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Five reasons to defend supply management from the TPP

October 6, 2015

4-minute read

The supply management system for Canada’s dairy, poultry and egg farmers has come under sustained attack by conservative economists, big agribusinesses and foreign governments, who would like to see these sectors fully liberalized, putatively in the interest of the “consumer.” The attacks become especially fiery around trade negotiations like the Trans-Pacific Partnership (TPP), since Canada’s export-interests, including the beef and pork lobbies, see the government’s support for supply management as hindering better access (for them) to foreign markets.

In fact, the dairy sector is in crisis globally, which is why it was the last issue to be dealt with in the TPP, with Canada very much under the gun. While exact details are still murky, it is clear that reported concessions opening a further 3.25% of the Canadian dairy market to foreign competition undermine the long-term prospects for supply management’s survival. The seriousness of this threat is confirmed by the federal government’s announcement that it will provide a compensation package of $4.3 billion over 15 years to offset losses.

Here are five reasons why dairy farmers and the supply management system deserve to be fully protected from the TPP and preserved for future generations.

1. Dairy is one of the few agricultural sectors where a farmer, working hard and efficiently, can make a decent living.

Canada’s supply-managed system is an island of stability in a chaotic global milk market. Generally speaking, supply management involves quotas for producers that match domestic supply to demand. In order to function, the system must limit imports, which raises the ire of free traders who see any form of protection as akin to the devil’s work.

The truth is farmers in countries and sectors without supply management sys­tems are subject to wild swings in commodity prices. Farmers have little ability to nego­tiate reasonable returns or prices with giant global agribusinesses. One of the biggest benefits of supply management is ensuring that primary producers get a fair share of revenues from the sector.

With global milk prices in free-fall, this is the worst possible time to be weakening supply management. Milk exporters from New Zealand, Europe and the U.S. are selling into international markets at or below farmers’ cost of production, which is clearly unsustainable in the long term. The Canadian dairy industry, on the other hand, does not need to dump surplus milk in global markets because it curbs supply. And until now, the Canadian dairy industry has not needed the taxpayer bailouts or subsidies so common in other agricultural sectors.

2. Supply management systems provide high quality, locally produced food at stable and reasonable prices for consumers.

Increased dairy imports as a result of the TPP threaten consumer protection and the quality of Canadian dairy products. Even without the TPP, the influx of protein milk solids from the U.S. and the EU (which are used in processed cheese, yogurt and ice cream) has diminished food quality and hurt Canadian dairy farmers. The use of growth hormones, endemic in the U.S. dairy industry but banned in Canada, will become a bigger consumer protection issue under the TPP as more U.S. milk is sold in Canada. Government officials insist that Canadian standards will continue to apply to imported milk, but it is unlikely that the U.S. government, which insists growth hormones such as rBST are safe, will permit Canadian health standards to nullify its hard-won market access.

Dismantling the supply management system will not necessarily lower prices, either. As is typical in other food industries, most of the benefits from increased milk imports will be captured by agribusiness middlemen: food processors, fast-food chains and retailers.

3. Small family farms are critical to the health of rural communities and the environment.

Dairy farms make an enormous economic contribution to rural economies and perform a valuable ecological role in the countryside. The dairy sector contributes $18.9 billion a year to the Canadian economy. It sustains the equivalent of 215,000 full-time jobs. These benefits are spread across the country, as dairy is one of the top two agricultural sectors in seven provinces. To put these numbers in perspective, even pro-TPP studies predict the deal will result in only a one-time gain of less than $10 billion to Canada’s GDP.

Dairy farms also contribute to a healthy rural environment. Unlike more export-oriented sectors, dairy farms use far fewer pesticides, restore organic matter and nutrients to agricultural soils, and operate at a smaller scale than their industrial counterparts. The average Canadian dairy farm is a family-owned operation milking 70-80 cows. South of the border, the average dairy farm is more than twice as large, with the biggest industrial farms milking 30,000 cows.

4. The ability of a country to feed itself matters.

Currently, imports capture around 10% of the Canadian market for cheese, butter and milk powders. Last year, European cheese producers were granted an additional 4% of the Canadian cheese market. On top of this, the TPP will now open up a further 3.25% of the entire Canadian dairy market to foreign competition, including, for the first time, imports of fluid milk.

There is no telling where this will end, but the substantial influx of imports will seriously destabilize a system which must carefully calibrate supply to demand. Ironically, given how viciously supply management is attacked, Canadian import levels for dairy are far higher than those in the U.S., where imports make up only 3% of production in cheese and butter and 8% for milk powders.

Small-scale, family farming involves back-breaking work. Most farmers have been in business for generations. They are born into this way of life and, despite the hardships, many love it. Once family farms are pushed out of the industry or off the land, they are gone forever. Free-market economic theories, with their flexible models of supply and demand, are ill suited to reflect this reality of farming.

5. Canadians should stick together, not sacrifice vulnerable groups to the law of the jungle.

Supply management is a social contract. It has worked well for decades and there is no good reason for Canadians to sacrifice it in the TPP or other trade treaties. As with any system, there are some problems, including the high cost of entry (expensive quota) for potential new farmers, adaptability to organic production, and allowance for small-scale producers, but these can be resolved within Canada, by Canadians.

Supply management systems face fierce attacks from conservative pundits, foreign governments and big business, yet continue to provide a fair return to farmers and a reasonably priced supply of fresh milk, eggs and poultry to Canadians. Compensation, even if the promises are kept, is no substitute for keeping dairy farmers on the land for the long term. A trade agenda that pits farmer against farmer, sector against sector, and region against region is no way to build a country.

Scott Sinclair is the director of the CCPA’s Trade and Investment Research Project.

The author wishes to thank Stuart Trew and Hadrian Mertins-Kirkwood for editorial and research assistance.

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