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