Supply management hits the poor 5 times harder than the rich

Montreal, June 17, 2015 – While the cost of a basket of groceries is rising for most Canadians, the government is faced with an opportunity to reduce grocery bills, especially for the poorest households.

The negotiations surrounding the Trans-Pacific Partnership (TPP) between 12 countries, including Canada, would indeed be a good time for the government to put an end to the supply management system for dairy, poultry, and egg farms, a policy that is a matter of dispute with our trading partners. Moreover, such a dismantlement could take place all while protecting Canadian farmers, according to a Viewpoint on “Canada’s Harmful Supply Management Policies” published today by the MEI.

“Supply management disproportionately hurts the poorest Canadians,” explains Mario Dumais, Associate Researcher at the MEI and former economist for the Union des producteurs agricoles. “This system imposes an additional cost of $339 a year on the poorest households. As a proportion of income, this represents a negative impact that is five times greater than for rich households. This policy is therefore heavily regressive.”

The supply management system fixes the prices of certain foods, establishes tariff barriers in order to keep foreign goods out, and limits production with quotas. While it benefits certain farms, it hurts all 35 million Canadian consumers—as well as processors who use these products as ingredients—by forcing them to pay more.

Canadian businesses that rely on international trade are also harmed by supply management, since the existence of this system in Canada has stood in the way of greater access to markets in other countries. Indeed, 7/8 of Canadian farms are not protected by supply management, and could benefit from a liberalization of agricultural trade, maintains Mr. Dumais.

To that end, the federal government could take inspiration from Australia, which successfully dismantled its dairy industry supply management system fifteen years ago. To help dairy producers adjust, the government bought back their production quotas, a measure financed with a temporary 11-cent-per-litre tax on the retail sale of milk from 2000 to 2009.

A similar solution could be used to phase out supply management here in Canada in a way that treats dairy, poultry, and egg farmers fairly—especially those who had to go into debt to purchase production quotas.

“Contrary to what some may have feared, the Australian dairy industry did not collapse after this deregulation,” says Youri Chassin, co-author of the publication and Research Director at the MEI. “Less efficient farmers cashed out, but those who remained expanded and prospered. If we let them, Canada’s dairy, poultry, and egg farmers can similarly flourish.”

The Viewpoint on “Canada’s Harmful Supply Management Policies” was prepared by Mario Dumais, Associate Researcher at the MEI and former economist and publications director for the Union des producteurs agricoles, and Youri Chassin, Economist and Research Director at the MEI. This publication is available on our website.

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The Montreal Economic Institute is an independent, non-partisan, not-for-profit research and educational organization. Through its studies and its conferences, the MEI stimulates debate on public policies in Quebec and across Canada by proposing wealth-creating reforms based on market mechanisms.

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Interview requests: Mariam Diaby, Communications Director, MEI / Tel.: 514-273-0969 ext. 2231 / Cell.: 514-668-3063 / Email: mdiaby@iedm.org