Ryan Cardwell: Supply management isn't free

National Post

5 days ago

Supply management (SM) is a complex set of government policies that restricts production, marketing, and trade of dairy and poultry in Canada. At its core, SM is a textbook cartel in which producers collude to fix production at the national level, and set prices charged to processors who make the consumer food products sold in restaurants and grocery stores. Such collusion is illegal in other industries — food and elsewhere — but is mandated in SM through government policies.
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Some market outcomes of these policies are high and stable incomes for producers, high consumer prices for dairy and poultry products, and smaller farms.
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Government support for farm incomes is not new, or unique to SM. Field crop and other livestock producers in Canada receive generous government support as subsidized insurance, direct payments, and other programs. But the support provided to SM producers differs in important ways.
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First, the level of support provided to SM producers is much higher; the OECD estimates that SM policies in Canada account for approximately one-third of gross farm receipts for SM producers. This is multiples higher than support provided to field crop and other livestock producers. It is noteworthy, too, that recipients of this support are relatively high-income households; average household income for dairy and poultry farm families is more than double the average income of the Canadian households who pay for the support through higher food prices (approximately $245,000 for SM farm families compared to the Canadian average of $116,000).
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Second, the source of funding for support to SM producers comes from an implicit tax on food, not from government transfers. This has important implications. Support to other agricultural producers is funded from government revenues, much of which is raised through a progressive tax system and does not significantly affect food prices.
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On the other hand, SM's implicit food tax has regressive distributional effects, imposing a heavier burden on low-income households who spend larger shares of their incomes on food; this implicit tax rate is five times higher for low-income households than for high-income households. Our research shows that support for SM is higher among people who support progressive redistribution policies, despite SM doing precisely the opposite through a regressive tax on consumers and by supporting the incomes of relatively high-income families.
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The opacity of how cartelized production and import restrictions increase prices is a feature, not a bug, of the system. The effects of these policies are difficult to understand without formal training in economics. Also, these policy tools allow lobby groups to claim that the system isn't subsidized ($5 billion in payments to SM interest groups in the wake of recent trade agreements notwithstanding), while at the same time, admitting that 'consumers pay twice for most food, once through their taxes (whether they buy it or not), and again at the grocery counter,' with the exception of dairy, poultry and egg products.