DSC Instruments

Agricultural instruments

In Canada, the supply managed commodities are currently the most visible example of some degree of supply – demand coordination. Much maligned by conventional agricultural economists and trade negotiators, supply management remains publicly popular for a number of reasons, including a belief that domestic farmers are worth supporting. Increasingly there is recognition of the potential for supply management to support sustainability (see Sterne and Van Duren, 2019 for an overview of key arguments for and against supply management) though that has yet to extend to an appreciation for their value as instruments of DSC.

In some provinces, eg. Newfoundland, supply-managed commodities are the only ones where domestic supply aligns with domestic demand, the other foods being substantially imported (Arnason, 2020). Orderly marketing emerged in Canada out of a recognition that the economic power of agri-food firms made it more difficult for farmers to earn sufficient income from the marketplace (for a review, see Winson, 1993). Although many attempts to create suitable instruments were undertaken through the early part of the 20th century, many of them provincial, it was ultimately recognized that national schemes were required because provincial boards could not regulate trade and supply across borders. Actors recognized the need for a nationally coordinated structure. It was largely provided in the form of the Farm Products Agencies Act (FPAA), first adopted in 1971, with additional legislative framing provided by the Agricultural Products Marketing Act (APMA). The provinces also had to enact or modify legislation to create a shared authority structure, given the BNA Act’s division of powers between the provinces and federal government. Out of these interventions emerged 5 national supply management schemes (Table 1).

Table 1: National supply management schemes [1]

Production / characteristics Dairy (1970) Eggs (1972) Turkey (1974) Chicken (broilers) (1978) Broiler hatching eggs (1986)
Legal authority FPAA; APMA; CDC Act; provincial acts FPAA; APMA; provincial acts FPAA; APMA; provincial acts FPAA; APMA; provincial acts FPAA; APMA; provincial acts
Price setting or negotiation? CDC sets annual industrial prices. Uses COP and consultation; national pricing formula for fluid based on COP and CPI; provinces mostly set prices based on these calculations* Setting, provincial. E.g., Graders buy table eggs at price set by EFO. Those not sold are bought by EFO to sell to processors.  Uses COP Setting provincial, with processor consultation.  Contract directly with producers and pay at least minimum set. Negotiation. Every eight weeks, provincial negotiates with primary processors base price paid for live chicken. If no agreement, goes to arbitration. COP Set provincially for hatching eggs and for day old chicks.  Uses COP.
Supply determination (includes demand estimates) Industrial the Canadian Milk Supply Management Committee chaired by CDC; fluid provincial boards via regional pools. Provincial boards buy, then sell to processors Calculated nationally and divided amongst provinces Calculated nationally and divided amongst provinces Provinces make requests to national body which reconciles requests Set by CHEP with advice from an industry/government advisory committee.  Numbers allocated to provinces with adjustments through the year. Does not buy chicks
Quota [minimums  and quota prices and caps vary by province, see Mundler et al. (2020) Allotted free at first, now monetized and transferable; minimum is 10 kg butterfat/day (ON) Allotted free at first. Now monetized and transferable. No minimum. Allotted free at first, now monetized and transferable. Typically 2000 kg/ yr minimum. Allotted free at first, now monetized, transferable between producers with provincial board approval. Quota minimum is roughly 91,000 birds in Ontario Allotted free at first, now monetized and transferable with approval of the Board
Tariffs [2] Applied to imports above a level specified in trade agreements

Butter, 299%

Cheese 246%

Yoghurt 238%

Ice cream 243%

Skim milk powder 201%

 164% 155% 238% 238%
Import quotas and exports Minimal exports; import quotas vary from 0.2 – 20% depending on dairy product Small exports; Imports 3% under NAFTA for eggs and egg products Small exports; Imports under NAFTA 3.5% of anticipated production, 7th largest turkey importer in the world Significant exports; imports 4.2% WTO, but 7.5% previous years’ production under NAFTA Small exports; Imports under NAFTA @ 21% of anticipated production
Sustainable niche products Organic, pasture-based Organic, free-run, free range Limited organic Organic Limited organic
Exemption [3] (ON) None 99 layers 50 turkeys/yr 300 birds regardless of retail method None

