Session 8 – BC Dairy System: Economics + Supply Management

Objectives

After completing this lesson, you should be able to:

• Describe the economic policies that govern the BC Dairy System
• Examine the costs and benefits to the BC Dairy System of a supply management governance system
• Discuss tensions between agricultural trade liberalization and supply management

Required Readings and Resources

• Conference Board of Canada Report (2014) - Reforming Dairy Supply Management: The Case for Growth (executive summary only) https://financialpostbusiness.files.wordpress.com/2014/03/5955_dairysupplymgmnt_cfic_rpt_embargo.pdf
• Rosset, P. M. (2006). Chapter 4: The Impacts of Liberalized Agricultural Trade. In Food is Different: Why We Must Get the WTO Out of Agriculture. Black Point, N.S: Zed Books. pp.52-67. Available in Files section on Canvas.

Supply management is an economic system that was instituted to protect agricultural producers from price volatility of the free market. It is a collective marketing system that provides producers a guaranteed market channel and a guaranteed price for their product. Supply is controlled by a central marketing board and that supply is set annually based on an analysis of demand. Controlling supply prevents over or under production and buffers the price of milk against market fluctuations. The policy aims to ensure that producers of the supply managed commodities receive a fair and stable price for their product and ensure the industry remains economically viable.

Supply management is based on production quotas. The amount of quota a farm holds, controls the amount of milk, eggs, chicken and turkey a farm may produce. Quota is allocated nationally and distributed provincially through marketing boards - in the case of dairy in BC, by the BC Milk Marketing Board. A farm must hold quota in order to produce supply managed commodities and the amount of quota a farm holds dictates their production levels. The supply management system was implemented in the 1960s and at that time quota were provided to producers for free. However, quotas quickly gained economic valued and can be purchased and traded among producers. New producers seeking to enter a supply managed sector must purchase quota. The price of quota has dramatically increased over the past two decades representing a huge amount of wealth for those who have inherited quota and creating a barrier to new producers seeking to enter supply managed sectors.

The food system has become increasingly globalized over the past century with increasing global trade of food and fibre, the integration of food and agriculture into global trade agreements and organizations (e.g. World Trade Organization (WTO), North American Free Trade Agreement (NAFTA)), and the rise of multinational food and agriculture corporations. Food and agriculture has also become increasingly liberalized. Neoliberalism refers to a political and economic system predicated on free market rule with minimal government intervention, deregulated markets, the privatization of industry and services, reduced public expenditures and social services. The ongoing neoliberalization of food and agriculture is widely argued to be driving widespread social and ecological devastation. This perspective is presented in the Peter Rosset reading which makes the argument that food, a basic necessity of life, is different than other commodities and should not be left to free market rule.

Supply management stands in direct contrast to neoliberal policies. Supply management is a government intervention in the free market that aims to protect producers from negative impacts of the free market. Advocates of neoliberal economic policy are opposed to supply management and make an argument that free market access would be of benefit to dairy producers as represented in the Conference Board of Canada reading.

Tutorial Session

Group Presentation on Week’s Readings

In your tutorial session, one group will be responsible for presenting and facilitating a discussion on the week’s readings, integrating the Conference Board of Canada report (executive summary) and Rosset’s (2006) chapter on liberalized agricultural trade. See assignment description and rubric for requirements.