Blindly compensating Canadian supply-managed sectors in response to international trade deals makes as much sense as bailing out Bombardier.
Stephen Harper’s defunct Conservative government pledged last fall to pay $4.3 billion over 15 years to the supply-managed dairy, chicken and egg sectors. That amount is apparently based on the premise that Canada will open 3.25 percent of its dairy market to duty-free imports, among other things, through the Trans-Pacific Partnership (TPP).
Most of the numbers related to the compensation plan are the result of nebulous accounting conducted behind closed doors. That’s hardly the best way to win the trust of Canadians and make our country a major international trader.
At the heart of the global economy’s DNA are open markets. In that kind of marketplace, with no clear and workable trade strategy, Canada is highly vulnerable.
It’s time we had a broad conversation about how to create a true national trade agenda. It’s a debate we have not had since we signed the North American Free Trade Agreement in 1992.
For starters, supply management in Canada needs a fix — and fast.
Our decades-old, fiscally-inept supply management scheme for dairy, poultry and egg sectors is a protectionist nightmare. It is supported by production quotas and high tariffs on imports that have clearly reached their expiry dates.
Supply management supporters claim that the system works and that it has shown it can adapt. The facts suggest otherwise.
In dairy, for example, the system has begun to crumble. In the past year, Canadian dairy processors such as Parmalat, Saputo, and farmer-owned Agropur and Gay Lea have imported well over $200 million in dairy protein from the U.S. Since supply-managed industrial milk prices are so high as to be uncompetitive in Canada, buyers are forced to look elsewhere.
Since supply management is about producing what we need, imported dairy protein has generated an unforeseen market imbalance.
This situation led to butter shortages that forced Canada to import product. So Ontario dairy farmers dropped the price of industrial milk by creating a new class of milk for dairy processing. The aim, of course, is to entice domestic processors to buy Canadian proteins. But this is purely reactionary and speaks to the jumpy nature of the sector.
Creating a new class of milk presents real dangers: it can be perceived as a hidden subsidy and could attract unwelcome criticism from TPP partners.
Supply-managed sectors need common-sense leadership from Ottawa on trade-related matters. And the new Liberal government is proceeding with extreme caution with the TPP compensation package. To define an appropriate compensation package without having a ratified deal or knowing how our agricultural economy will be impacted makes little sense. Defining amounts and strategic orientations are key to this process.
But Ottawa must define our trade strategy before putting a number on the table for industry to consider.
The Comprehensive Economic and Trade Agreement (CETA) with the European Union is to be ratified and implemented in 2017. However, it offers no clear compensation to affected Canadian sectors even though CETA creates a real breach in our supply management scheme by providing market access to the extent of two percent of our domestic dairy market.
Ottawa’s position on CETA is only adding anxiety to an already tense situation. Pretending that supply management and an aggressive trading agenda can easily coexist is highly hypocritical and economically dangerous. With a strong mandate from last fall’s election victory, the Liberal government should attempt to resolve this problem as soon as possible.
However, we can’t forget that Canada plays second fiddle to both Japan and the U.S. in the TPP. What both these countries do matters a great deal to us, and the U.S. presidential election is complicating TPP’s path to successful ratification. Presidential front-runners like Donald Trump, Hillary Clinton and Bernie Sanders have all expressed their opposition to the TPP.
The TPP may die a good death as the result of factors outside our borders. But in the meantime, we should embrace the opportunity to reform our supply-managed sectors in order to become a much stronger trading economy.
Dr. Sylvain Charlebois is senior director of the agri-food analytics lab and a professor in food distribution and policy at Dalhousie University.
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