From the Editor: October 2011

Although often critical of Canada’s supply-management system, the U.S. government has its own unique method of keeping supply in line with demand. Instead of using a regulated system, when there is a supply surplus, it simply subsidizes demand in the form of a government buyout.

In mid-August U.S. Secretary of Agriculture Tom Vilsack announced that the U.S. Department of Agriculture (USDA) would buy up to an additional $40 million worth of chicken to reduce surplus production and storage stocks. The chicken purchased will be distributed among the U.S. government’s legislated food and nutrition assistance programs, including the school lunch program, the disaster relief program and food banks.

Each year, the U.S. government buys poultry products and many other agricultural commodities (such as fruits, vegetables and other meats) for these programs, at a total cost estimated at $70 to $80 billion. The recently announced chicken purchase is touted as a “special program.” In a USDA release, Vilsack said that the bonus purchase will not only provide extra assistance for families facing tough economic times, but “it will also provide support to the broiler industry and the many small independent poultry growers that depend on the industry for their livelihood. Broiler producers have already cut production substantially and this purchase will help them bring supply in line with demand.”

Trouble is, this is not the first “special program.” In fact, the USDA made the same type of purchase in 2008 ($30 million) and in 2010 ($42 million). Perhaps much of this “bonus” payout the U.S. government doles out regularly could be avoided through implementation of a regulation system, or at least by having tighter control on the supply-demand equation. For all the criticism our supply-management system faces from opponents, you don’t see the Canadian government having to subsidize our poultry and dairy industries on a yearly basis, or at all, in fact.

The problem with unregulated industries is that, when prices for a commodity are high, growers respond by over-producing, which gluts the market. This happened during the 2008 “dairy crisis” experienced by the U.S. and Europe. Unprecedented high values assigned to milk in international markets caused dairy farmers in many countries to increase production.

But the cost of feed also skyrocketed, and 2008 saw the world economy crash, lowering consumer demand. The result, according to a study prepared for the Dairy Farmers of Canada by Laval University’s Prof. Maurice Doyon, was that international governments were forced to provide subsidization to their farmers. According to Doyon, Europe spent 280 million euros and the U.S. spent $350 million in support payments. The Canadian government did not have to provide dairy farmers here with subsidization, and Doyon says, “It is clear that the supply management system in Canada enables the industry to avoid some of the difficulties that were encountered in other developed countries during the 2008-2009 period.”

Although it is efficient in responding to supply and demand, supply management has been criticized for being a “protectionist” measure by many other countries in the Doha round of talks at the WTO. Judging by some of the astronomical figures being paid out by countries who are struggling financially, critics of the system should take a good look at their books and determine for themselves just how economical their non-protectionist measures really are.

The numbers don’t lie.