Toronto Star

Trump stumbles onto a truth

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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

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