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CETA and Supply Management: Why not begin the process of phasing out?

The Canada-Europe Free Trade Agreement negotiations offered a tempting opportunity to phase out Canada’s anachronistic supply management regime for dairy, eggs and poultry. The conditions were ripe for change. Land prices are the highest they have ever been, particularly in regions where supply management farmers are in the majority. Clearly, the pain of phase out could be lessened with improved capital gains treatments for farm land sales. Second, the public was ready to support the government in phasing out supply management. Third, the EU does not represent a large threat in the short term. The distances are far and the commodities are perishable. So even with improved market access for the EU Canadian farmers would have lots of opportunity to adapt.

One likely reason why significant change did not occur is that the Europeans were not seeking significant market access improvements. They did seek improvements for cheese and there will be larger EU cheese volumes as a result. However, it is likely that EU poultry and egg producers were not seeking improved access to Canada and therefore the EU negotiators were not prepared to pay for a high-priced concession (with improved market access for Canadian food products).

But there may be other reasons why Canada is not prepared to give much up with supply management. The fact is that most our significant trading partners (including the EU and the U.S.) offer significant government subsidies to their agricultural producers. Supply Management is Canada’s level playing field for these commodities (albeit a draconian one) and it does not cost the federal treasury a penny. Canadian consumers pay for supply management with higher prices. There is also arguably a food security issue at play here.. And this Conservative government is very sensitive to issues around security. If we give up our production of these commodities, what happens at times of global or regional scarcity. Who loses?  Surely it would be Canadians if we no longer had our own production.  The last reason is political. Quebec farmers are disproportionately dependent on the supply managed commodities. There would no doubt be a very high political price to pay for any federal government to take on Quebec farmers and the Quebec government, particularly a government committed to sovereignty.

It is interesting to examine how the government has managed to phase out many trade protections for Canada’s textile and clothing industries. We have achieved significant liberalization through country by country negotiations and product by product concessions to industry. One of the critical ingredients in trade liberalization was the process whereby apparel manufacturers and designers began to see their role as designers and marketers as opposed to manufacturers. The government encouraged this development by creating duty remission programs that gave domestic manufacturers a tariff preference for importing finished goods- goods that subsequently became part of the product mix that they sold to retailers. The second development was that the yarn and fabric basis of the domestic supply chain was increasingly rationalized to very few production areas. This enabled government to completely liberalize whole input tariff lines. Third, NAFTA was cleverly constructed to encourage certain Canadian product areas (e.g. women’s fashion, men’s suits) to quickly integrate company sales and marketing on a North American basis.  Where Canada had strengths, NAFTA permitted these strengths to blossom.

Could this kind of phase out program be replicated with supply managed products?  Certainly, it could from a processor point of view. Dairy, egg and poultry processors could likely see themselves as marketers of these products irrespective of the source of supply and improved North American market access could facilitate this transition.  But producers and co-ops that are owned by producers would likely see no advantage to phasing out protections. And the government would have to figure out a way to pay these producers, in a significant way, in order for change to occur. Given the cost,  concerns about security and the regional politics of change, this type of strategy may be a long time coming to Canada.





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