How Trump Democratized Supply Management

"Now that we appear to have conceded on market access for dairy, over 3% or 4% perhaps, we should be thankful to our American friends for making supply management an issue for all Canadians, not just for a small group of highly privileged farmers. Ottawa made the right call, but one must wonder how our supply management scheme will fare moving forward. What’s the strategy?”

Nobody should be surprised. Concessions on dairy access during the United States-Mexico-Canada Agreement (USMCA) negotiations were foreseeable. Americans went from wanting to “tweak” the deal last year to getting significant concessions from Canada. It is a deal we needed of course, but one must wonder how our supply management scheme will fare moving forward. And specifically, how our dairy sector will cope with its new global reality.

We conceded to Europe through the Comprehensive European Trade Agreement (CETA) and then to Asia, a few months later, with the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). Concessions for both deals equalled to the amount of milk produced by about 500 dairy farms in the country. It was only natural then to concede to the United States, our closest and most important trading partner. Ottawa was likely just waiting for the Quebec election to conclude before making any announcements. Wise move on Ottawa’s part. But now, the dairy sector finds itself in a much weaker position, with no plan or strategy as a point of reference or support. With this new deal, which compounds pressure generated by the two other multilateral deals, the fundamental rationale for supply management is put to the test. With more market access, 3% to 4% perhaps, this new USMCA deal could compromise the livelihood of roughly 300 to 400 additional Canadian dairy farms over the next few months, perhaps more

Nonetheless, with Class 7 ending, this is good news for consumers since dairy processors and food service sectors will benefit greatly as lower costs will surely enhance their competitiveness. And for that, we all win.

In this new world of uncertainty, punctuated with bombastic, rhetorical statements, our supply management system will need to change, and on our own terms. Canada is the only industrialized country in the world where such a system still exists. Changes are necessary to leverage opportunities abroad. Contrary to what Dairy Farmers of Canada wants Canadians to believe, countries like Australia have survived the end of supply management. Their system ended in 2000, not without some hiccups. But today, the sector is performing well even in the face of several severe droughts along with depressed world dairy prices. Dairy farmers in Australia are surviving, with barely any subsidies. In fact, a drought relief fund was set up to support dairy farmers, which is heavily funded by grocers like Coles and Woolworths. Right now, for every liter of milk sold at retail, farmers get 30 cents. Since one liter of milk is roughly one dollar and used as a loss leader these days, this adds up to 30% of sales made at retail going to farmers. Intriguing partnership.

It would be interesting to see Loblaw and Sobeys give 30% of its milk sales directly back to dairy farmers. But with supply management, partnerships and relationships built on trust are highly unlikely. A new deal on supply management, or what some call Supply Management 2.0, would require the support of the entire value chain, not just dairy farmers. And given the fiscal baggage in supply management, financial institutions would also need to get engaged in the conversation.

To make changes to our supply management regime, we are probably around 20 years behind and will need to catch up with the rest of the world. The latest USMCA talks are a reminder of just how out of touch some of our agrifood sectors are when compared internationally. Quarrels with the American administration have forced Canadians to discuss the whole issue of supply management out in the open, something unheard of just a few years ago. The issue is now out there, more than ever before, making this a matter for all Canadians to debate. Supply management is mostly about food security, about how we develop our economy in rural regions, not just about a small group of highly privileged farmers. Canadians are starting to recognize that access to good quality, affordable food does not solely depend on safeguarding supply management. These two dimensions are mutually exclusive, and Ottawa understood that. That is why in the end conceding on market access was the easiest of options.

But what was surprising was the arrogance of Ottawa -- and support from Canadians -- when refusing to give in to the U.S. to make the deal work. Many have praised how the Trudeau government stood firm against the American administration, as if we actually matter to them. Such a foolish, innocent view of the world, really. Anyone visiting the US quickly realizes how insignificant Canada really is to them. They know very little about us and like it that way. The economics of USMCA just don’t allow for Canada to be snooty. Who are we kidding? The US represents the largest economy in the world.

If Canada is starting to act like it really cares about trade and has the desire to transform our agrifood economy into a trade-focused force, Americans will probably start paying attention to what we have to offer. But until then, egotistical attitudes should be curbed. We should in fact be grateful to the American administration for getting Canadians to talk more about supply management as a country. Most Canadians may not yet understand the system, but now they have at least heard of it, which is a huge gain for all of us.