Supply Management System Under Question Again

[Azure]

Bernier spoke about supply management on the Peterson podcast.

It doesn't get a lot of airplay or even attention from the media, but what are the thoughts on supply management?

I'm firmly in dump the entire system. The posts above that talked about milk being dumped are 100% correct. Dairy producers dump thousands of liters of milk in order to curtail supply and keep demand in check.

[flamesfever]

I realize we are paying more with supply management, however when it comes to food, I am prepared to pay extra to know that it will always be available, that the quality is guaranteed, and know that by buying it I am supporting my fellow Canadians.

When I was a kid there were canning and cheese factories everywhere in Ontario, and they provided much needed employment during the harvest season, and throughout the year. Most of them have disappeared since.

I now buy my canned fruit, vegetables, and my cereal from China, a nation I have no admiration for. I would much prefer that they came from Canada.

As for beef, I am happy that ranchers can still make a decent living. However the size of the operation is becoming much larger with time in order to just break even. One rancher told that a short time ago you needed one section of land and 100 head of cattle to break even, and that now he needed two sections of land and 200 head of cattle. Thank heavens the way of life compensates for the struggle to survive. I would also like a much higher percentage of the beef processing companies be owned by Canadians.

[Plett25]

Originally Posted by Zarley

Which is exactly why we should be taking advantage of free trade to import items from places that can produce more them efficiently and focusing our efforts on producing the agricultural commodities that we have a competitive advantage in. The current system simply props up small inefficient farming operations at the expense of the consumer.

No.

Trump and the American alt-right has shown that our next door neighbour and largest trading partner is completely unreliable.

The Canadian steel and aluminium industry, the one that supplied the US military-industrial complex throughout WW2 and the cold war was deemed by the President of the USA to be a threat to national security.

We already get enough of our food from the USA. If we allow them to supply even more, they will eventually leverage that to their advantage.

[bizaro86]

Originally Posted by Azure

Bernier spoke about supply management on the Peterson podcast.

It doesn't get a lot of airplay or even attention from the media, but what are the thoughts on supply management?

I'm firmly in dump the entire system. The posts above that talked about milk being dumped are 100% correct. Dairy producers dump thousands of liters of milk in order to curtail supply and keep demand in check.

Absolutely. If I was prime Minister for a day this is the first thing I'd change.

As for the inevitable complaints about quality: legislate standards, and let anyone who meets them produce.

As for the inevitable complaints about imports: also not supply management related. We could keep the huge tariffs that keep out imports and let anyone in Canada produce. That would lower Canadian prices and add more jobs in Canada as new producers enter.

But hey, then the parents of poor kids wouldn't be subsidizing "family famers" (aka multi-millionaire quota owners) who give political campaign contributions, so we can't have that.

[opendoor]

Virtually every western country heavily subsidizes dairy production, so we really have 3 options:

1) Continue to pay higher prices at the point of purchase to keep production viable.

2) Allow more production (some of which will be unprofitable) and then do what the US does and heavily subsidize farmers with taxpayer dollars, including paying farmers to throw away milk.

3) Essentially give up a good chunk of our dairy industry and allow the US to dump cheap dairy on us.

#3 is untenable long term. I think #2 is a viable option (that's what most countries do) and would probably reduce the production costs a bit, but any solution that gets rid of supply management without big subsidies is unrealistic.

[bizaro86]

Originally Posted by opendoor

Virtually every western country heavily subsidizes dairy production, so we really have 3 options:

1) Continue to pay higher prices at the point of purchase to keep production viable.

2) Allow more production (some of which will be unprofitable) and then do what the US does and heavily subsidize farmers with taxpayer dollars, including paying farmers to throw away milk.

3) Essentially give up a good chunk of our dairy industry and allow the US to dump cheap dairy on us.

#3 is untenable long term. I think #2 is a viable option (that's what most countries do) and would probably reduce the production costs a bit, but any solution that gets rid of supply management without big subsidies is unrealistic.

There isn't any logical basis for this. Right now we produce essentially 100% of our dairy. The huge tariffs keep imports out.

While allowing your scenario 3 would have the US subsidizing our food costs, for food security we may not want to do that.

Leaving the the tariffs and removing the supply management (quota) system would allow more Canadian producers to add supply. It would also lower the cost of local supply, because right now a significant cost is buying quota.

If you disallow foreign competition and don't subsidize producers, the price will settle below current prices but above US prices.

The reason other countries subsidize is that their dairy farmers are rich and politically powerful to. Maybe I'm idealistic enough to believe that we can make decisions based on logic and reason and not just who is politically powerful. I hope we get there some day.

Because higher dairy prices make things like milk, cheese, yogurt and infant formula more expensive. That hurts poor kids/families more than anyone to benefit millionaires.

[Roughneck]

It’s not the price that bothers me so much the quality. If we are going to go the supply management route of agricultural protectionism instead of subsidies, whatever, that’s the route we will go. But surely the general quality of products can go up a bit?

