Western Standard - August 28, 2023


Professor Danny Le Roy on Canada supply management issues


Episode Stats


Length

16 minutes

Words per minute

162.43706

Word count

2,667

Sentence count

127

Harmful content

Misogyny

2

sentences flagged

Hate speech

1

sentences flagged


Summary

Summaries generated with gmurro/bart-large-finetuned-filtered-spotify-podcast-summ .

In this episode, we discuss supply management in the dairy industry in Canada and the benefits it provides to farmers and consumers. We also discuss the benefits and drawbacks of supply management policies and whether or not they need to be changed.

Transcript

Transcript generated with Whisper (turbo).
Misogyny classifications generated with MilaNLProc/bert-base-uncased-ear-misogyny .
Hate speech classifications generated with facebook/roberta-hate-speech-dynabench-r4-target .
00:00:00.000 Thank you very much, Doctor, for joining us today.
00:00:03.520 Oh, you're welcome, Corey. I'm very glad to be here.
00:00:06.840 So you kind of heard me starting out in there. Maybe if you could expand a little. I mean,
00:00:11.240 what is Canada's supply management policy and maybe a little bit of why? Why was it brought
00:00:16.320 in? I like to think the intention was good. Very good intentions. Supply management was
00:00:22.820 first introduced in Canada in the dairy industry in the late 1960s, the early 1970s.
00:00:33.640 And the aim of the program was to enhance and stabilize the returns to raw milk producers.
00:00:41.380 At the time, there was a lot of price variability in raw milk and people who produced milk tended to
00:00:51.340 be in parts of the country where alternatives weren't very good in terms of production of other
00:00:57.400 commodities. So it was a way of providing assistance to individuals engaged in agricultural activities
00:01:07.640 in challenging areas. The idea behind how it works is that prices for producers are determined based
00:01:20.580 on cost of production formula so that producers, most of them have an opportunity to earn a living
00:01:29.440 and a return on their enterprise. Like I said, this was first introduced in dairy in the late 1960s,
00:01:37.200 early 70s. Eggs became supply managed in Canada in 1972, turkeys in 1974, chickens in 1978,
00:01:47.580 and broiler hatching eggs in 1986. So there's five commodities in this country that are strictly
00:01:55.440 controlled in terms of their production and the prices that producers receive.
00:02:01.020 Okay. So, I mean, at this point though, do we need these policies? I mean, I have seen some papers put
00:02:07.580 out and studies showing that we're paying quite a premium for those products in Canada when perhaps,
00:02:13.780 you know, if those policies were lifted, we could see some reductions in some of our food costs.
00:02:19.140 Well, it's an interesting way you phrase that. You use the royal we, do we need this?
00:02:24.080 Right? Well, there are some producers that do, right? Over the course of the last 50 or more years,
00:02:32.740 many intergenerational farms in the supply managed area, they've become quite dependent on the
00:02:40.800 continuation of this program, right? It enables, supply management enables them to sell a product
00:02:48.940 into a protected market, privileged market, at a price that they know that they're going to receive
00:02:55.540 if they meet the specifications in terms of quality and quantity, right? There's a, so there's,
00:03:01.040 they don't have to worry about some of the risks that other producers face in terms of marketing
00:03:08.000 their commodity, right? They don't face the same price risk, for example, that raw milk producers or
00:03:15.200 egg producers or poultry producers, they don't face the same price risks as a, as a producer of cattle or,
00:03:21.760 or grains or oil seeds do in Canada. Now, there would be some advantages, right? If these policies were,
00:03:31.200 were, were removed, or were changed. One of the things that is a pretty clear fact about economic science
00:03:43.200 is that whenever there is free trade between individuals, each counterparty to the transaction
00:03:49.200 wins, right? So if it were possible to remove the impediments between willing buyers and willing sellers,
00:03:55.760 there could be more wealth created in markets for raw milk, eggs, turkey, chicken, and so on.
00:04:03.360 So, I mean, if we moved away from it, I mean, it was a bit of a trend. A lot of nations brought in 0.81
