Something’s got to give
A stranger visiting Canada amid the escalating trade and political dispute with the U.S. might well perceive agriculture to be the dominant issue. Canadian dairy, egg and poultry quotas have become the targets of harsh rhetoric from the Americans.
Prime Minister Justin Trudeau is on the record supporting the quota and tariff system, known as supply management. So are the other national party leaders and the provinces. Managing supply props up farm prices and protects producers. There’s no denying the system puts a thumb on the scale for farmers, not consumers, who usually benefit from producer competition. Supply management creates a level playing field for farmers but entrenches higher prices for consumers.
The Trump administration condemns the system as unfair and uses it to justify tariffs on Canadian steel and aluminum and to threaten the automotive sector.
Domestically, quotas are political dynamite. Earlier this month, Trudeau was castigated by the Dairy Farmers of Canada for even musing about “flexibility” on supply management. His government soon reaffirmed its support.
In Halifax, Premier Stephen Mcneil suggested that dismantling supply management would cause grave disruption in an otherwise stable industry. “Those are the agricultural sectors that have sustainability,” Mcneil told reporters. “We’re going to continue to make sure our voice is heard at the national level when it comes to supply management.”
Economists call the tariff and quota system bad policy because it distorts prices and question why Canada is risking wider economic damage defending it. Political leaders know something will have to give if a new NAFTA is to be achieved. Judging strictly by the numbers, the sacrifice could be supply management.
But it’s a difficult call, even in Nova Scotia, given that the Canada-u.s. dispute could spread to the auto industry. The province’s three Michelin plants generate $1 billion in tire and rubber exports each year, backstop- ping the provincial manufacturing sector and employing 3,400 Nova Scotians.
Compare that to Nova Scotia’s 215 dairy farms with $145 million in revenues, employing 600. Twenty-six registered farms produce eggs and poultry. The comparisons hold across most of Canada, even where dairy is big business, like Ontario and Quebec.
So while it has protected Canadian farms, the numbers game might be running against supply management. Dairy and poultry are important economic factors, worth $14.9 billion per year, but they don’t move the needle the way petroleum ($107 billion), autos ($66 billion), hydro ($53 billion) or forests ($24 billion) move it.
Inevitably, a political arrangement will be made on North American trade. Not every industry will benefit, and some will certainly get hurt. That’s the problem with crossborder trade in the Trump era. Governments end up picking winners and losers and farmers can only hope that they stay on the winning side.