Politicians want more competition but supply management still a ‘sacred cow’

OTTAWA — There aren’t many issues that garner support across party lines in Ottawa these days. 

But when it comes to the supply management system for egg, poultry and dairy products — the mechanism that sets prices for producers — all of Canada’s federal parties seem to see eye-to-eye.

Political support for the controversial agricultural framework has endured, despite the country’s ongoing affordability crisis and critics who persistently warn that it’s Canadian consumers who pay the price.

As a result, Ryan Cardwell, an agricultural economics professor at the University of Manitoba, doesn’t put much stock in what elected officials have to say on the subject.

“On one hand, they talk about food affordability, and (on) the other hand, they have a government-sanctioned cartel in staple foods,” Cardwell said. 

“So, it’s talk. I don’t give it much credence.”

Canada’s supply management system sets prices for products and puts controls on production and imports to protect domestic farmers from foreign competition, guard against price volatility for their products and stabilize production levels.

First introduced in the dairy industry in the 1960s before expanding into eggs and poultry, the system exists in lieu of subsidies, which are common in the agricultural sector around the world.

Proponents of supply management argue the system is a win-win for producers and consumers alike: it offers both stability and predictability in prices and production.

But economists are often critical of the system because they say it stifles competition. Economic theory suggests more competition generally leads to lower prices.

The sharp rise in food prices post-pandemic has led to more scrutiny of grocery giants and raised concerns about a lack of competition in the industry. The Liberal government recently introduced amendments to the country’s competition law, in part to address these concerns.

More broadly, all parties have had more to say on competition since inflation took off in 2022. 

Conservatives and New Democrats, for example, both opposed a proposed banking merger between Royal Bank and HSBC, arguing it would reduce competition and lead to higher mortgage rates.

But when it comes to sectors covered by supply management, concerns about weak competition in the Canadian economy don’t seem to exist.

In a news conference last month, Industry Minister François-Philippe Champagne doubled down on the government’s support for the system.

“I’ll be very clear to folks who are watching, supply chain management is not on the table. This has provided stability and predictability to our farmers. This has been key to the fabric of our country,” Champagne said.

“Canadians want us to tackle the profits of the big firms. We’re not going after the small guys.”

Last June, the House of Commons passed legislation that would limit the ability of trade negotiators to make concessions on supply management. 

The Bloc Québécois bill passed with 262 votes in favour, while 49 Conservative MPs and two Liberal MPs voted against it. 

Former competition commissioner Melanie Aitken is a forceful critic of supply management, which she described as a “sacred cow” in Ottawa.

“If you want to take advantage of the opportunities of trading with your global partners … you need to recognize that you can’t have these incredibly stultifying protectionist policies denying access to our markets,” she said.

From an affordability standpoint, Aitken said regulating prices hurts lower-income earners the most. 

“It is actually quite regressive in its nature, preferring one group of farmers over everybody else who may be struggling to make ends meet and put dinner on the table.”

Research co-authored by Cardwell in 2015 found that supply management costs the poorest households $339 a year, which amounts to about 2.3 per cent of their income.

Cardwell said it’s fair to debate how much of higher prices is due to supply management, but “no one credible argues that prices aren’t higher.”

The paper went on to earn the researchers the Vanderkamp Prize from the Canadian Economics Association. Proponents of supply management have disputed the research, however, and lobby groups fervently deny that the framework raises prices on consumers. 

Bruce Muirhead, a history professor at  the University of Waterloo, is a strong advocate for supply management who holds a research position funded by a lobby group for egg farmers. 

He said he was a fan of the system before he took on his role as Egg Farmers of Canada chair in public policy.

“I think that economists, for the most part, they base their findings on ideology,” said Muirhead.

“There’s just this sort of implicit assumption, if it’s regulated … then it just can’t be competitive. But that is absolutely not the case.” 

He argues the agricultural industry deserves to be approached differently by government because it is responsible for producing essential goods: food.

Supply management also boosts rural sustainability by protecting smaller-sized farms; without it, he said, Canada would be “flooded with American milk.” 

In statements to The Canadian Press, groups representing egg and dairy farmers argued that supply management offers predictability at a time of growing global instability.

“The experience from COVID is a reminder that depending on foreign industries or governments to supply Canadians in times of need is unwise,” said the Dairy Farmers of Canada. 

“It’s a border-proof solution that is critical to the food sovereignty of Canada (producing enough food to feed Canadians year-round) and the food security of our communities,” added the Egg Farmers of Canada.

Cardwell said he’s working on a followup study looking into the support for supply management both among Canadians and political parties. 

“We’ve actually been spending quite a lot of time investigating … what explains the support for this policy among voters and among politicians,” he said.

His research finds that the majority of Canadians are in favour of supply management, but he warns that many people don’t really understand the system and its implications.

Cardwell said people who are in favour of redistributive measures were less supportive of supply management when they were told that it disproportionately affected low-income people.

His research also found that people who say they are in favour of international trade as well as those who vote for the Conservative Party of Canada are more likely to be against supply management.

“But none of that translates to political parties,” Cardwell said.

In a statement, the NDP’s agriculture critic defended supply management, noting countries like Australia and New Zealand have had to heavily subsidize their respective sectors and volatility in prices has driven many of their farms out of business. 

“We’ve managed to avoid these pitfalls in Canada because of supply management,” said Alistair MacGregor.

The Conservatives did not respond to a request for comment.

This report by The Canadian Press was first published March 13, 2024.

Nojoud Al Mallees, The Canadian Press