OTTAWA – “We have a supply management system that continues to be very much in place to protect both our agricultural sector and our consumers. This is something that continues. We have made modifications to the way it works, but we also know that it is something that will ensure the viability and the strength of supply management for years to come.”
— Prime Minister Justin Trudeau, Oct. 1, 2018
It was one of the biggest questions facing Trudeau this week when he announced Canada had concluded a trade deal with the United States and Mexico: What about Canada’s supply-managed agricultural system?
Angry dairy farmers have been quick to condemn the deal, invoking a common catch-phrase to describe what they believe is happening to their industry: Death by a thousand cuts.
Yet while the prime minister admitted the United States-Mexico-Canada Agreement would let in more American dairy, eggs and poultry, he insisted that the deal would also ensure supply management’s strong survival.
So is it true that the USMCA will allow Canada’s supply-management for dairy, eggs and poultry to remain viable and strong for years to come?
Spoiler alert: The Canadian Press Baloney Meter is a dispassionate examination of political statements culminating in a ranking of accuracy on a scale of “no baloney” to “full of baloney” (complete methodology below).
This one earns a rating of “some baloney.” Here’s why:
Supply management as we know it has been around since the 1970s. It limits the production of eggs, poultry and dairy in Canada. The system also limits imports by slapping tariffs on volumes beyond a certain level. For dairy products, those tariffs can be steep: nearly 300 per cent for butter and cream, and 240 per cent for cheese, whole milk and yogurt.
Proponents say the system prevents market saturation, which keeps prices stable and ensures steady incomes for farmers while better protecting food safety, driving high quality and eliminating the need for subsidies.
Critics say it pushes up the cost of dairy, eggs and chicken for consumers, with a disproportionate impact on low-income families. And the system has been a frequent target in — and barrier to — past free-trade negotiations.
U.S. President Donald Trump had repeatedly railed against supply management, calling it unfair and warning that Canada would face repercussions unless it was dismantled.
Successive federal governments resisted opening the system to allow in more tariff-free imports from other countries, in part because many producers — specifically dairy farmers — are clumped in vote-rich Ontario and Quebec.
But the Harper Conservatives opened the door to change when they agreed to ease restrictions on European cheese imports through the Canada-European Union trade deal, which was signed and came into force under the Trudeau Liberals.
Ottawa then agreed in the 11-country Trans-Pacific Partnership free trade deal to give the other participating nations market access to 3.25 per cent of Canada’s annual dairy market and around two per cent of its egg and poultry markets.
The USMCA is thus the third free trade agreement in which Canada has agreed to open access to its supply-managed sectors, to the tune of 3.59 per cent of the dairy market as well as increased access for eggs, chicken and turkey.
The government has also agreed to change the way it prices some dairy products, which U.S. farmers had complained was unfair and allowed Canadian producers to flood global markets while keeping American competitors out of Canada.
While Canadian trade negotiators may have ensured that supply management continues to exist under the USMCA, many agricultural economists disagree with the prime minister’s assertion that the deal strengthens the system.
Rather, they say the new North American agreement adds to the small but steady erosion of protections for Canada’s supply-managed sectors that first started with the European Union trade deal.
“The dairy sector finds itself in a much weaker position, with no apparent plan or support,” Dalhousie University professor Sylvain Charlebois wrote in an article this week for the Atlantic Institute for Market Studies.
“The new deal compounds pressure generated by the two other multilateral deals. And so the fundamental rationale for our supply management system is put to the test.”
But an argument could be made that with this new deal, plus the European Union agreement and Trans-Pacific Partnership, Canada has effectively negotiated new trade agreements with all the major dairy exporters around the world.
“It means that supply management is unlikely to be questioned again over the medium to long term,” said Bertrand Montel, a consultant with Montreal-based Groupe Ageco, which specializes in economics in the agri-food sector.
“Hence, external threats to supply management have been grandly reduced.”
He believes the industry could emerge at least as strong over the long run following a period of restructuring and consolidation. But Montel also said the cumulative effect of the three deals could force some dairy farms to close.
Others said even though Canada now has agreements with all the other major dairy producers, notably Australia, New Zealand, the U.S. and European countries, that USMCA includes a clause ordering a review after six years — meaning there is no guarantee the government won’t face fresh pressure in the near future to open up Canadian markets even further.
“We’ve started down a slippery slope,” said Michael von Massow, an agricultural economist at the University of Guelph and Ontario Agricultural College chair in food systems leadership.
“So what happens in three years when the U.S. administration comes back and says they want five per cent? Often with these things, once you open the door, you’re opening to more access. We’ve blinked once, why wouldn’t we blink again?”
Canadian dairy, egg and poultry farmers will continue to benefit from supply management for the time being, but experts say there is no doubt that the system has been weakened by USMCA and the EU and TPP trade deals.
“This is the sort of death by a thousand cuts that the dairy industry is talking about,” said von Massow. “All of these little amounts add up to a significant chunk of the market place.”
And while there may not be any immediate threats on the horizon, now that Canada has negotiated agreements with most other major dairy producers, a precedent has been set and there are no guarantees it won’t continue to erode.
For that reason, Trudeau’s statement contains some baloney.
The Baloney Meter is a project of The Canadian Press that examines the level of accuracy in statements made by politicians. Each claim is researched and assigned a rating based on the following scale:
No baloney — the statement is completely accurate
A little baloney — the statement is mostly accurate but more information is required
Some baloney — the statement is partly accurate but important details are missing
A lot of baloney — the statement is mostly inaccurate but contains elements of truth
Full of baloney — the statement is completely inaccurate