00:04:08.000 supply management policies during that time as well. New Zealand, Australia are examples we hear about
00:04:12.960 a lot. I mean, you can't just flick a light switch and say, okay, we've stopped the policies. It would
00:04:16.960 disrupt the producers terribly. I mean, quotas became a commodity, even an artificial one. So they would need
00:04:23.520 to be bought out or eased out of the system. Well, that's also, that's also a political question,
00:04:28.160 right? Yeah. So the choice of subsidizing somebody to, to help them exit the industry is, is also a
00:04:35.120 form of a subsidy. But this was used, and you're correct, it was used in places like Australia,
00:04:41.360 where the supply managed system that once existed was phased out over a period of time. And consumers
00:04:49.040 helped to finance that. So in view of helping farmers transition to a more open market, there was a
00:04:58.400 surcharge levied on consumers at retail level that helped finance the transition for primary producers
00:05:07.040 of raw milk in Australia, right? So this enabled them to move with, I guess, less financial pain for the
00:05:16.560 producers than would otherwise be the case. But it's a great example of Mansur Olson's, you know, the
00:05:24.640 logic of collective action. In these circumstances, there's a small number of beneficiaries who have a
00:05:30.480 very concentrated self interest in maintaining the status quo, where the costs are dispersed, on the other
00:05:36.800 hand, over a large number of people. So you were mentioning in the introduction, you know, we pay higher
00:05:42.800 prices, Canadians, depending on where you're located, pay higher prices for, for supply managed products
00:05:49.760 in the grocery store, like butter, for example, that's one that's been in the headlines a lot and
00:05:54.480 fluid milk, and, and so on. Yeah, we, we do, we do pay some higher prices for that. But most people
00:06:04.560 are more concerned about their mortgage payments.
00:06:06.720 So yeah, maybe I'm paying 50 cents, 75 cents more for a gallon of milk at the grocery store,
00:06:14.080 I'm not going to get too much in a twist about that. Whereas a dairy producer, a raw milk producer
00:06:19.040 would if, if supply management was terminated, right? There's a big impact on, on the, on their
00:06:26.000 enterprise compared to a few dollars a week for a family of four consuming groceries.
00:06:32.480 Yeah, well, it's always though that case gets made. Oh, it's just a cup of coffee a day. It's
00:06:37.680 just a little bit here and a little bit there. But that, that sort of suddenly we find that we're
00:06:41.040 But, but that adds up, it adds up, right? And it also adds up for the, for producers themselves,
00:06:49.440 right? So when you're insulated from, from international competition, you don't fit,
00:06:54.320 you don't have the same incentives in terms of changing your business. And in terms of
00:07:01.360 processors in Canada, producing the products that consumers want, right? If you're selling into
00:07:07.760 a protected market, you don't face the same incentives as others who, who have to, who, who
00:07:14.480 compete not with just their next door neighbors and other processors or producers domestically,
00:07:20.560 but it's international competition. So I, one takeaway is that while people often say, well, supply
00:07:28.960 management has been put in place to, to help support and protect the, the, the, the farmer
00:07:36.400 in Canada against foreign competition. In fact, these barriers to trade protect farmers in Canada
00:07:44.160 from their fellow Canadians and the, and the decisions that they would make in terms of the
00:07:49.040 goods that they would produce if they were left free to do so, if there weren't impediments to
00:07:53.440 international trade. Well, we're right back to the, the beginning statements you said,
00:07:57.200 you know, in a true free market, both the buyer and the seller are going to benefit if they're just
00:08:01.040 allowed to, to deal directly with each other. I think of back an example with the wheat board,
00:08:06.480 there was a group in Saskatchewan when we still had the wheat board going and they wanted to
00:08:10.720 start actually a pasta company in their small little town. They were going to use their own wheat.
00:08:14.400 They were going to manufacture the pasta. If we bypass all these middlemen, we can come up with a
