Posted by Andy Walker ● Oct 3, 2018 12:00:03 PM

Understanding supply management

Connected Farmer - Understanding Supply Management


Supply management is a term that has hit the headlines a great deal lately but the concept is often misunderstood by consumers. It exists largely in two sectors of farm production — dairy and poultry. While the administration of the system can be technical and complex, at the heart of the concept is a simple goal.

Anybody who has taken even high school economics has heard about the law of supply and demand. Basically, it says the greater the supply of a product, the lower the price will be. On the other hand, a product in short supply will demand a higher price. If there is overproduction of a product (let's use milk as an example), the price to the supplier (in this case a dairy farmer) goes down. Conversely if the supply starts to dry up, the milk is much more valuable. Supply management is designed to take the peaks and valleys out of the system. So how does that work?

The goal is to match Canadian production as close as possible to domestic consumption. If there are no big drops in demand or spikes in consumption, consumers will be spared major price fluctuations and producers will receive a more stable rate of return. At the heart of the system is a quota for each individual producer. That is simply the maximum amount of product they can produce in a given period. It they exceed that amount, a penalty is imposed.

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Supply management is a rare commodity in worldwide agriculture. Even in Canada where politicians of all stripes frequently come to its defence, it's only in place for a handful of commodities. Critics of the system often charge that the system is outdated and results in higher prices for consumers. Defenders maintain it ensures a guaranteed supply at a fair rate of return for producers and a reasonable return for consumers. Supply management is not a perfect system and it has been changed since its inception in 1972 to allow foreign suppliers some market access. However, it does have a proven success record.

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In the case of milk, for example, the price to consumers has increased by less than the consumer price index for over 30 years. The biggest selling point is the fact producers receive 100 per cent of their income from the sale of their product. American dairy producers, for example, collectively receive approximately $4 billion in subsidies from taxpayers. The lower prices American consumers pay is a myth when the true cost is calculated.

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Topics: canada, food system, Share Your Story