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A Cold Shoulder For Supply Management

It won’t work, says this report

In tough times it’s only natural to yearn for something better. That can be useful when the yearning leads to a concrete plan for making things better. Conversely, daydreaming over impossible ventures can be harmful if it keeps you from making hard choices about the future.

This is why I think cattlemen owe Al Mussell a debt of gratitude. In a report issued last month the George Morris Centre economist poured a needed dose of cold water over the yearning for supply management in Canadian beef and hogs.

It is not surprising that some cattle and hog producers still dream of guaranteed prices for their beef and pork. They have only to look at the rising bank accounts of neighbours who milk cows and raise chickens while they try to earn a living in a market stressed by softening demand for red meat, a rising Canadian dollar, BSE hangovers, and mandatory country-of-origin labelling in the U. S.

Mussell doesn’t condemn this urging for supply management. He merely looks at the hurdles that must be overcome in a coldly logical manner. The conclusion is inescapable.

As a first step, one must understand the critical differences between the markets for beef and pork versus dairy and poultry.

A basic foundation for supply management is the ability to maintain or increase the price when supply is reduced (to match domestic demand.) “This requires a robust demand for the product,” says Mussell in his report. If not robust, at least stable demand, and few good substitutes for your product are needed to make this work. Supply management can protect a commodity from foreign imports, but not from competition within the domestic market.

A second fundamental requirement is the ability to discipline the supply. That means quotas to harness domestic production, and tariff-rate quotas (TRQs) to keep out foreign imports. When supply management was first introduced access was allowed for imports at historical levels. This was later converted to TRQs.

Canada presently maintains a TRQ of 76,409 tonnes for beef from offshore imports. Up to Nov. 16, importers had filled a mere 34 per cent of that quota. U. S. and Mexican imports are tariff free under the North American free trade agreement. Our U. S. beef imports to Nov. 7 were about 103,000 tonnes. We sold them 231,000 tonnes in return.

How those import levels would be grandfathered under an SM agreement is something Mussell leaves us to speculate on. And, of course, exports markets will be closed down.

Giving over the question of whether the government could be convinced of the need for SM in beef and pork Mussell looks only at the practical impediments.

One of the chief ones is the demand for red meat. Demand for milk products has been sufficiently strong to support rising prices for a regulated supply. At the same time demand for chicken is increasing, allowing poultry producers to increase or maintain price while increasing their supplies.

Over this same period, demand for beef and pork has been declining, and, according to Mussell, this has been due to factors unrelated to price. “Given this, a supply management scheme that attempted to markedly increase prices is likely to only accelerate and exacerbate this decline in demand,” he concludes.

To reach even that point the current export-driven red meat industry would have to shrink significantly to match current consumption levels for beef and pork. Mussell quotes studies that say the pork industry needs to shrink by 63 per cent. The beef industry wouldn’t be much different.

Trying to ration this smaller number of carcasses over the entire Canadian market would be another nightmare. Chicken and milk are uniform products but cattle produce everything from steaks to hamburger, hides, and offal. It all has to find a home, or be thrown out. So if you satisfy the demand from steaks, would you short or swamp the grinding market? We export more trim than anything else to the U. S. right now. No matter how you did it the net effect would be less revenue to share up with the producers who were still in business.

Legally it would be a mess, as well. Interprovincial movement of cattle and meat would require market-sharing agreements. Quota levels for producers and plants would have to be negotiated. WTO rules would require us to maintain past import levels or offer compensation. The restrictions under NAFTA are very similar.

You get the idea. This is clearly not a viable option for Canadian red meat producers. Those who still think it is should visit www.georgemorris.organd read Al Mussell’s full report. The rest of us need to get back to looking for real solutions.

About the author

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Gren Winslow

Gren Winslow is a past editor of Canadian Cattlemen.

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