David Clement: On challenge to dairy supply management: You go, Joe!

Removal would be a huge step forward for American producers, Canadian producers, and consumers on both sides of the border

Last month news broke that the Biden administration will initiate a trade dispute mechanism against the Canadian dairy industry, which is the first formal challenge under the newly renegotiated U.S.-Mexico-Canada Agreement (USMCA).

The Biden administration claims that Canada’s quota and tariff system under supply management is in violation of what was agreed on when the USMCA was signed in 2018. Though it is unclear whether the administration will emerge victorious when the dispute panel reports back later this year, the removal of Canada’s system of supply management would be a huge step forward for American producers, Canadian producers, and consumers on both sides of the border.

The impact of easing restrictions for American farmers would be substantial, which is why the Biden administration is undertaking its challenge of supply management. Given Canada’s population, opening the Canadian market for U.S. producers would be similar to adding another California in terms of market access.

The U.S. International Trade Commission estimates that if the USMCA were to be enforced as agreed on, dairy exports to Canada would increase by $227 million a year, poultry exports by $183.5 million, and egg exports (for consumption, not industrial use) by $10.8 million. Cumulatively, the $422 million increase would account for an estimated 19 per cent of the total agricultural export gains the U.S. expected from the full implementation of the USMCA.

No doubt defenders of supply management will claim that U.S. export growth will come at the expense of Canadian farmers. But that just isn’t true. Something both protectionists and progressives forget: Trade isn’t a zero-sum game. The benefits of increased trade would be enjoyed by both Canada and the U.S. That same U.S. Trade Commission report estimates U.S. imports of Canadian dairy products would increase by $161.7 million if the terms of the USCMA were enforced. Reduced trade barriers would allow Canadian farmers to sell their products to this new group of American consumers, which is one reason why research published in the Canadian Journal of Economics in 2016 concluded that “supply management may no longer be beneficial to domestic producers of the supply‐managed commodities.”

That said, if there is to be a real winner from the proper enforcement of the USMCA it wouldn’t be producers on either side of the border. It would be Canadian consumers, who have long faced inflated prices because of supply management, to the disproportionate detriment of low-income Canadians. Supply management’s mandate to limit supply and significantly reduce competition artificially inflates prices for Canadian consumers, adding upwards of $500 to the average family’s grocery bill each year. For low-income Canadians that artificial price inflation accounts for 2.3 per cent of their income, which in turn pushes between 133,000 and 189,000 Canadians below the poverty line. Supply management is a disastrously regressive policy.

With very few exceptions, Canadian politicians have not had the courage to take on Canada’s dairy cartel, mostly because of its oversized influence as the most powerful lobby in Canada. If our politicians can’t do the right thing and stand up against this powerful lobby, maybe President Joe Biden can. You go, Joe! Canadian consumers sure would appreciate it.

Originally published here.

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