Canadian dairy consumers are paying higher prices to subsidize small, inefficient Quebec dairies, while other dairies across Canada are dumping milk as they do not have enough quota to sell the full volume of milk they produce. Consolidation has occurred in every sector of the Canadian economy over the past 50 years and agriculture is no exception. There were an estimated 366,000 farms in Canada in 1971, and only 190,000 by 2021. In a free-market economy, larger, more efficient operators purchase smaller, less-efficient businesses. However, in a supply managed economy, small, inefficient producers are subsidized and remain in business, preventing increased efficiencies from benefitting consumers. However, supply management is not able to prevent consolidation from occurring, as in 1971, there was 120,000 dairy farms, which accounted for 33 per cent of all farms in Canada and presently there are 9,250 dairy farms, which is less than 5 per cent of all farms.
Making matters worse, higher dairy prices disproportionally hurt lower-income households. Prior to the pandemic, experts estimated that supply management cost every Canadian household between $300 and $444 more per year as compared to there being a free market for dairy, egg, and poultry production. As an example, milk prices increase at least once per calendar year. Low- and fixed-income households find it incredibly difficult to offset the constant rise in the price of dairy products. This jeopardizes the health of young children, who require ample amounts of calcium for proper bone growth, as well as to help prevent other illnesses or conditions later in life.
Supply management also threatens other Canadian agricultural industries by acting as a major irritant during international trade negotiations. Many countries, including the United States, see Canada’s dogged protection of supply management as an unfair trade practice. For instance, during the 2015 negotiations that led to the Trans-Pacific Partnership (TPP), Canada agreed to make concessions regarding the amount of dairy products able to enter Canada tariff free equivalent to 3.25 per cent of the Canadian industry. Canada also made further supply management concessions during the negotiating process of the Canada-European Union Comprehensive Economic and Trade Agreement (CETA). It agreed to additional concessions as part of the renegotiation of the North American Free Trade Agreement, which resulted in the 2020 Canada-USA-Mexico Agreement (CUSMA). To compensate the supply management sector, the federal government gave dairy, egg, and poultry farmers nearly $5 billion in taxpayer revenue. This subsidy goes to less than 5 per cent of the roughly 190,000 farmers in Canada. Canadian crop, beef, and pork farmers do not receive any compensation when imports from other countries are cheaper than Canadian products. As an example, Canadian wholesalers can buy pork bellies, used for bacon, cheaper from Eastern European countries than they can from Canadian pork producers. Do Canadian pork producers receive any compensation for this? No, they do not.
To protect the Canadian supply management sector from international competition, import tariffs of more than 200 per cent are commonly applied, ensuring that none of these products are imported into Canada (see Table 1). This results in Canadian consumers either paying the higher price which includes the import tariff or not being able to purchase these products as the astronomical tariff rates prevent any import. Small quota volumes do exist, allowing for the import of supply managed products, such as specialty cheeses, but once the volume limit is reached, tariff rates are applied, resulting in no further imports paying a higher tariff rate. For instance, parmesan cheese imported under the CETA agreement faces a tariff of only 3.32¢/kg for the small volume that is allowed to be imported at this tariff rate. However, anything over that allotted amount faces a 245.5 per cent tariff, and not less than $5.08/kg. The Canadian supply management sectors are fundamentally opposed to allowing import quotas to rise, thereby preventing consumers from being able to purchase a wide array of food products at lower prices. Given the lack of free market entrepreneurism, there is next to no innovation occurring within dairy supply management that would facilitate greater Canadian production of specialty cheeses, for example.
