Trump stumbles onto a truth
We doubt very much that Donald Trump understands the eye-glazing nuances of the decades-old debate on Canadian dairy protectionism that he reopened last week. Rare is the issue more abstruse than the merits of our system of supply management — and Trump is not known for his enthusiasm for careful study.
But while there is much to criticize in Trump’s recent attack on our trade practices, the U.S. president did stumble onto a truth when he called supply management an “unfair thing.” It is.
Not that Trump gets why. As the president’s rhetoric on trade with Canada sharpened last week, he focused his ire on an unlikely foodstuff, a protein concentrate called ultra-filtered milk that is used in cheesemaking. Following the lead of some American dairy farmers, Trump suggested that Ottawa’s manipulation of the price of this product allowed Canadian producers to unfairly undercut their U.S. counterparts, a violation of our trade obligations.
But as David McNaughton, Canada’s ambassador to the U.S., pointed out in a written response to Trump, the source of much of the pain U.S. farmers are feeling can be found closer to home, including American overproduction, not in anything Canada has done. In fact, as both he and Prime Minister Justin Trudeau highlighted, when it comes to dairy, the U.S. has a $400-million trade surplus with Canada.
The real problem with supply management is not its effect on American farmers, but on Canadian consumers. Our system, which, as the name suggests, sets prices based on supply, not on demand, keeps the cost of milk, eggs and poultry unnaturally high.
A 2012 study from the University of Calgary found that a family that buys four litres of milk a week, for instance, pays about $300 more annually than it would in the United States. According to the OECD, milk in Canada is regularly 200 to 300 per cent more expensive than market levels. The numbers vary according to the study, but the evidence is overwhelming that the markup is significant.
Worse still, it is unfair to low-income people who suffer the most to keep milk, egg and poultry prices inflated, as they spend a bigger share of their income on food.
Supply management is also unfair to farmers stuck on the outside of the system. The expensive quotas that dairy farmers must buy in Canada have become a prohibitive barrier to entry for prospective producers, often costing about as much as all other start-up expenses combined. Moreover, the vast majority of farmers who don’t work in dairy have arguably suffered under less favourable trade deals as a result of our dairy protectionism.
The folly of our continued commitment to supply management is widely accepted in policy circles, yet it persists in part because riskaverse politicians fear the purportedly powerful dairy farmers lobby.
This group argues that without supply management, Canadian dairy farmers would be crushed by American corporate exporters. They also suggest it would be unfair to devalue the significant investments farmers have made in quotas. But Australia and New Zealand have both dismantled very similar systems and effectively managed these problems.
In the face of the presidential outburst, the Trudeau government has held its ground. That’s as it should be. For domestic reasons, we should be transitioning away from supply management. But that move should not come as a capitulation to Trump’s extemporaneous extortions. Following this president’s every caprice is a recipe for dizziness.
Rather, decisions on supply management should be part of the coming larger discussion on trade, a discussion based on fact, not misinformation and false accusation, and based on the understanding that both countries benefit from our strong trade relationship and both countries stand to lose a great deal if it is harmed.
Canada should reconsider supply management, not because Donald Trump says so, but because it’s unfair for many Canadians