On a related note, somebody I know said I was weird for buying 3.25% milk and why didn’t I get “normal” milk? Just ridiculous. Even worse, their idea of normal milk was 1%. Given that 1 and 2% seem to be the most popular, Canadians deserve to be paying the prices we do as we clearly don’t appreciate dairy well enough to deserve what the rest of the world has.

[blankall]

Pretty simple fix. Don't make the licenses transferable and increase the amount in proportion to the population every year. The intent was never to make the licenses themselves the asset.

Or better yet, do away with the quota system and just increase quality inspections. If that was truly the goal, it would make sense to limit the supply side by having very high standards for quality and production.

[krynski]

Originally Posted by blankall

Pretty simple fix. Don't make the licenses transferable and increase the amount in proportion to the population every year. The intent was never to make the licenses themselves the asset.

Or better yet, do away with the quota system and just increase quality inspections. If that was truly the goal, it would make sense to limit the supply side by having very high standards for quality and production.

Simple fix? I don't understand.

In Canada, the amount of milk/egg/chicken producers are allowed to produce (allocation) changes with the forecasting of demand. If demand decreases (like it suddenly did with the onset of COVID), then allocation goes down. If the board is anticipating increased Ice Cream consumption during the summer, allocation goes up for summer. This changes on a periodic basis and is revisited and reprojected a number of times per year.

I don't think you understand that having a local economy is important to Canada. This sector employs farmers, farm hands, plant workers, milk truck drivers, tech for dairy barns, milk processing and distribution networks, construction workers to build barns, feed truck drivers, feed mill employees, feed grain producers, silage processing equipment retail employees, maintenance employees, feed additive sales, etc.

These are jobs that Canadians rely on, and supply management is integral to ensuring that we have local and good quality production, as well as the economic benefits of it.

[krynski]

Originally Posted by flamesfever

I realize we are paying more with supply management, however when it comes to food, I am prepared to pay extra to know that it will always be available, that the quality is guaranteed, and know that by buying it I am supporting my fellow Canadians.

When I was a kid there were canning and cheese factories everywhere in Ontario, and they provided much needed employment during the harvest season, and throughout the year. Most of them have disappeared since.

I now buy my canned fruit, vegetables, and my cereal from China, a nation I have no admiration for. I would much prefer that they came from Canada.

As for beef, I am happy that ranchers can still make a decent living. However the size of the operation is becoming much larger with time in order to just break even. One rancher told that a short time ago you needed one section of land and 100 head of cattle to break even, and that now he needed two sections of land and 200 head of cattle. Thank heavens the way of life compensates for the struggle to survive. I would also like a much higher percentage of the beef processing companies be owned by Canadians.

Unfortunately, this is due to economies of scale. As companies get bigger and more successful, they get more efficient. They are able to process faster and with less labour, and as consumers we reap the benefit of having affordable food at the grocery store. Gone are the days that milk is squeezed by hand out of a dairy cow and into a milk pail, or eggs placed into a carton by hand. However, due to robot milkers for cows and egg collecting systems for layers, the amount of labour to produce these products is singificantly down and the input costs are lower. We as consumers get to enjoy friendlier priced food.

[bizaro86]

Originally Posted by krynski

These are jobs that Canadians rely on, and supply management is integral to ensuring that we have local and good quality production, as well as the economic benefits of it.

No. Tarrifs keeping foreign goods out ensure local production.

Quotas just specify who can produce and keep prices higher than they otherwise would be (because consumers pay for the cost/value of the quota)

[blankall]

Originally Posted by krynski

Simple fix? I don't understand.

In Canada, the amount of milk/egg/chicken producers are allowed to produce (allocation) changes with the forecasting of demand. If demand decreases (like it suddenly did with the onset of COVID), then allocation goes down. If the board is anticipating increased Ice Cream consumption during the summer, allocation goes up for summer. This changes on a periodic basis and is revisited and reprojected a number of times per year.

I don't think you understand that having a local economy is important to Canada. This sector employs farmers, farm hands, plant workers, milk truck drivers, tech for dairy barns, milk processing and distribution networks, construction workers to build barns, feed truck drivers, feed mill employees, feed grain producers, silage processing equipment retail employees, maintenance employees, feed additive sales, etc.

These are jobs that Canadians rely on, and supply management is integral to ensuring that we have local and good quality production, as well as the economic benefits of it.

How does that justify a system where a limited number of licences are held by the very rich. The only way to acquire entry into the industry is to pay an existing license owner an absurd amount of money.

If you aren't using the license you should vacate it, not be able to sell it for hundreds of thousands. This has nothing to do with work done in the sector. All this does is limit those who intend to work hard from ever everything the industry, and limits the industry owners to the wealthy and corporations.

[CliffFletcher]

Originally Posted by opendoor

Virtually every western country heavily subsidizes dairy production, so we really have 3 options:

And yet virtually every other Western country has less expensive dairy products than Canada. One of the first things recent immigrants from Australia, the UK, and the Netherlands have remarked to me about living in Canada is the sticker shock of cheese prices here.

[Hack&Lube]

Decent Cheese in Canada as compared to Europe, Australia, and even the US is like a luxury.

