Supply Management

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Market gluts can break farmers or producers of any manufactured products.  Because a safe, constant supply of good quality food is in the national interest some governments have elected to institute “supply management” on some products.  This is how it works; if a farmer wants to produce eggs, chickens, turkeys or dairy products she/he has to have a government license.  The farmer has to pay a competitive price for a license that allows for the production of a specific amount of farm product in a given length of time.  Now the government can adjust the supply to meet the demand at a given price.  This provides stability for the farm producer and the consumer, it works quite well.

Since President Trump made his erroneous remarks about the Canadian Dairy Industry and supply management, supply management has become a subject of discussion.  Here are some interesting data.  The problem with supply management is that there are always more farmers wanting licenses than there are licenses.  In some provinces some farmers who are not licensed can only produce a certain amount of product that they can sell legally every month.  The State of Wisconsin does not espouse supply management but encourages farmers increase in numbers and produce ever more dairy products with government subsidies.   In the opinion of some Wisconsin dairy farmers there are simply too many dairy farms in the State.  In 2017 Wisconsin dairy statistics show that Wisconsin has 9,520 dairy farms by comparison the whole of Canada only has 11,683*.  Ninety six percent of the dairy farms in Wisconsin are family farms which is a good thing.  The lack of better regulation may make life difficult for the family farm which is a bad thing.

There has been much discussion in Canada, at least about supply management and the cost of dairy products.  Commentators comparing the difference in dairy prices between Canada and the US, US prices are much lower.  There is a tremendous fixation on prices, it seems like a race to the bottom.  But think about it , lower prices on everything means that companies can pay their workers less. Instead of low prices it may be better to pay higher labour rates across the board.  I know critics will say that increasing wages without increasing production is inflationary but somehow it seems that higher profits are not.  In Canada low farm wages seem to be acceptable to both the federal and provincial governments. The idea is that food should be cheap for everybody.  A better idea is to have higher wage scales so that people can afford to pay a realistic price for food.  I, like many others are focused on how so much of the money in circulation ends up at the top.  Better wage scales are a part of the solution.  Quite some time ago Sonia and I were representing an industry group who wanted concessions from the government because they thought their labour costs were so high, they wanted to be government subsidized.  The Director of the government department who we were petitioning remarked “if they can’t afford to pay decent wages they really don’t have a business , do they?”.   From a business point of view when the public have more money they spend more, they buy houses, educate their children and in general make the economy go around.  One big concession is this; wage increase has to be universal otherwise there is an uneven playing field and some businesses can be left out in the cold and unable to compete.

Supply management is not only an instrument used by some governments to regulate farm industry which is often seen as being somewhat socialistic, there are others.  DeBeers, the original folks in the diamond business for years and years regulated the world supply of diamonds not for conservation but for profit.  For that matter any person or corporation that acquires a patent can, to a certain extent, use supply management to enhance the return on investment.  In countries like Canada who have a national universal health care system supply management may be practiced in this manner; the health care budget allocation has a limit each year and a certain amount of money is allocated.  There is always more demand for health care than there is money to pay for it.  But time can be the government’s friend, people wait longer to have their non critical health care needs met, this is in fact  supply management of the money supply.  On the other hand all residents of Canada enjoy the same level of health care.  No doubt people living in remote areas are at greater risk than city dwellers because of the distance from specialists and sophisticated  medical procedures.  Nevertheless rural areas of Canada from our experience enjoy a high level of health care.

*Wikipedia

 

 

 

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