Abbreviations: FPAA (Farm Products Agencies Act); APMA (Agricultural Products Marketing Act); CDC (Canadian Dairy Commission), EFO (Egg Farmers of Ontario), CHEP (Canadian Hatching Egg Producers), COP and CPI (Cost of Production and Consumer Price Index), NAFTA (North American Free Trade Agreement), WTO (World Trade Organization)

*Note that rules on what sizes and classes of milk are regulated and over what provincial geography varies by province. Manitoba, for example, only regulates 1 l fluid milk containers around Winnipeg and Brandon and allows price increases for transport within those zones based on a distance formula (Wendimu et al., 2018). This explains why fluid milk prices are much higher in more remote regions of the province.

The structures and processes associated with supply management lack a focus on optimal nourishment, being primarily designed to create orderly marketing and stable pricing for consumers, and stable returns for producers. When compared to US retail prices and Canadian beef and pork prices that are not supply managed, it has removed boom and bust cycles (for an analysis of Canadian and US egg prices, see NFU, 2023). These are all important objectives, but a more ideal system would look at optimal consumption to generate better health outcomes, rather than just focusing on current demand. This is a significant issue because all the supply managed commodities are animal products, and in general the population is over-consuming animal product for optimal health (cf. Campbell and Campbell, 2005). In consequence, there will definitely be a need to reduce supply to meet optimal nourishment requirements, a move that will be controversial given historical difficulties allocating quota provincially and then to individual producers. Learning from the energy experience in Ontario (Winfield and MacWhirter, 2013), it may be unwise to just inject demand management into supply planning, suggesting the need for officially broader mandates and different institutional arrangements than exist with supply management. Other challenges in the current system:

  • Quota rules often mean you can be very small without quota or medium to large sized, with no permissible size ranges in between. This system of quota allocation creates difficulties for small, niche producers, a significant complication in a demand – supply coordination system with resource allocation efficiencies a key parameter. Ideally, the system is flexible enough to provide a range of products for different tastes since a DSC system should not homogenize taste. But equally important, such a system should not create so much differentiation as to create significant inefficiencies.
  • Environmental innovation is slow to happen, for reasons both attitudinal and structural. Most supply management systems have accommodated a niche level of environmental performance, but what happens as everyone shifts to environmental production? The logistics of the transition would be challenging, especially in milk because of pooling. It might be necessary to legislate that the boards have to drive the transition, set minimum performance standards of environmental performance that all participants gradually have to meet.
  • Some of the quota minimums may be related to transport efficiencies (Farmstart, 2010) so changing the minimums may require alterations to distribution mechanisms. In general, localization does require significant changes to delivery modes and transport logistics in ways that reduce GHG emissions per tonne-km compared to conventional and international transport chains (MacRae et al., 2013). Such purposes would need to be integrated into the redesign.
  • Currently, imports are based on trade arrangements, only loosely linked to consumption requirements. Much of the imports are in processed goods, e.g., boneless white turkey breast, or cheese on imported pizza, or milk solids.  Imports should provide goods we can not currently produce domestically and as processing capacity is enhanced, import patterns can shift.
  • The ultimate challenge of supply management is expanding to other commodity areas. The current legislation requires the industry to agree to pursue orderly marketing, requiring a vote in favour by participating producers. Although there have been attempts to organize sectors badly affected by boom and bust cycles, e.g., beef and pork, organizers have not been successful. The potato industry has had some success self-regulating outside the legislative structure. Other commodities have a completely contrary approach, a maximum production strategic plan for the sector, e.g. canola, which means large exports and significant environmental pressures associated with production. Such commodities will only likely be converted with pressure from the provincial and federal governments.

The next most powerful market boards are the single desk sellers. They do not control supply and match it to demand, but all regulated commodities must be sold to or through them. Most of these have been dismantled, including the Canadian Wheat Board (CWB), which lost its single desk authority under the federal Harper government. Some of its authority was established during WWII. Other levels of authority exist, so for most commodities there is already some degree of marketing organization that needs to be expanded. Because of ongoing problems with prices, markets, and consolidation in hog slaughtering, pork producers on the Prairies have recently ruminated about resuscitating the single desk sellers that they dismantled in the late 90s in Alberta, Saskatchewan, and Manitoba. Quebec still has regulated hog marketing in the province and prices for producers have been much higher there (Arnason, 2020). Alberta Pork Producers voted in December 2020 in favour of setting up a system like Quebec's where producers receive $35 more per hog. Packers and retailers have not suffered unduly during the price downturn, but producers have (Glen, 2020).

