Put The Lid On Quota Values

Following publication of “The State of the Industry” in the August issue under the above caption, we received a letter from Paul Babey, Chairman of the National Farm Products Marketing Council, Ottawa, enclosing his address on this subject at an Agricultural Marketing Seminar, Quebec City last October.

In this address he discusses the matter very thoroughly and ends with some concrete suggestions. These are reproduced below.

Babey’s Suggestions

FIRSTLY, the quota should always remain the property of the board and not the individual producer. I believe it is a mistake to have producers own the quota because they become tangible and readily saleable. They assume a value and the producer will decide on their disposition, which may not reflect the welfare of the entire industry. The boards should not put themselves in a position where they stand to lose control of a quota because it may be necessary to re-allocate production in specific regions, which could not be done if quota were controlled individually.

SECONDLY, the transfer of quota should be tied to the transfer of the facility, but this transfer decision should be made by the board. There is a danger of quotas assuming higher values if they can be transferred freely without the facilities. The decision-makers may want to consider criteria under which problems of phasing out old production facilities and others may be dealt with.

THIRDLY, Commodity Boards should have a policy, which would force a producer to forfeit his quota where “under-the-table” payments for quota were proven. Many will argue that it is impossible to prove whether “under-the-table” payments occurred or not. However, the fact that this policy would be on the books and circulated to producers, would act as a deterrent, particularly to the purchaser of the farm units, as the board could cancel his quota. This could also inspire a purchaser to check with the local board as to whether the values at which farm units were trading were actually market values. In some provinces, the supervisory agencies hire an appraiser to ascertain the market value of the property and to determine if the transaction included a monetary value for quota.

FREEDOM OF ENTRY. The Marketing Agency should allocate a percentage of their quota to new producers. The boards should determine the criteria and the mechanism for the allocation, particularly the assessment of an efficient production unit. The Boards could also maintain a list, and give preference to the top name or by drawing from a hat. The important point is that the action should facilitate freedom of entry in the particular industry, so that the values of the production units or the transfer of quota would not exclude new producers.

LIMITS OF SIZE TO QUOTA. Marketing Boards should emphasize that in allotting quotas, these allotments would be subject to review as circumstances warrant. There should be limits, in terms of minimum and maximum quota, based on the optimum size of farm unit for the particular commodity. The optimum size should be reviewed periodically, to determine what changes should be made, bearing in mind improvements in technology and management.

UNUTILIZED QUOTAS. There should be criteria, which would determine how long a producer could have the opportunity not to utilize the quota. Long periods of stand-down time should not be permitted, except under extenuating circumstances. Unused quota should be transferred to those who are willing to produce or to new entrants. The present quota system at many times has been a one-sided system. The producer having the quota can market, but is not obligated to follow the rule of having to deliver within a percentage of quotas allocated. This rule is not enforced by many commodity boards.

In conclusion, these are some of the options, as I see them. I believe that the God-given-right to produce food should not have a monetary value. In my view, it is not acceptable to market commodities in a regulated market and their quota in an open market situation, and choose to ignore the realities of quota values. The boards should make every effort to minimize quota values wherever possible.

I believe that the boards should follow some of the points set out here and that this could aid considerably in reaching the desired objective. In any event, it does not seem that marketing boards and national marketing agencies have a particularly difficult problem to resolve. It is evident from the great deal of public debate on this subject and the criticisms that are being leveled at escalating values, that these issues have assumed national dimensions.

It is equally obvious that the initiative in resolving this problem should come from the provinces, which, under our constitution, have exclusive jurisdiction in the allocation of quotas to individual producers. How do you conceive of these problems? How do you propose to deal with them? What specific courses of action are contemplated by each province? Ladies and Gentlemen, on cannot “sweep this problem under the rug” – we must act now! Where do you stand on this important national problem? What proposals do you have? Let us now examine them.

ED. NOTE: There is unlikely to be any last word on this contentious subject, at least for some time, but it is something that MUST be tackled at both board and government levels, for obvious reasons.