Supply management: a costly endeavor

SM.pngSource: Trevor Tombe, Twitter @TrevorTombe

By Alex Whalen, AIMS Operations Manager

The viability of supply management has come into discussion lately due to the new Trump Presidency. Dalhousie University’s Dean of Management, Sylvain Charlebois, a food expert, recently issued a press release examining the potential effects of Trump policy on the Canadian Dairy Industry.

Following Dr. Charlebois’ announcement, AIMS President Marco Navarro-Génie appeared on the Sheldon MacLeod Show. Dr. Navarro discussed the economics of supply management and why they are prejudicial against consumers. The simple explanation is that in Canada some industries, dairy being most prominent, have a restriction on production. The result is more profit for the producers at the cost of a higher price for everyday consumers.

This leads one to wonder: how do producers get away with such a scam? The answer lies in the distribution of costs and benefits. The costs of supply management are large in the aggregate, but relatively small on any individual purchase. A few extra pennies per transaction is not enough to outrage the public, even if the total costs are enormous. On the other side, the benefits of supply management are large and distributed among a small number of vocal, organized, and politically strong producers.

This phenomenon is analogous to the issue of inter-provincial trade, which has made it into the public lexicon only sporadically. The costs of not allowing Quebec beer into New Brunswick, for example, are small on a per-transaction basis, but large in the aggregate. The benefits accrue to a single entity, NB liquor, and in other cases, to Quebec’s SAQ, the LCBO, etc.

Recent trade deals reveal just how bad things have gotten. While we see occasional lip service paid to abolishing supply management, the provisions included in actual deals are paltry. For example, the recently negotiated CETA allowed for just 2% of the Canadian cheese market being opened up to foreign producers. Such reforms are merely symbolic and do not match the intensity of the problem.

For economists, demolishing inter-provincial trade barriers and phasing out supply management are as close to consensus items as you may find. However, the problem is not economic, it is political. The answer to these issues lies in the broader consumer base realizing it is being conned to the benefit of a select few. Such anti-market interference is unjust and consumers should demand better.

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