The demise of the CWB has had numerous negative consequences that highlight the perils of dismantling the limited DSC instruments we have. Among those consequences is the economic downturn in Churchill Manitoba and the surrounding region. Churchill has for 100 years been a key part of the grain transport system, with a railway track the vital link from grain growing areas to the deepwater port on Hudson's Bay. On the surface, its status was placed in jeopardy by the washout of parts of the line in 2016 and the failure of the private sector US owner, Omnitrax, to undertake repairs in a timely way, with major economic and supply consequences for the region.  A deeper analysis, however, reveals how railway privatization and the demise of the CWB are key parts of the story. The line used to be part of the publicly owned transport system but was sold to Omnitrax by the federal government in 1998. The CWB played an essential role in coordinating transport across the 4 main ports for grain shipments (Vancouver, Prince Rupert, Churchill and Thunder Bay), assuring performance by the railroads and relatively efficient movement from proximate grain growing regions to a port. The loss of the CWB had a significant negative impact on the viability of the Churchill rail line and the private owner refused to invest more in what they perceived to be a money-losing venture. The Churchill rail line was purchased by a consortium involving First Nations, private firms, and northern communities in late 2018, and following some significant track improvements,  the rail line and port have now been resurrected, including export activities but it is unlikely Churchill will re-acquire the level of significance it had under the CWB regime.  Fundamentally, the private grain traders preference for Vancouver could mean that grain farmers near Churchill will have to ship their grain half-way across the country rather than use the much closer port (Norman, 2024).  The federal government subsidized the line following the loss of the CWB's monopoly power to the tune of $9/tonne (Fries, 2018), provided $74 million towards the purchase and repair of the line and port, and has provided some $43 in operating subsidies since, all of which the owners claim is insufficient due to the costs of a northern line and COVID impacts (Robertson, 2020). The demise of the CWB has also placed more economic power in the hands of grain handlers, as recently exemplified by the punishing contracts penalizing growers following the drought and low yields of 2021 (Arnason, 2021). The worry now is that Thunder Bay will next be ignored by private grain haulers, placing more pressure on the port of Vancouver and movement of grain by trucks rather than rail, with significant negative economic and environmental impacts (Robson, 2017).

Fisheries instruments

The story of the fisheries is very different than agriculture. There are more DSC instruments in the fishery, though the effectiveness of their application is highly contested (e.g., Oceana, 2017). Debates also exist regarding the utility of the measures themselves, that their usefulness is limited by the technologies and economic power relations within the sector that favour larger over smaller fishers. Essentially, larger fishing operations and the technologies they are able to bring to bear on fish harvesting, processing, and storage have contributed profoundly to overfishing.  Governments have been largely unwilling to seriously address those power dynamics.

In part, the presence of DSC instruments is a product of the failure to respect ecological limits. This failure is particularly apparent in the cod fishery, but is also very visible in wild Pacific and Atlantic salmon. The Department of Fisheries and Oceans (DFO) claims to apply sustainability principles and instruments to manage the fishery. Key elements (and their significance relative to DSC in agriculture) include:

  • a focus on precaution (the precautionary principle is rarely invoked in the agricultural sector)
  • an ecosystems approach (not used in agriculture)
  • ecological risk assessment (used in agriculture but other than input assessments, is not translated into a significant dimension  of programming)
  • management plans including the biology of the organisms, stock assessments, harvest rules, limits, and enforcement approaches (not used in agriculture); in some regions, co-management agreements are in place with First Nations and Inuit communities
  • monitoring and enforcement (used but not consistently applied in agriculture)

Improvements to these instruments are discussed under Solutions.

Endnotes:

[1] Sources: agency websites; http://www.omafra.gov.on.ca/english/farmproducts/factsheets/supply.htm; http://ageconsearch.umn.edu/bitstream/6124/2/cp070004.pdf

[2] Over quota custom tariff, there are also in quota tariff rates

[3] Varies by province. See FarmStart (2010) and Mundler et al. (2020) for details.