When I read the latest updates on the NAFTA re-negotiation, it brought me back to the why and value of supply management for dairy and eggs in particular, poultry not so much.
Contrary to popular belief, supply management for short-shelf-life products makes practical sense. Through the quota system, eggs and milk products are produced based more closely on demand projections and over-production is reduced significantly.
It also avoids subsidizing farmers directly because consumers pay their way.
American markets over-produce and dump excess production. If the American market were rational, over-production would push out weaker competitors and the price for dairy and eggs would increase to cover costs and profit.
But that doesn’t happen in the US. Their farmers receive financial incentives, specifically huge government subsidies, to keep over-producing.
The Organization for Economic Cooperation and Development (OECD) gathers farm subsidy data by country and calculates the Producer Support Estimate (PSE), the value of gross transfers from consumers and taxpayers to agricultural producers arising from policy measures.
It would be an aggregate of market price supports, budgetary transfers and government revenue foregone. In 2016, the PSE for the USA worked out to $30,092,000 per producer whereas in Canada it was $4,777,000.
The large government subsidies in all sectors of American agriculture skews the market and fools consumers into believing food is cheap. And for trading partners like Canada it represents an input cost disadvantage.
If Canada gives on supply management, it would completely collapse our milk, poultry and egg industries overnight. Our producers would be unable to compete with the heavily subsidized products flooding over the border.
It would also negatively impact our downstream value-added processors who would now have no domestic suppliers. The result, we’d be adding one more trading vulnerability to our already long list with the United States.
Do we want to pay at the store (as we do now), do we want to have our taxes raised (that’s a no starter for most Canadians), or increase our deficit (the American preference) and let future generations worry about it.
To keep up with the American farm subsidies, we would have to increase ours six-fold.
The supply management system isn’t perfect and may give less incentive for innovation, but let’s get real, American agricultural subsidies to the level received can be likened to welfare. Farmers in the US are effectively socialists living off tax redistribution from the Central Government that result in its own brand of inefficiencies.
The United States president has no reason whatsoever to complete the NAFTA deal. Uncertainty around NAFTA is his best strategy to guarantee investment dollars will either leave or avoid Canada and Mexico.
If we agree to the five-year exit clause, it’s just another way Americans ensure continued uncertainty for potential investors.
I don’t envy our Canadian NAFTA negotiators. Even with their best efforts and strong strategies, success is fleeting when dealing with an American president who believes a win-win-win agreement is a loss!