The "affordable" Cheese from the Canadian Dairy industry is all bland and generic. There are relatively few standouts and the ones that are more unique, are all just as expensive as the European cheeses which are all tariffed to hell.

In other countries I have visited, good artisan cheese is afforable and commonplace. Here in Canada it is a rare indulgence and that is frustrating.

[fulham]

I don't see how one can defend the supply management system, unless they personally profit from it.

Especially when the advertised pro's of such a system can be attained by tariffs, and regulation that opens up the Canadian market to more than a handful of dairy cartels.

[opendoor]

Originally Posted by CliffFletcher

And yet virtually every other Western country has less expensive dairy products than Canada. One of the first things recent immigrants from Australia, the UK, and the Netherlands have remarked to me about living in Canada is the sticker shock of cheese prices here.

That's because most Western Countries subsidize dairy production which depresses the retail price. The retail price of dairy is cheaper in Switzerland vs. Canada, yet the Swiss cost of production is about 2x what Canada's is, how do you think they make up that difference?

Personally I'd prefer to move to that model rather than Canada's current archaic system, but I don't kid myself into thinking that we wouldn't be paying a similar price overall, just some it would be through our tax dollars.

[krynski]

Originally Posted by bizaro86

No. Tarrifs keeping foreign goods out ensure local production.

Quotas just specify who can produce and keep prices higher than they otherwise would be (because consumers pay for the cost/value of the quota)

Why no? Tarrifs are a part of the supply management system. See the italicized below. I get your issue with quota, but that's not the only part of managing a supply.

Supply management was brought in because at times we had a number of producers that over-produced, and we would up dumping a lot of eggs and milk. Because so many farmers went broke because they made no money, then we had the opposite problem where there was a shortage of milk, butter, eggs, and you could not get it at the grocey store. We needed something to balance the supply. Is it marginally more expensive in Canada to buy milk, chicken, and eggs? Perhaps marginally, but it is the retailers that set their prices in the store.

There are other issues that lie deeper. Yes, I understand your issue with the quota system (which is a part of supply management, but it is not the definition of supply management), but by all means the quota cost is not being reflected in your prices (see link below). The problem is that in order to have fair prices for farmers as well as for consumers, there has to be a gauranteed profit associated for both. It's not much per quota unit, but the more units you have, the more gauranteed profit you make. When you have a gauranteed profit, you have a bunch of people thinking "oh, well if i'm gauranteed to make money, let me jump on the bandwagon". Naturally, the rich (and the hutterites) are the ones who have been able to invest the most into quota, and therefore have been the ones gaining most of the production rights. However, you have to restrict production because it is a guaranteed return, so how would you propose to do that otherwise without quota? Would you rather big corporations set up contracts with growers like they do in the states? Are you aware that there are huge problems with that too? The farms in the states are on at least on average 10x larger than the ones in Canada, and in most cases, the chickens are never owned by the farmer and I'm betting most farms are corporate owned farms.

In a lot of industries and as an entrepreneur but mostly in agriculture, if you want to make money, you need money. Supply Management farmers are producing low value goods, and they need to be big to actually make money. How would you propose getting into grain farming?

Here is how producer margin is set by chicken farmers of Ontario. Note that there is no "quota" cost, the only extra fees from supply management would be the 2 cents per kilogram of chicken that go to maintaining their Provincial and National boards. I don't mind paying 2 cents per kilogram of chicken so that we can have a domestic production of it, not to mention the industries that rely on it:
https://www.ontariochicken.ca/Farmer...roducer-Margin

Here are the 3 pillars of supply management:
"Three Pillars of Supply Management
There are three pillars of supply management that ensure that our system works effectively.

1. PRODUCTION MANAGEMENT
Using a quota system, producers can ensure that a steady supply of quality products are available to meet consumer demand.

2. PREDICTABLE IMPORTS
Canada’s federal government has committed to limit imports to ensure Canadian dairy market requirements are primarily met by Canadian milk production.

3. PRICING MECHANISM
Dairy producers receive prices that provide a reasonable return, which enable producers to cover production costs. Our producers do not rely on taxpayer subsidies."
https://albertamilk.com/for-industry/supply-management/

[GGG]

In terms of dairy if Quota is worth millions of dollars that means the price providing a reasonable return is far too high. Quota should essentially be worth nothing if the pricing is correctly set.

The statement that they do not rely on taxpayer subsidies is not correct. The subsidies paid by taxpayers are paid directly through the market rather than being passed through government. If you set a minimum price to ensure profit you have created a subsidy.

[bizaro86]

Originally Posted by krynski

but by all means the quota cost is not being reflected in your prices

Why does anyone buy quota then? The cost of producing milk in Canada includes the cost of production and the cost of quota. If suppliers didn't need to buy quota the marginal cost of production would be lower, and so would the price. That's literally economics 101.

[Mickey76]

He simply means the price of the product (milk,poultry etc.) is based on the cost of production plus a profit factor. The price of quota is not factored in at all. If for example the price of quota doubled tomorrow because 18 Hutterite colonies decided to try and buy more at the same time the price paid to the farmer for the milk or poultry wouldn’t change.