00:08:18.400 really good product and employ some local people and, you know, diversify what we do. But it turns
00:08:24.240 out they would have had to sell their wheat to the wheat board, buy it back to the wheat, from the
00:08:28.000 wheat board at an inflated price, and they would have lost all advantage. So they threw the plan out
00:08:32.320 the window. But I mean, talking about with, I guess, supply managed industries, it stifles
00:08:37.760 creativity. I mean, there's a lot of producers probably have some good ideas or areas where they can
00:08:42.320 broaden what they do, but they're pretty constrained with where they're sitting.
00:08:45.840 They are. In fact, raw milk is the most stringent of all of them, all of these supply managed
00:08:53.440 commodities. The only legal buyer of raw milk in every province is the Provincial Milk Marketing
00:08:59.680 Board. While a farmer can consume raw milk that he or she has produced on their own enterprise,
00:09:08.960 they're precluded legally from selling that raw milk to anybody else other than the Provincial Milk
00:09:14.800 Milk Marketing Board. And that's not true for the other supply managed commodities, which is why
00:09:21.520 when you go to a farmer's market, or you might see some very small producers that have small
00:09:30.080 flocks of chicken that can sell directly to consumers or eggs, right? You can have a roadside
00:09:35.440 stand, sell farm fresh eggs, as long as you're not of commercial scale. And every province specifies
00:09:44.000 what that threshold is. In some provinces, it's actually quite a big number. In other places, it's small.
00:09:50.720 But raw milk is the only one where that opportunity for a primary producer doesn't exist,
00:09:57.680 to sell something that they have produced themselves, that they cannot legally sell that
00:10:02.880 to anybody else except a government agency. Well, and that's led to cases of dumping. I've talked on this
00:10:08.960 show about before my wife grew up on a small dairy farm, but her father only had a quota for cream. 0.99
00:10:14.160 And so he would skim the cream, he would sell that the household would drink as much milk as they
00:10:18.560 could feed some to the pigs, but the rest would get dumped because it was illegal to sell the milk. 0.97
00:10:22.960 And that was well, it's illegal to sell the milk, but we want to be careful, right? So with respect to
00:10:29.680 that high profile case that fell in Ontario, who is video recorded himself of dumping milk,
00:10:36.480 there probably isn't a single producer in Canada that hasn't done that at one time or another,
00:10:41.600 right? There's a quality issue where the milk has to be dumped, or it's the less expensive alternative,
00:10:48.400 right? If producers supply more than their quota allotment, they're penalized. And sometimes that
00:10:57.040 penalty is quite expensive. So the best course of action is to dump a little bit. Now,
00:11:05.040 in this particular case, the timing I suppose was very bad because, you know, just coming through
00:11:12.240 the pandemic and prices for commodities or prices for groceries were quite high. And this poor fellow
00:11:21.200 has to dump his milk because he's produced too much of it. So it was the optics weren't very good,
00:11:26.800 but he was making a point.
00:11:29.520 Certainly. And I mean, you know, social media gives a new way to make a point rather than
00:11:33.440 than just say, or transferring the oral stories like I did with my wife, for example. So I mean,
00:11:38.240 getting a little into the political side, though, and you know, that's the dairy cartels, if you want
00:11:43.520 to call them such a very, very effective political lobbyists, they influence parties of all stripes.
00:11:49.760 They protect that supply management system very jealously. Do you think there's ever going to be a
00:11:56.160 political will to start easing out of it? I interviewed all of the conservative leadership
00:12:01.360 candidates back when they're running for the leadership. And only one of them said he would
00:12:04.960 challenge the supply management system, not another, the others were all terrified as soon
00:12:08.400 as it came up, they'd rather not know one of the one of the things that we do know in this country is
00:12:12.880 that to their credit, they have one of the most effective lobbying organizations around.
