Dairy cows are seen at a farm Friday, August 31, 2018 in Sainte-Marie-Madelaine, Que. As food inflation persists, some have seen an opportunity to advocate for an end to supply management, the structure that regulates Canada’s dairy, poultry and eggs sectors.

Image Credit: THE CANADIAN PRESS/Ryan Remiorz

TORONTO - Earlier this year, a since-removed TikTok video of a Canadian farmer dumping milk while decrying supply-management rules received national media attention. It's not the first time the image a scene, of thousands of litres of fresh milk running down a drain, has come under scrutiny.

“Milk ... is a very emotional product for us,” said Michael von Massow, a food economy professor at the University of Guelph in Ontario. “We feed it to our kids, it's a staple, one of the biggest sellers in grocery stores."

In fact, von Massow thinks that’s one of the reasons that dairy in Canada is supply managed, alongside eggs and poultry — to protect a Canadian product for Canadian consumers.

After all, you can't talk about competition in Canadian industries without mentioning the sectors where competition has been purposefully restrained.

First introduced in the dairy industry in the 1960s before expanding into eggs and poultry, supply management is a system that regulates the production levels, wholesale prices and trade of dairy, poultry and eggs in Canada.

It's intended to address issues such as fluctuating supply and price volatility, yet supply management is also one of the reasons that farmers sometimes dump milk.

The kind of milk-dumping in the TikTok video — where farmers dispose of milk they can’t sell because they produced more than their quota allows — is rare in Canada, von Massow said, noting that milk also occasionally gets dumped in the U.S., where dairy farmers aren’t supply-managed.

"No farmer ever wants to dispose of milk," said Dairy Farmers of Canada president Pierre Lampron in a statement. He said supply management is actually intended to prevent overproduction, among other things, and in exceptional circumstances milk disposal happens as a result of factors beyond farmers' control, such as road closures or processing disruptions.

But the drama of milk being discarded, however rare, brings up questions for shoppers who otherwise might not think much about the system that regulates Canada’s dairy, poultry and eggs sectors. And as food inflation persists, some have seen an opportunity to advocate for an end to supply management.

Critics say supply management leads to higher prices for Canadians while stifling innovation and export opportunities. Meanwhile, industry advocates argue that supply management protects Canadians and farmers from the volatility of inflation and supply chain fluctuations. Recently, the House of Commons agriculture committee suggested that Canada's supply management systems could serve as models for developing countries to use.

Despite the important role supply management plays in the price of many key grocery items, “There are strong opinions, but not strong understanding of supply management,” said von Massow.

There are three pillars to the system: farm-level production controls, or quota; farm gate or wholesale prices set based on a variety of input costs; and import barriers such as tariffs.

The idea is to protect the domestic market and ensure Canadians have enough to eat by stabilizing prices while ensuring a fair return for farmers, said Lauren Kennedy, a spokesperson for Chicken Farmers of Canada, in a statement.

“It's a departure from the typical free market system,” said Simon Somogyi, the Arrell Chair in the Business of Food at the University of Guelph.

“It's part of our political system to not want competition, and to not allow direct competition,” said Somogyi.

Supply management seeks to stifle competition, said Ryan Cardwell, a professor at the University of Manitoba who specializes in food and agricultural policy. It’s used in industries that mostly feed Canadians and where Canadian producers aren’t or haven’t been competitive on the world market, he said (though whether that’s a product of or an argument for supply management is a classic question of the chicken and the egg).

Somogyi, Cardwell and von Massow all say producers have more to gain from supply management than consumers do. However, while farmers benefit greatly from predictable pricing and the diffusion of market power, they also face drawbacks like limits on production and the difficulty of getting into the business, said von Massow.

But the system brings certainty to an uncertain industry, said Bruce Muirhead, a professor at the University of Waterloo and the Egg Farmers of Canada chair in public policy.

Proponents like Muirhead say consumers benefit by getting good and consistent products at a good and consistent price.

Roger Pelissero, chair of Egg Farmers of Canada, said in a statement that the scale and distribution of egg farms across Canada means the industry can avoid “bust periods” caused by outbreaks like the avian flu, or other such disruptions, like the recent spike in egg prices in the U.S. and some other countries that was more limited in Canada.

But supply management doesn’t mean that prices can’t see significant changes. In 2022 the Canadian Dairy Commission raised farm gate milk prices twice as farmers struggled with rising costs, the first time by 8.4 per cent and the second by 2.5 per cent.

While the variation in price of supply-managed products has historically been lower than other products, von Massow thinks the safety and predictability for consumers touted by pro-supply management folks is overstated. But the degree to which consumers pay more for supply managed products is also likely overstated by opponents, he said.

“Does supply management cost us a bit more? Probably. Is it as much as the critics say? Definitively not.”

For his part, Somogyi has noticed lower prices on dairy in other countries, such as Australia and New Zealand. Not only that, but there are more product options available for consumers, he said. Australia and New Zealand both previously had supply-managed dairy sectors.

Not having supply management might therefore be better for consumers, but it would be tougher on producers with more pressure to keep costs down, said Somogyi.

The Dairy Farmers' Lampron argued that if supply management were abolished, retail prices would be unlikely to fall, since retail prices are set by retailers. He also argued that Canada already benefits from a variety of dairy products including imported cheeses and an "overwhelming" choice of yogurt.

Muirhead says that with more competition for the dairy, egg and poultry sectors, prices would become more volatile and farmers would be under pressure to lower prices and compete with international products.

"I'm not saying that all Canadian farmers would go out of business, but it would fundamentally change the nature of the business that they're in," he said.

"If you have competition, it's a race to the bottom."

While Cardwell agrees some producers wouldn’t survive if supply management went away, he said others would become more efficient and productive, and would get more export opportunities.

Regardless, there’s no strong political move to abolish or overhaul supply management, von Massow said.

“We have these polarized debates without really having a good foundation of research or understanding to say, 'Should we have it? Should we not have it? Should it stay the same?'”

Supply management isn’t immune to change, either. Over the years, tweaks have been made to the system, such as changing how quotas are measured and adding programs to support new entrants, said von Massow.

In a 2020 report, Somogyi and fellow researchers Sylvain Charlebois and Jean-Luc Lemieux argued for a middle ground between fully dismantling supply management and keeping the status quo.

Among their main recommendations: a voluntary quota buyback program that would allow some farmers to exit the market; a change in the CDC’s pricing strategy; a removal of interprovincial trade barriers; and a slow reduction in trade tariffs.

The proposed changes would give farmers more opportunities and flexibility, including options for dealing with extra milk, said Somogyi, and there would be more variety in product for consumers, as well as lower prices.

It’s not easy to answer whether more competition would be good for the dairy, egg and poultry industries in Canada, or for consumers, said von Massow.

“We need to look at it holistically and dispassionately. And I think that we haven't done that effectively.”

— Whether you're catching a flight, opening a new bank account or picking up groceries, a small group of big names takes up most of the market share. Competition Ltd. is a Canadian Press series that explores what this means for products — and prices — in the country.

— This report by The Canadian Press was first published April 26, 2023.

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