Rob Breakenridge: Canadians would be better off without supply management
- Donald Trump’s focus on Canadian dairy protectionism contradicts his stated preference for independence and his own defense of tariffs in the U.S., highlighting inconsistencies in his trade positions.
- Canada’s supply management system, which controls dairy production through quotas and high tariffs, faces criticism not only from the Trump administration but also under Biden, due to discriminatory import license practices that differ between U.S. and European trade agreements.
- Despite pressure and looming U.S. tariffs, political and public opinion in Canada largely supports maintaining supply management, though some voices, like former Alberta Premier Jason Kenney, call for reform to reduce consumer costs and improve trade relations.
- Ending supply management could benefit Canadian consumers and other agricultural sectors reliant on exports, but any reform would need to address concerns about U.S. subsidies and safety standards without simply conceding to American demands.
It’s curious that Donald Trump would be so fixated on Canadian trade practices if he, as he stated this week, doesn’t care about updating the current trade agreement and that he’d “rather be independent.”
It’s also interesting that the U.S. president is so bothered by Canada’s dairy protectionism, when he himself is such a defender of tariffs as smart and sound economic policy. The U.S. certainly maintains all sorts of agricultural protectionism policies, notably the tariffs and cartel system that protect the U.S. sugar industry.
Regardless, though, new tariffs are looming. We can analyze the president’s internal contradictions or try to parse his true motivations, but none of that changes the reality of this further erosion of the Canada-U.S. trading relationship.
Mind you, this isn’t the first trading partner we’ve alienated or the first trade deal we’ve imperiled over supply management. In this case, the U.S. has a valid complaint over not just the broad protectionist aspects of our system, but also differences in how Canada treats American and European dairy imports.
Unfortunately, Trump’s obstinance, hypocrisy and belligerence have not left Canadians in a mood for further compromises. Weakness just seems to further embolden him, anyway. So it’s less likely now that we’ll budge on supply management.
Which is too bad, because at the end of the day, Canadians would be better off without it.
Supply management is one of three examples of trade “discrimination” that Trump has cited in order to justify new 50 per cent tariffs on a variety of Canadian goods.
Under our system, the number of producers and the amount of production is set through quotas, while prices are set by marketing boards. All of this is shielded by massive tariffs (upwards of 300 per cent, in some cases) meant to keep imports out.
Under both the Canada-United States-Mexico Agreement (CUSMA) and the Canada-European Union Comprehensive Economic and Trade Agreement (CETA), small amounts of foreign dairy products are allowed into Canada either tariff-free or at reduced tariff rates.
The difference in the two agreements concerns how those products come into Canada in the first place. Under our trade agreement with the U.S., it’s Canadian dairy processors and distributors who hold the import licences. Conversely, under CETA, it’s Canadian retailers who hold those licences and can import directly from European producers.
There’s much more incentive for retailers to maximize those import allotments, as opposed to those in the dairy industry, which is why the U.S. has cried foul over this discrepancy. And it’s not just Trump, by the way — under the Biden administration, two complaints were filed over this.
In fairness to Canada, this doesn’t technically violate CUSMA. If the Americans want provisions similar to those contained within CETA, that would be something for the negotiating table – assuming there’s a desire to be at the table.
With the U.S. instead opting for escalation, there’s a hardening on the Canadian side. Political leaders have vowed to protect supply management, and Canadians are increasingly on board.
A new Angus Reid poll found that 42 per cent of Canadians would prefer the government stand firm on supply management, with just 28 per cent support for using it as a bargaining chip and only 16 per cent calling for an end to the policy.
For all the talk about protecting Canadian producers and jobs, however, we’re very narrowly focused on one small part of the broader agricultural sector.
The rest of the industry, on the other hand, is very much threatened by tariffs on Canadian exports and backward steps on open and free trade. The proposed new U.S. tariffs on Canadian dairy products are essentially a moot point, since our dairy industry is not really interested in exports. It’s a different story elsewhere, though.
Beef producers, for example, export billions of dollars worth of product to the U.S. each year. The world’s largest two-way trade in beef and live cattle involves our two countries.
Or, take lentils as another example. In recent years, Canada has become a world leader in lentil exports with more than 90 per cent of what’s produced here being exported abroad.
It’s easy to see how damaging it would be to lose that market access. We saw already how devastating it was when China slapped tariffs on Canadian canola exports. None of these other agriculture sectors needs or wants supply management-style cartel systems.
But there’s also the matter of how all of this impacts Canadian consumers. At a time when food inflation and food insecurity have become pressing concerns, it’s all the more perplexing for us to cling to a policy that — by design — keeps dairy, egg and poultry prices inflated.
A recent analysis from the Montreal Economic Institute confirms what previous studies have concluded: supply management harms Canadian consumers. This latest report pegs the cost to the average Canadian at $244 annually.
There could potentially be some cracks forming in the Canadian political consensus around our status quo. Former Alberta Premier Jason Kenney this week called on conservatives to end “slavish devotion to the supply management cartel,” arguing that it “violates our free market principles, inflates food prices for struggling families, and undermines our global trade interests.”
It’s still an uphill battle, though, especially with the Trump factor. There is likely value in removing the excuses and pretences Trump can use to justify his tariffs, but there’s little appetite at the moment for giving him a win.
However, ending supply management doesn’t have to mean capitulation to the Americans. If we’re concerned about how the U.S. heavily subsidizes agriculture producers, we can treat that as dumping (as the U.S. does with Canadian softwood lumber).
If we’re concerned about food safety and certain U.S. agricultural practices, we can maintain specific safety standards for any products entering Canada. That doesn’t require all of the other baggage of supply management.
Even though he doesn’t seem genuinely interested in free trade, Trump has a point about supply management. His clumsy intervention has regrettably made it a bigger challenge to finally reform this system, but changes are long overdue.
National Post
Rob Breakenridge is a Calgary-based podcaster and writer. He can be found at robbreakenridge.ca and reached at rob.breakenridge@gmail.com