if they so desire without additional internal barriers. They should be able to do so without facing exorbitant costs to purchase quota with no innate value. They should be able to decide who they sell their product to and at what price. Consumers should also be free to choose from as many options as possible Not only is supply management bad economics but it is an affront to liberty -Canadians deserve better, it’s time to put supply management out to pasture.