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Supply Management is Just Right

Barrie McKenna is at it again -- waging his personal war against supply management in the Globe and Mail. This time, he takes on the chicken sector, claiming it has overcharged Canadian consumers $10 billion over ten years because of a glitch in determining feed costs for the birds.

How does he know this? Because Glenn Black, a small-scale chicken farmer on Manitoulin Island and virulent critic of supply management because of his own situation, did a "little back of the envelope calculation" and told him so.

I find it difficult to believe that Black could come up with such a number on the back of an envelope! McKenna (and Black) make it sound so easy to discover this that surely anyone should have been able to do it. Get an envelope and a pencil and figure out how Canadian consumers have paid too much over a decade. He doesn't include the methodology used to arrive at that figure, so I guess we'll just have to take his word for it.

McKenna ends his piece in the Globe noting that "If Canadians knew about the behind the scenes machinations [in determining price] in supply management, they might be less tolerant of the entire supply management system." Does this mean that Canadians would want the sort of system his implicitly advocates, where "The Market," capitalized on purpose, decides? I very much doubt it.

I don't know that much about supply-managed chicken in Canada, but I do know about supply-managed dairy, and the principle remains the same -- the two systems operate on the same basis. And I emphatically reject McKenna's characterization of supply management as iniquitous, whether it be chicken or milk. Let me demonstrate via dairy.

For example, ask New Zealand consumers where the price of milk is determined by the market how that has worked for them. If they are honest, they would say it has not. Indeed, a parliamentary committee was struck to investigate milk pricing given the cost of a litre. The committee was tasked with examining, among other things, "what steps, if any, could be taken to improve the regulatory framework." There is not much by way of regulatory framework in NZ dairy. In short, the price is set by global markets, which has given rise to accusations raised, for example, by the chair of Consumer New Zealand, Sue Chetwin, that Fonterra, the huge NZ dairy cooperative that controls about 90% of the NZ market and a whopping 30% of global cross border trade in dairy products, is "secretive about how domestic prices are set." And this is one of McKenna's preferred models?

Contrast that with Canadian transparency. The Canadian Dairy Commission, the Crown Corporation tasked with setting prices in Canada, involves stakeholders from every sector including the Consumers Association of Canada, the dairy processors, the food and consumer manufacturers of Canada and the grocery division of the Retail Council of Canada, as well as the various provincial milk marketing agencies, provincial governments and the Dairy Farmers of Canada. How is this mechanism not completely open? Only someone with a grudge against supply management, based not on rational and considered analysis but rather ideology, could come up with McKenna's conclusion.

Australia, the other country critics most often use when citing their dislike of supply management, has the opposite problem to that of NZ -- prices are too low to allow Australian dairy farmers to make a living, the result of total deregulation in 2000, and supermarket price wars. There, a parliamentary commission was struck to examine this issue. It also looked at why milk production had fallen nationally, from 11 billion litres in 2004 to 9 billion in 2011. In large part, the reason for that is because dairy farmers are unable to make a living. Australian dairy has witnessed a mass exodus out of the sector, although consumers have benefited (so far) from $1 per litre milk at the big supermarkets.

McKenna's issue, it seems to me, is that consumers in Canada are unable to buy milk (or chicken) at incredibly low and uneconomic, prices as they do in, say, Australia. To his mind, the consumer is the only variable in the equation that counts. Farmers be damned! Perhaps he hasn't read to bumper stickers that note "Farmers Feed Cities." That supply managed sectors are sustainable and resilient and more environmentally forgiving than the 8,000 cow dairy herd in NZ, (the average Canadian dairy farm milks about 75 cows while that in NZ milks almost 400), as well as providing a decent living for hard-working farmers without the subsidies so rampant in other parts of the world, seems not to count at all.

Indeed, I argue, based on data and an understanding of other dairy systems around the world, that Canada's supply managed systems have been enormously successful for farmers, processors and consumers. I paid C$3.89 this morning for 4 litres of good, BST-free milk at my local grocery store, a sum that allows everyone in the chain that brings it there to profit. In NZ, 3 litres costs the equivalent of C$4.50. And that's for three litres; four litres would cost a staggering C$6.

Nor do Canadians pay more for food than others. Indeed, the very opposite is true - we pay among the least in the world for what we eat - about 10% of our net incomes. Thirty years ago, it was closer to 20%. In my grandparent's time, it was more like 50%. Food costs are at the bottom of the list of usual expenditures - shelter, transportation and personal taxes.

So, with chicken or dairy, supply management works magnificently. To paraphrase Goldilocks in The Three Bears, it is neither too hot, (like NZ's model), nor too cold, (like Australia's), but just right.

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