Supply Management: What Is It?

The Trade dispute between Canada and America is reaching a breaking point. After the G7 Summit, President Donald Trump refused to sign the communique and even has threatened tariffs on the Canadian Auto Industry. This is after he hit the Steel and Aluminium industry was slapped with a 25% and 10% tariff respectively. Trump has stated that this is due to Canadian dairy industry using Supply Management, which he has called to be dismantled.
So what is Supply Management? The point of this program is to prevent over production of milk, butter, eggs, cheese and many other products. It is not a subsidy, but is definitely another form of trade protectionism. American farmers, on the other hand, do have their industry subsidised which we will get into in a few minutes. The amount of dairy products used have been calculated and then the farmers are allowed to produce a set amount of goods to be sold off to others for distribution and creation of supplies, such as butter or cream. It means that every time you go to the grocery store, you can expect the price to remain the same. It can be broken down by 3 different categories: Price setting, Control of Supply and Protection from Competition.
Price Setting
As it states, it allows the price of these goods to remain constant. The price is set by the farmers to the distributor who then calculates the production cost, shipping costs, amount needed to create a profit and then the goods are put out into the market. This idea of price setting is to protect the dairy farmers from fluctuating markets, so that way their income is consistent regardless of what is happening in the market. This usually comes at the cost of the Canadian consumer, who has to pay higher prices for their dairy products as compared to the American consumer. Scrapping supply management would allow the average Canadian to better afford these products.
Control of Supply
Supply management puts a quota on the amount a dairy farmer can produce, to avoid over production. The quota as it stands is about $2,000,000 Canadian of goods that can be produced by a farmer, which amounts to about 70 dairy cows. The control of the supply also allows Canadian banks to loan a farmer about $30,000 per cow to assist them in both obtaining the animal and producing the required goods. The difference from here and the United States is that American banks usually loan out about $3,000 American per cow. Marketing boards have a lot of power over the treatment of the animals, what it can be fed as well as the condition of the cows on a farm. They have full control over the quota and can even set sanctions against the farmer should they violate that quota. The problem with the quota is that it prevents a lot of new farmers trying to break into the industry from doing so, as the start up cost is about 75% of the quota, so around $1,500,000. Many say that the only way a new farmer can break into the industry is by inheriting the quota. Otherwise, the new farmer is left with a very large debt to shoulder right off the start.
Protection from Competition
This is most likely where President Trump has the most grief with supply management. Supply management imposes a tariff on dairy products that are being imported. There is a tariff on imported eggs at about 168%, 246% for cheese, 285% for chicken and about 300% for butter. These tariffs make it nearly impossible for foreign farmers to import their own goods into Canada.
Tariffs

When discussing the American to Canadian Aluminium industry, they have had opposite reactions. The Canadian industry has continued to thrive while the American industry has diminished significantly, however the Chinese industry has outstripped both our countries by a large margin.

The Americans have us beat when discussing the steel industry, but once again China is the largest producer. Never the less, Canada's steel industry is an important one.


We can see that these two industries produce a lot of profit for Canada and that the tariffs Trump has put into place will harm Canada greatly. Yet, these tariffs are a disproportionate response to the supply management system. As far as I can tell, supply management costs the American farmers about $600 million a year, but the steel and aluminium industry is a multi billion dollar industry to Canada.
It is also worth noting that the American farm industry IS subsidised, something Trump says he is against, by the Farm Bill. Even Trump himself has been trying to pass the 2018 Farm Bill, which will subsidise the industry to the tune of $29 Billion, which is a much higher amount of money going into the American farming industry than supply management. Trump is being nothing short of a hypocrite. Trudeau has aggravated the situation much more than necessary and has been doing so for some time. This situation could have been solved a while ago, but Trudeau's progressive agenda has once again gotten in the way of honest trade negotiations. Trump's big ego has gotten in the way of honest trade negotiations.
The future of trade between our two countries remains in limbo and it will be unclear what the outcome will be. Canadian politicians are standing in defiance of the tariffs, especially since Trump might decide to add tariffs to the Canadian automobile industry. Only time will tell