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  • From: "Tradingpost" <tradingpost@gilanet.com>
  • To: livingontheland@lists.ibiblio.org
  • Subject: [Livingontheland] Canadian Farmers Benefit from Supply Management
  • Date: Sat, 16 Oct 2004 09:34:14 -0600

Editor's Note: In Canada, the supply management system estimates demand,
coordinates supply and is profitable for small farmers. It is a non-subsidy
way of supporting farmers and does not use tax dollars. The system is under
threat from world trade rules. Should Canada be required to dismantle the
system in the years to come, it could mean significant reorganization and
re-scaling of sectors of the dairy industry and one that may be less secure
for small farmers.



Agriculture and Trade -- posted by smurphy@iatp.org
============================================================
New York Times
----
October 1, 2004
Canada's Farmers Profit
By IAN AUSTEN

NORWOOD, Ontario - Hans Vink says his dairy farm has turned a profit in each
of the last 30 years. And he is confident that Vink Farms will wind up in the
black again this year.

Like all 22,680 dairy, chicken, turkey and egg farmers in this country, Mr.
Vink produces a fixed amount under quotas in a system that maintains stable
prices and assures markets for his farm's milk. While that has pretty much
guaranteed the profitability of Vink Farms, situated outside Norwood, in
rolling dairy country about 100 miles east of Toronto, Canada's unusual
system, known as supply management, has its costs and its critics.

The system allows only a trickle of duty-free imports and otherwise imposes
tariffs reaching 300 percent. Mr. Vink, who is also director of the Dairy
Farmers of Ontario, the group that runs the fluid milk supply management
system in that province, is all too aware that the World Trade Organization's
current attempt at overhauling global agricultural trade will most likely
turn some of its attention to the arrangement.

"It works very, very well,'' said Mr. Vink who ships most of his milk to
dairies in Toronto. "Because of it, I always know where I'm at. But I have to
keep in the back of my mind that there are some idiots out there in
trade that might create some problems for me."

The trade talks are not the only source of worry for supply management
farmers, who account for about 20 percent of Canada's otherwise
export-oriented agricultural products. Some critics say supply management
inflates the prices Canadians pay for dairy and poultry products.

Many commercial customers, including some restaurant owners, complain that
the system limits their ability to expand their businesses because domestic
production does not always meet their needs and the tariffs make most imports
prohibitively expensive. Others view the protections as being inconsistent
with the country's otherwise strong push for open agricultural trade, an
important cause for Canadian grain, oilseed, pork and beef farmers.

"Supply management is a pretty good thing for producers," said George
Brinkman, a former chicken farmer who is now an agricultural economist at the
University of Guelph in Ontario. "But I do think its days are numbered."

Canada has long argued at trade talks that dairy and poultry are "sensitive"
products that deserve extraordinary protection. The sensitivity may be mostly
political, particularly with regard to dairy products. Dairy farms are a
prominent enterprise in many parts of politically volatile rural Quebec,
which dominates the dairy business with neighboring Ontario.

Under the supply management system, which gradually made its way across
Canada in the 1960's and 1970's, marketing boards forecast demand and adjust
the amount of milk or the number of chicken, turkeys or eggs that farmers
participating in the system can produce. Based on that, the boards also set
the prices that farmers receive.

Quotas are initially given to farmers at no cost but can be bought and sold.
The marketing boards limit the amount any single operator can hold as well as
the total amount available to the industry. As a result,
supply-managed farmers are relatively small operators, like Mr. Vink, who
milks about 105 cows, rather than the food giants like Tyson and Perdue,
which dominate the United States chicken industry.

When the W.T.O. was formed nearly a decade ago, Canada agreed to end
complete bans on imports of farm products covered by supply management and
opened a small amount of its market - about 5 percent for dairy, for example
- to imports more or less duty free. Anything above that amount, however,
faces high tariffs.

Despite all the criticism, said Larry Martin, an economist and chief
executive of the George Morris Center, a nonprofit agricultural research
group based in Guelph, Ontario, there is little effective political
pressure within Canada to end the system.

