Federal government should scrap ‘supply management’ and save Canadians money

Negotiators from the United Kingdom recently halted discussions about a new trade agreement with Canada, with U.K. negotiators walking away reportedly due to the Trudeau government’s reluctance to reform Canada’s system of supply management. Unfortunately, this means Canadians will continue to suffer from this antiquated system.

Supply management is a system of regulation, which restricts supply and controls imports, to allow producers of milk, eggs and poultry to maintain higher prices for their products than would otherwise exist in a competitive market. Government dictates who can produce, what can be produced, when and how much.

According to pre-pandemic research, supply management costs the average Canadian household an estimated extra $300 to $444 annually. And these higher prices hurt lower-income Canadians more than any other group. Canadians with low incomes spend 19.9 per cent of their incomes on food compared to 7.8 per cent for middle-income and 4.1 per cent for upper-income earners.

Restricting foreign access to the Canadian market is a key element of the system. Not surprisingly, this causes problems when negotiating free trade agreements. Supply management was a key point of tension for the Canada-United States-Mexico free trade negotiations in 2018 and 2019, and now, has come up again in discussions with the U.K. because supply management (and other forms of protectionism) work directly against the principles of free trade.

The case for free trade is straight forward. Freer movement of goods and services between countries allows consumers and producers in both countries to benefit, on average. Free trade expands markets, providing a broader selection of products for consumers and wider range of customers for producers. It also facilitates specialization in production whereby producers in each trading country focus on their comparative advantages. Such specialization increases the quality of products available to consumers and/or lowers product prices by allowing the lowest-cost producers access to markets.

While free trade generally benefits the overall economies of the trade partners, it’s often opposed by special interest groups who reap the rewards of protections from trade and competition enacted by the government. In Canada, lobby groups such as the Dairy Farmers of Canada vigorously fight any changes to Canada’s system of supply management, despite evidence of successful reforms in countries such as New Zealand.

To be sure, similar forces exist on the U.K. side of the free trade deal, where beef producers seeking protection from Canadian imports see the collapse of trade talks as a big win. However, this is no defense of Canada’s position. Rather, it simply means that Canadian beef producers will suffer at the expense of the government protecting other types of Canadian farms.

The bottom line is that Canadians pay twice for Ottawa’s continued support of supply management. Firstly, through higher prices for domestic dairy products, chicken and eggs, and secondly through the costs of a stalled free trade deal. The current stalemate with the U.K. is simply the latest in a long line of examples where average Canadians pay the price for supply management. It’s high time policymakers in Ottawa reconsider this protectionist program.