If Ot­tawa’s vow to com­pen­sate farm­ers sounds ex­pen­sive, that’s be­cause it is

The Globe and Mail Metro (Ontario Edition) - - REPORT ON BUSINESS - Bar­rie McKenna

Trade-deal rec­om­pense should fo­cus in­stead on pre­par­ing for life af­ter sup­ply man­age­ment

The ten­ta­tive U.S.-Mex­i­coCanada Agree­ment was just a few hours old when talk in Canada turned to com­pen­sa­tion for dairy and poul­try farm­ers.

For­eign Af­fairs Min­is­ter Chrys­tia Free­land promised “full and fair” com­pen­sa­tion to farm­ers hurt by the deal. Prime Min­is­ter Justin Trudeau backed that up a few days later with a pledge to give farm­ers what “they need.”

If that all sounds ex­pen­sive, it is.

The fed­eral gov­ern­ment is al­ready dol­ing out $350-mil­lion in sub­si­dies to help dairy farm­ers and pro­ces­sors to ad­just to the free-trade agree­ment with the Euro­pean Union, which came into force last year.

If Ot­tawa fol­lows a sim­i­lar pat- tern, com­pen­sa­tion could reach at least $1.3-bil­lion more as a re­sult of new dairy con­ces­sions made in the two more re­cent trade deals – the USMCA and the Trans-Pa­cific Part­ner­ship. The dairy in­dus­try claims it will lose roughly 10 per cent of dairy pro­duc­tion in these three deals – 2 per cent in the Euro­pean deal, nearly 4 per cent in the TPP and 4 per cent in the USMCA.

That’s a nearly $1.7-bil­lion bill, and count­ing. But the fi­nal bill could be much higher be­cause it doesn’t in­clude losses the dairy in­dus­try may suf­fer as a re­sult of Ot­tawa’s promised can­cel­la­tion in the USMCA of a spe­cial dis­counted price for whole­sale milk in­gre­di­ents, know as Class 7. Farm­ers and dairy pro­ces­sors made sig­nif­i­cant new in­vest­ments to pro­duce and process milk at that price. And it doesn’t count the com­pen­sa­tion egg and poul­try farm­ers will no doubt de­mand.

The prob­lem with this kind of com­pen­sa­tion is that it’s a stop­gap. It in­dem­ni­fies in­dus­try play­ers for what they stand to lose in the years ahead, as­sum­ing they con­tinue to milk cows, make cheese and raise chickens.

But it doesn’t address the ele­phant, or cow, in the room – the to­tal $34-bil­lion mar­ket value of pro­duc­tion quo­tas in Canada’s sup­ply-man­aged dairy and poul­try sec­tors. The go­ing rate for pur­chas­ing quota to milk a sin­gle cow is now roughly $30,000.

Com­pen­sa­tion puts off that mon­ster pay­out for an­other day. If Ot­tawa were in­ter­ested in sound pub­lic pol­icy, it wouldn’t be sub­si­diz­ing farm­ers to stay in the busi­ness.

It would be work­ing now to buy quota from farm­ers who want to get out of the busi­ness so that a smaller num­ber of more ef­fi­cient farm­ers can thrive in a com­pet­i­tive global mar­ket­place.

These three trade agree­ments do not end Canada’s highly pro­tected and reg­u­lated sup­ply man­age­ment. But they cede at least 10 per cent of the do­mes­tic mar­ket to for­eign ri­vals, on top of the roughly 8 per cent that for­eign sup­pli­ers now hold.

These deals risk ty­ing the hands of the most en­tre­pre­neur­ial farm­ers in Canada – those who want to grow, in­no­vate and ex­port. How can they con­tem­plate growth when it costs $30,000 to add a sin­gle cow to their herd, and ex­ports are re­stricted?

The only way com­pen­sa­tion makes any sense is if it helps ease the tran­si­tion to a post-sup­ply man­age­ment world.

That’s what the for­mer Con­ser­va­tive gov­ern­ment did when it pro­posed a $4.3-bil­lion com­pen­sa­tion plan in Oc­to­ber, 2015. The pack­age in­cluded a pro­gram to pur­chase quota from farm­ers. But it was shelved by the in­com­ing Lib­eral gov­ern­ment.

That’s a shame. The Con­ser­va­tives were on the right track.

The seeds of the sup­ply man­age­ment sys­tem’s demise are be­ing sown to­day. As more for­eign milk and poul­try en­ters the mar­ket, the sys­tem be­comes in­creas­ingly un­sta­ble. Cana­dian farm­ers face two un­palat­able op­tions – cut pro­duc­tion and lose in­come, or ar­ti­fi­cially prop up farm-gate prices and cede mar­ket share. Mean­while, a wor­ry­ing sur­plus of skim-milk solids – the pro­tein­rich byprod­uct left over af­ter the milk-fat has been re­moved to make but­ter and cream – grows larger be­cause in­ter­na­tional trade rules limit what Cana­dian farm­ers can ex­port.

Com­pen­sa­tion with­out plan­ning the fu­ture would be the ul­ti­mate in gov­ern­ment boon­dog­gles. Ot­tawa would pay farm­ers once to com­pen­sate them for re­cent trade deals. Then, per­haps a few years from now, it would pay them again to re­lin­quish their quota – most of which farm­ers have long since been paid for. Farm­ers were granted quota at no cost when the sys­tem was set up, start­ing in the 1970s.

What­ever griev­ances Cana­dian farm­ers are feel­ing to­day as a re­sult of the USMCA would pale next to the in­jus­tice foisted on all tax­pay­ers if Ot­tawa pays farm­ers twice – once to stay in busi­ness, and a sec­ond time to exit.

The prob­lem with this kind of com­pen­sa­tion is that it’s a stop-gap. It in­dem­ni­fies in­dus­try play­ers for what they stand to lose in the years ahead, as­sum­ing they con­tinue to milk cows, make cheese and raise chickens.

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