How USMCA democratized supply management

Sylvain Charlebois is a professor in food distribution and policy at Dalhousie University

Nobody should be surprised. Concessions on dairy access during the United States-Mexico-Canada Agreement (USMCA) negotiations were foreseeable. Americans went from wanting to tweak the deal last year to going after significant concessions from Canada to accept an increased amount of U.S. exports. It is a deal we needed of course, but one must wonder how our supply-management scheme will fare – and specifically, how our dairy sector will cope with the new global reality.

We conceded to Europe through the Comprehensive European Trade Agreement (CETA) last year and then to Asia a few months later, with the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). Concessions for both deals equal the amount of milk produced by about 500 dairy farms in the country. It was only natural, then, to concede to the United States, our closest and most important trading partner. Ottawa was likely just waiting for the Quebec election to conclude before making any announcements. (Wise move.)

But now, the dairy sector finds itself in a much weaker position, with no strategy. With this new deal, which compounds pressure generated by the two other multilateral deals, the fundamental rationale for supply management is put to the test. With more market access, perhaps 3 per cent to 4 per cent, this new USMCA tentative deal could compromise the livelihood of roughly 300 to 400 more Canadian dairy farms over the next few months.

Nonetheless, the end of Class 7 – a provision to encourage Canadian producers to use domestic suppliers – is good news for consumers, since dairy processors and food-service sectors will benefit greatly from lower costs. And for that, we all win.

In this new world of uncertainty, punctuated with bombastic, rhetorical statements, our supply-management system will need to change further. Canada is the only industrialized country in the world where such a system still exists.

Changes are necessary to leverage opportunities abroad. Contrary to what Dairy Farmers of Canada wants Canadians to believe, countries such as Australia have survived the end of supply management. Their system ended in 2000, not without some hiccups. But today, the sector is performing well even in the face of several severe droughts along with depressed world dairy prices. Dairy farmers in Australia are surviving, with barely any subsidies. In fact, a drought relief fund was set up to support dairy farmers, which is heavily funded by grocers in that country. Right now, for every litre of milk sold at retail, farmers get 30 cents. Since one litre of milk is roughly one dollar and used as a loss leader, this adds up to 30 per cent of sales made at retail going to farmers.

It would be interesting to see Loblaws and Sobeys give 30 per cent of their milk sales directly back to dairy farmers. But with supply management, such partnerships and relationships are highly unlikely.

A new deal on what some call supply management 2.0 would require the support of the entire value chain, not just dairy farmers. And given the fiscal baggage in supply management, financial institutions would also need to get engaged in the conversation.

Quarrels with the American administration have forced Canadians to discuss the whole issue of supply management out in the open – unheard of just a few years ago. The issue is now out there, more than ever before, making this a matter for all Canadians to debate. Supply management is mostly about food security, about how we develop our economy in rural regions – not just about a small group of highly privileged farmers. Canadians are starting to recognize that access to good quality, affordable food does not solely depend on safeguarding supply management, and Ottawa understood that. That is why, in the end, conceding on market access was the easiest of options.

But what was surprising was the arrogance of Ottawa – and support from Canadians – when refusing to give in to the United States to make the deal work. Many have praised how the Trudeau government stood firm against the American administration, as if we actually matter to them. Such a foolish, innocent view of the world, really. Anyone visiting the United States quickly realizes how insignificant Canada is to them. They know very little about us and like it that way. The economics of the proposed USMCA just don’t allow for Canada to be snooty. Who are we kidding? The United States represents the largest economy in the world.

If Canada is starting to act like it really cares about trade and has the desire to transform our agri-food economy into a trade-focused force, Americans will probably start paying attention to what we have to offer. But until then, egotistical attitudes should be curbed. We should, in fact, be grateful to the U.S. administration for getting Canadians to talk more about supply management as a country. Most Canadians may not yet understand the system. But now they have at least heard of it – which is a huge gain for all of us.