00:12:19.440 Right. And this is manifest itself in some of the subsidies that the producers are now receiving
00:12:28.560 because of trade agreements, the federal government has signed with the European Union with the Trans
00:12:34.880 Pacific Partnership Partnership, and more recently, the Canadian US Free Trade Agreement, NAFTA 2.0.
00:12:42.960 Right. Producers of supply managed commodities are receiving subsidies for lost market share
00:12:51.600 as a consequence of signing these agreements, when in fact, there's very little evidence to suggest that
00:12:57.680 that there has been market share that they've lost. New Zealand and the US are currently, they've got a case
00:13:07.200 that the amount of access that's, that has been set aside, isn't being filled. Right. So raw milk production
00:13:18.480 this past May was set record level. So that, you know, we're producing as much as, as we have ever have in this
00:13:26.960 country of supply managed commodities. There's never been fewer primary producers of supply managed
00:13:32.880 commodities. There's fewer than 10,000 raw milk producers now in this country. There's fewer than 500
00:13:39.920 dairy farms in the province of Alberta. And there's about a, you know, a couple of thousand primary
00:13:47.200 producers of the other supply managed commodities. So in terms of the politics, getting back to your point,
00:13:52.080 there's, there's maybe a 12,000, 13,000 producers of, of supply managed commodities that wield enormous
00:14:00.800 political influence. Well, and, and that's another aspect. I mean, some people, uh, defenders of the
00:14:05.760 supply management policy said it helps protect the family farm. Now I wouldn't necessarily blame supply
00:14:10.000 management, but at least evolution and economies of scale. I mean, it used to be over a hundred thousand
00:14:14.960 producers, I believe a couple of decades ago, and now it's contracted down to, as you said,
00:14:18.800 about 12,000. So they are becoming just a, of necessity, larger corporate enterprises.
00:14:24.640 The romanticized family farms is long gone. Yeah. I agree with you.
00:14:30.000 Well, we'll, we'll see if we can start solving these. Like I said, a lot of people, when you,
00:14:33.440 you talk about supply management, though, they, the eyes glaze and then they tire. And then as
00:14:36.960 there's not a lot of will on the ground necessarily from the public, but it is something that's costing.
00:14:42.240 It is. And I think it's important to remember all the people involved, right? Uh, there, there are
00:14:48.880 beneficiaries of the continuation of this policy, and there are people that do stand to lose, at least
00:14:54.800 in the short term. Uh, so, um, one of the things that's really important in economics is that there
00:15:01.200 isn't this royal, we there's you and I, and each of us make our own decisions with respect to what we
00:15:07.280 produce, what we consume and whom we, we interact with. Well, I have to avoid triggering you with
00:15:12.640 that, uh, we term. I appreciate the correction and it's a good, very valid point. So, uh, before I let
00:15:21.360 you go, where can people find your stuff? I know you've done some work with the Fraser Institute and
00:15:25.280 you're at the University of Lethbridge. Uh, do you write further publications or anything like that?
00:15:29.200 I do on occasion. If you do, uh, uh, if you want to find me online,
00:15:34.080 go to the University of Lethbridge Department of Economics. Um, I coordinate the agricultural
00:15:40.080 studies program here. And, uh, as you mentioned at the outset, one of the, my areas of interest is, uh,
00:15:47.280 agricultural production, uh, marketing and trade. And, uh, that's certainly, uh, has, it's very
00:15:53.440 important in Canada with, uh, supply managed commodities. And of course in Southern Alberta,
00:15:58.240 where we are, it's, it's a particularly important for, uh, beef and for grains and oil
00:16:03.760 seeds and crops grown under irrigation, lots of issues in agriculture and agri-food and lots of
00:16:09.120 opportunity. Absolutely. No, there's a much more than we could cover in 15 minutes. That's for sure.
00:16:14.160 I hope we can have you on again to talk about these kinds of things down the road then.
00:16:18.000 That would be my pleasure. I look forward to it, Corey. Enjoy the rest of your day.
00:16:21.920 Excellent. Thanks for taking some time with us, Danny. You're welcome.