Why Supply Management?

Today supply management is under assault again. What is lost in the fury of the attacks and the staunchness of the defence is why it emerged.

It is not a simple tale. It took, for example, 11 years from the founding of the first poultry marketing board in British Columbia to the formation of the Canadian Egg Marketing Agency. Along the way there were fierce challenges. Some, fewer over time, producers were adamantly opposed. Some politicians fought it at every step. There were court challenges, somber declarations from economists and corporate denunciations.

But the times dictated that something be done. In the early 1970s most if not all of agriculture was in turmoil. Demand was tepid and when prices weren’t stagnant they were falling. Overproduction was a ruinous reality. It was farmer against farmer, province against province and devil take the hindmost national trade policies.

Other parts of the economy were also struggling. The 1973-74 recession was sharp, deep and severe.

If one were to invent a time machine and go back to those times the only certainty would be the realization that something had to be done to at least stabilize the situation. For poultry and dairy the federal and provincial governments of the day agreed upon supply management. Using hindsight, the future implications of that agreement can be debated. But what is clear is that at that time doing nothing was not an option. Supply management was the farmers’ and governments’ way to fend off chaos.

This article and the one that follows will provide some context as to why supply management was created.

The mess of the 1960s and 1970s
In the late 1960s and early 1970s, Canadian agriculture was – not to put too fine a point on it – a mess.

Incomes were low, prices were dropping, and surpluses piling up. Long established trading patterns were in flux, rural and farm populations were dropping, and governments were struggling to come up with answers.

Royal commissions, white papers, studies and analyses proliferated.

In 1969, the situation was so severe that Saskatchewan Premier Ross Thatcher tried to barter wheat for other goods with foreign customers in an attempt to boost his province’s grain economy.

In 1970, 200 farmers went to the Alberta legislature and gave away 2,000 dozen eggs to protest low egg prices.

But the farm economy was not alone. As Canada moved from the 1960s into the 1970s, the economy slowed, inflation rose, and worse was to come, culminating in a steel crisis that gave rise to the term “rust belt,” the Arab Oil Embargo that shocked the world economy, and, in 1973-74, the worst recession since the 1930s.

A new economic term also entered the lexicon – stagflation. The mix of a stagnant economy and high inflation was toxic. Jobs were disappearing and prices surged.

Everywhere, people were trying to understand what was happening and governments – the Canadian government included – were trying to get a handle on the situation and temper the economic blows. Wage and price controls were tried in Canada, the United States and elsewhere; new farm programs were unveiled and unique monetary measures tested.

The situation was so severe that American investor Warren Buffet, commenting on the recent recession, said it wasn’t as bad as 1973-74 – yet.

Canada also introduced the Food Prices Review Board in 1973 in response to rapidly rising food prices. Under its chairman, Beryl Plumptre, the board set out to look into just about everything. Over the previous two years, housing costs increased 18 per cent, clothing costs increased 17 per cent, but food costs rose by 37 per cent.

A Toronto Star article published in August 1973 said: “Since August, she (Plumptre) has tweaked Whelan’s nose, chicken and turkey marketing, prodded for better beef support schemes, probed into prices and income ideas, monitored chain store prices, called for a more coherent agriculture policy, issued ominous food price reports, and chided members of parliament for seeking large pay increases.”

In 1969, a major report on agriculture done for the federal government was released. “Canadian Agriculture in the Seventies” recommended the government reduce its involvement in agriculture plus phase out subsidies and price supports. It also said the farm population should be reduced, younger low-income farmers should leave farming while older non-viable farmers should be assisted to achieve a better standard of living. The report recommended that farmers shift from wheat and dairy, where surpluses were a chronic problem, to producing other commodities.

The Liberal government went in a different direction. Perhaps this was due to the forceful representations of its rural members, including Bud Olson and Eugene Whelan, or it might have been due to memories of what happened in 1957.

In 1957, the Diefenbaker Conservatives won prairie farmers’ votes after the St. Laurent Liberals had alienated the region by taking a hard-line against agricultural support, Grace Skogstad of the University of Toronto writes in the June 2007 edition of The Canadian Political Science Review.

“When the Liberals were returned to office in the 1960s, farmers were able to pressure the government to enact a series of legislation to support agriculture, including price stabilization measures. As a result, government financial transfers to farmers tripled between 1957-58 and 1972-73.”

The government also enabled supply management.

By the late 1970s, dairy, poultry, and egg producers were all under national marketing boards that regulated domestic supply and prices and protected domestic products from foreign imports, she wrote.
Prairie grain farmers didn’t get the same level of protection. They received stabilization programs designed to blunt the impacts of depressed prices.

But things were changing for grain farmers. Years of burdensome supplies, depressed prices and competition from U.S. sales that masqueraded as food aid to qualify for export subsidies came to a quick end in 1972-73.

In 1972, the Soviet Union embarked on what is called in the U.S. the “Great Grain Robbery.” The Soviet Union had a massive crop failure and was in desperate need for grain. The Soviets had bought on world markets before. In 1963, they quietly negotiated a deal to buy 6.8 million tonnes of wheat from the Canadian Wheat Board, much to the distress of the Americans. By the late 1960s, that looked like a one time thing. Surpluses were again building.

In 1968, Prime Minister Pierre Trudeau called U.S. President Richard Nixon and urged him to help save the International Wheat Agreement that had at least provided some price stability. Nixon declined. In the face of lost sales, Canada dropped its wheat price by about 10 per cent and joined the fight.

But it seemed futile. Grain inventories reached the point in 1970 where Canada and other nations established programs that paid farmers not to produce. This reduced production, but demand was so low that inventories remained high.

But in mid-to-late 1972, the Russians were back negotiating grain deals in Washington, Winnipeg and Geneva. When the dust had settled, the Soviet Union had agreed to buy more than 24 million tonnes of grain from Canada, the U.S., Australia and others. Between 1971 and 1975, world trade in grains increased by 50 per cent from around 100 million tonnes annually to more than 150 million tonnes.

The grain surpluses, which had been such a problem, evaporated. Farmers, who just a few years earlier were being paid to idle land, were encouraged to plant fence row to fence row.

All this was good for longsuffering grain farmers but livestock producers were caught. Prices for their biggest input had surged but many consumers, battered by the recession, were struggling and in no position to pay more.

The government was scrambling to find programs that would inject some stability. Marketing boards and supply management were areas in which they had legislative framework that could be built upon. This was most important for dairy, which continued to be in crisis. The opportunity was offered to others, including the hog and cattle industries, but only poultry and eggs joined dairy in adopting full-blown supply management.

In the context of the times, the roots of supply management may be traced back to political and economic events. The Liberal Party’s defeat in the 1957 election taught it that ignoring troubles on the farm would cost it votes and make it unelectable in large parts of the country. It was a mistake they wouldn’t repeat through the 1960s and 1970s. Through those years, much of the policy that emerged came from a search for ways to stabilize agriculture.

In the early 1970s, the search for stability spread into other parts of the economy to counter the effects of a deepening worldwide recession. In this sense, supply management was not just a standalone program to stabilize chronic problems facing dairy and poultry, but part of a larger move to counter a deteriorating national and international economic situation.