$300 per family - Supply management of farm products: a costly system for consumers



    MONTREAL, Aug. 23 /CNW Telbec/ - As the commission on the future of
Quebec's agriculture and agrifood sector begins its hearings, the Montreal
Economic Institute is estimating that supply management of milk, eggs and
poultry costs at least $300 extra per year for a family of four. This amounts
to $575 million for everyone in Quebec.
    In an Economic Note published by the Institute, Marcel Boyer, its
vice-president and chief economist, explains that astronomical customs duties
and the setting of high prices for these food items constitute a particularly
regressive tax on low-income consumers. "This system, motivated by
protectionism, operates largely as a cartel and is obsolete, costly and
unfair," Mr. Boyer says. "The food and agriculture sector must adapt to
international competition and stop penalizing consumers, as well as farmers
themselves in the long run."

    The supply management system

    The supply management system lets Canada's milk, poultry and egg
producers, most of them located in Quebec and Ontario, adjust production to
protect their incomes. For this purpose, quotas are set to match an arbitrary
evaluation of domestic demand and meet desired prices. The Canadian Dairy
Commission handles market quotas for milk, while the marketing of eggs and
poultry is subject to a similar quota system. Moreover, Quebec is the only
province that still regulates retail milk prices. The Régie des marchés
agricoles et alimentaires handles this process, which tends to favour upward
manipulation of prices.

    Consumers are the losers

    Under the supply management system, consumers' interests are secondary,
In Canada, the price of milk has risen 53% in the last 12 years, double the
rate of inflation, whereas production costs actually declined by 3.8%. This is
reflected in consumption, which has fallen 18% for milk and 30% for butter
since 1980. Consumption for milk is forecast to decline a further 12% by 2020.
There exists a huge gap, over 37%, between retail milk prices in Quebec and
prices observed in the United States. For eggs, the gap is 55%. Chicken sells
for twice as much at the retail level.
    Supporters of the supply management system, along with pressure groups in
the food and agriculture areas concerned, take pride in receiving no
subsidies. However, supply management resembles in practice a taxation power
granted by the government. Rather than subsidize farmers directly with money
collected from citizens, the government lets producers raise prices by giving
them monopoly privileges. This amounts to the same thing, except that the
government does not face the ire of consumers, who are unaware of the
situation.

    Canada's isolation on the international scene

    These Canadian farm marketing mechanisms are regarded by the
international community as protectionist government action that runs counter
to greater openness to international trade. This policy of economic
isolationism and the notion of "food sovereignty" risk hurting Canada's
reputation and could lead to reprisals in non-agricultural areas. Given that
Canada is the world's fourth largest exporter and fifth largest importer of
farm products, it can potentially play a leadership role in resolving the
current impasse in the Doha round of World Trade Organization negotiations. By
abolishing its supply management system, Canada would acquire the legitimacy
needed to demand that the United States and Europe eliminate their own
government assistance to farmers. Success in the WTO talks, besides providing
Canadian consumers with better prices, would improve access for farm products
from developing countries to markets in the industrialized world and enable
poorer countries to emerge from misery.
    Despite a general trend toward liberalization of markets and competition,
most politicians and people involved in Quebec agriculture continue to defend
the obsolete supply management system. The longer the delay in adapting to
competition, the harder the transition will be. Rather than protect an
inefficient industry, Canada could prepare to meet increasingly diversified
demand. Only the creation of international distribution channels will provide
the Canadian agricultural industry with access to indispensable strategic
information and offer innovative products to compete with Brazil, Australia,
China and India, which have taken a lead on the road to a globalized,
competitive and open agricultural sector. It would also help Canada compete
with the United States and Europe, which hold and will continue to hold
dominant positions.
    The Economic Note, titled Supply management of farm products: a costly
system for consumers, was prepared by Marcel Boyer, vice-president and chief
economist of the Montreal Economic Institute and holder of the Bell Canadian
chair in industrial economics at the University of Montreal, and by Sylvain
Charlebois, associate professor of marketing at the University of Regina.
    The Note is available at www.iedm.org

    The Montreal Economic Institute is an independent, non-partisan,
non-profit body that takes part in public policy debate in Quebec and across
Canada, offering wealth creation solutions on matters of taxation, regulation,
and reform of health and education systems. Its publications since 2000 have
included the Report Card on Quebec's Secondary Schools. In 2004 it won a
Templeton Freedom Award for Institute Excellence for the quality of its
management and public relations.




For further information:

For further information: André Valiquette, Director of Communications,
Montreal Economic Institute, (514) 273-0969 ext. 2225, Cell: (514) 574-0969,
avaliquette@iedm.org


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