Demand supply coordination

Introduction

Existing Canadian demand supply coordination instruments

The state of regional food systems

Pertinent studies

Lessons from WWII

Resource allocation failures

Transition - Efficiency

Substitution

Redesign

Financing the transition

Introduction

The reluctance of governments to engage in demand management, while focusing on supply, means it is easy for the two to be in a state of disequilibrium.  Building on Sweezy’s theories of capitalist surplus, O’Brien (2013:202) argues that,

“ ....capitalist societies are permanently scarred in one of two ways: either by a crisis of excess – where there are simply too many goods on the market and the restricted consumption of the masses prevents their sale – or because the productive forces themselves are left to stagnate in order to offset precisely [a] crisis of underconsumption.”

In many commodity areas, this plays out in classic boom and bust cycles, with wildly fluctuating supply, prices and income for food system actors, particularly farmers and fishers. What is lacking is the mandate, structural linkages and governance across the food system to substantially address the lack of a joined-up approach.  One possible organizing concept is widespread demand-supply coordination (DSC) at a macro scale, broadly positioned within the arena of Integrated Resource Planning.  DSC, if properly designed, could help optimize food consumption by changing the mix and quantity of products the food system provides, re-orienting production to resource efficient approaches, reducing the distance food travels, and creating greater food utilization along the supply chain.

DSC is not a popular concept in a food system run largely by private interests with relatively minimal state intervention, especially on the demand side. Private firms view it as interference in market function.  For many, it is linked to the earlier failures of central planning, and certainly the lessons of those failures must be reflected in a more reflexive and flexible design for demand-supply coordination (Voß et al., 2009).

Clearly, there are pros and cons to DSC for food system actors.  For producers and fishers, long term security is generally more favourable than short term, so designing such incentives in the system is an important consideration (Gille, 2013).  In other words, can demand-supply coordination create a financial security that does not currently exist through more volatile or unreliable risk management instruments, such as production insurance and futures markets?  It also means shifting production and marketing based on management considerations beyond the farm and boat, something that challenges a traditional view of farming as private property rights and management.  For manufacturers and retailers, it means shifting product options to comply with optimal nourishment requirements and volumes.  For consumers, it means higher availability of some goods (sometimes at a lower price to encourage consumption), but lower availability of others (and potentially at a higher price to discourage consumption). It also suggests significant changes in shopping behaviours and potentially shifts in the type and locations of food retail outlets. All this challenges traditional interpretations of consumer choice.

While evidence is lacking, given the absence of DSC systems, in theory if properly designed and executed, they should generate more stable incomes across multiple food production systems, enhance environmental performance, create more equitable access to a nourishing diet, and improve work productivity and  population health. There will be significant transition costs, given currently low levels of appropriate intervention, a significant learning curve for existing and new institutions, and multiple adjustments along the path of change.  The benefits, however, all have significant savings associated with them, in particular reduced environmental clean-up, productivity improvements and reduced health care costs[1].

Demand – supply coordination likely has to be carried out under a combination of federal and provincial authority (for example, enabling federal legislation exists for supply management), especially for addressing cross border movement of goods to equalize supply among provinces. Under the constitution, the provinces are responsible for private property and land use .  They share responsibility with the federal government for inland fisheries (the federal government is responsible for coastal and tidal fisheries, the major sources of fishstocks).  Provinces are also for hospitals. At the time of confederation, governments were not seen to be responsible for health per se, so there is no direct mention of it in the Constitution (Jackman, 2000).  Although recent convention has health care as a joint federal-provincial responsibility, actions by recent federal governments have somewhat reinforced a more traditional constitutional interpretation, that it is primarily a provincial responsibility, with the federal government just supplying financing and sometimes using that financing to leverage certain kinds of changes.   Consumption is viewed primarily as a health and fraud prevention issue.  Economic access to an affordable diet is a huge gap in the jurisdictional landscape (see Goals 1, 6 and 7).

As discussed later, the only time a joined up approach was used was during the 2nd World War, when food consumption was influenced to support the war effort and supply was managed to address multiple needs, using a large number of interventionist instruments (Britnell and Fowke, 1962; Mosby, 2014).  The lessons of the WWII period are discussed in another section.

Financing the transition

As the efficiency stage is largely about collecting different data, with expanded forms of research, analysis, modeling and monitoring, there will be additional costs that build upon current budgets allocated for activities that only partially achieve the purposes set out here.  However, because they are modifications, rather than entirely new programs, the net costs will not be excessive since presumably existing budgets can be subsumed within this new approach.

At the substitution stage, new expenditure on planning and coordination processes are required, ones that begin to take advantage of the new data. Expenditures are also required on new kinds of incentives to shift farmer, firm and consumer behaviour.  But at this stage, the savings associated with reduced environmental degradation (see Goal 5, Sustainable Food, Financing the Transition) and improved health (see Goal 3, Food as health promotion, Financing the Transition) should start to appear.  With the changes associated with other parts of this change agenda, mechanisms to capture these savings for re-investment will be in place.  There will also be different earmarked taxes in place that can be allocated to some of these new expenditure areas.

At the redesign stage, system-wide savings associated with input reductions, subsidy shifts, consumption changes, and improved health and environmental performance should be fully apparent.  Many of these savings will be captured at the firm, farm and household levels, others via reduced expenditures in departmental budgets.  The potential net benefits, however, will not be apparent without some significant modelling work in the near term.

Endnotes:

[1] Such benefits and savings can be surmised from multiple sources, including Tegtmeier and Duffy, 2004, TFPC, 1996.