Besides, the fact that it is not a subsidy and that it does not involve any
tax dollars make it palatable to the federal and provincial governments and
taxpayers alike.

While Canadian dairy groups argue that retail prices are lower in Canada
than the United States, Dr. Martin and some other economists argue the
opposite. But Dr. Martin acknowledged that the price differences are not all
that apparent to most shoppers. "It's a small thing in the overall food
basket," he said. "In the grand scheme of things, it's not something to get
worked up about."

The Canadian Restaurant and Foodservices Association, however, has long
protested supply management.

"Canada is trying to preserve free trade for 80 percent of the producers and
protect supply management from globalization forces," Stephanie Jones, vice
president for food supply at the group. "You can't do both at the same time."

Restaurant owners have their complaints. Price premiums that consumers might
overlook can limit profits in a restaurant.

Ms. Jones said that mozzarella cheese imported duty free from the United
States costs about 30 percent less than Canadian cheese. And chickens pose
other problems, she said. Because the quota system measures the market in
terms of whole chickens, it has been poor at adjusting supply to reflect
changes in tastes for particular parts. ("There are only two wings on every
chicken," Ms. Jones said.)

So restaurants, especially chains, often have to base expansion decisions on
the supply of specific chicken parts or the availability of appropriately
sized birds.

The system even limits the farms it protects. After the W.T.O. ruled against
Canada in December 2002 in a dairy export case brought by New Zealand and the
United States, Canadian farmers largely abandoned their export efforts.

And when Mr. Vink recently wanted to expand his business, building a
20,000-square-foot barn, complete with milking parlor and milk storage area,
he first had to buy more quota through a specialized exchange.

Still, that just means he has more to safeguard.

"If we were to lose the system, I can tell you right now there's probably
somewhere around 2.5 million to 3 million dollars in quota value that would
just go out the window here," he said, referring to the approximate
long-term value of his holdings in Canadian dollars (about $1.9 million to
$2.3 million).

Beyond the loss of quota rights as an asset, the impact that ending the
system would have on Canadian farmers is less clear. Dr. Martin says that
efficient Canadian milk producers would probably become successful exporters
to the United States, assuming an end to United States subsidies and an open
border.

Both he and Dr. Brinkman, however, are much less sanguine about Canada's
chicken and turkey farms. "The poultry industry would have to change very,
very quickly because you can't compete with Perdue and Tyson through small
farms," especially in northern climes, where heating costs are higher, Dr.
Brinkman said.

At the end of July, the W.T.O. released a framework for its agricultural
talks. Canada's negotiators had effectively forestalled the day of reckoning
by fending off mandatory cuts in the steep import tariffs.

But, mandatory or not, changes are probably coming. Denis Landreville, the
deputy director of market access at Agriculture and Agri-Food Canada, a
government agency, says Canada is willing to increase the dairy and poultry
imports allowed to enter Canada duty free and reduce the large quotas
somewhat in exchange for agricultural reforms from other countries. The
question is how large those changes will be.

"If you take 60 percent off 250 percent you still have a 150 percent
tariff," Dr. Martin said. "There will still be a fair amount of protection
even if this happens."

Thomas Cox, a professor of agricultural and applied economics at the
University of Wisconsin-Madison, said ending the Canadian dairy system was
not likely to be a priority for United States trade negotiators.

"The dairy distortions are big, but Canadian dairy is a very small part of
world trade," he said. In any case, Dr. Cox said that demanding changes from
Canada would require the United States to alter its dairy price subsidy
programs.

Several nations, particularly New Zealand, are likely to press Canada at
future trade talks, however.

Total elimination of the tariffs and import quotas might involve decades of
gradual reductions, Dr. Brinkman speculated. "If you give them 20 years to
adjust," he said, "it's not exactly leaving the farmers dangling."

Copyright 2004 The New York Times Company


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  • [Livingontheland] Canadian Farmers Benefit from Supply Management, Tradingpost, 10/16/2004

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