The United States wants Canada to end supply management, which impedes agricultural imports – dairy, eggs, and poultry. Canada’s trade negotiators and politicians steadfastly refuse, and in their defense of the policy call up an astounding piece of logic: that the less Canadians have, the richer we are.
Canada’s Agriculture Minister insists that supply management is an “excellent system” and that “to deal with anything else is simply a non-starter.” Supporters on the left argue that the policy is necessary to protect domestic farmers from unfair competition from American farmers who receive government subsidies.
Conservatives have argued the same. Current Parliament Member and former International Trade Minister, Ed Fast argued in a recent essay that America simply wants access to the Canadian market “to deal with its own problem of overproduction, to the detriment of Canadian farmers.”
Here is what all proponents of supply management are arguing: If we allow the Americans to send us milk, then their problem of overproduction becomes our problem. Don’t you see how problematic it is, how much poorer we will become if we allow them to send to us the fruits of their overproduction, and at a low price to boot? Don’t you see how much richer we would be if we had less milk?
‘Oh, Canada‘. I think that we can stop there.
Most countries have chosen to buffer and protect their food-producing sectors as a simple security measure. Damage your food production system, lose your country. Flooding a country’s food markets with dumped (underpriced) product is a great way to devastate food production systems and greatly weaken a country. This system has been in place in the USA since FDR pushed through the Ag Adjustment Act in 1933. The Canadians accomplished much the same thing through establishment of the Canadian Wheat Board, through which most ag output must be marketed.
Since then, both Canada and the USA have maintained highly coercive quotas and price support systems for agriculture. They’re both demanding that the other drop their own protection. Ain’t gonna happen.
This is a bargaining ploy only. No Midwest USA politician could survive messing with farm aid. Neither could any ag-area Canadian politician.
This is much like the Bombardier controversy – the American government is pushing back against a NAFTA regime that seems to have put more restrictions on American products than anyone else’s. Some might see this as a fight to impose more barriers to trade by shrinking the reach of NAFTA. It’s actually more of a push to equalize what barriers do exist.
Lau’s point here is facile. Canada could certainly benefit for a few years with the increase in dumped USA milk. Milk prices would drop for the Canadian consumer.
But only until the Canadian dairy system was bankrupt. At that point, do you believe that USA producers would maintain those very low prices?
I don’t. I think Canada would be f*cked.
(ETA: Consider this: The USA demand in this regard would be that Canada allows the USA dairy sector to do to Canadians what it doesn’t allow it to do to Americans. USA dairy could easily get rid of their overproduction by dropping prices in the USA – but that’s not allowed. So they want to do it to Canadians?)
Earlier this year, the Conservatives came within a hair of electing someone who made opposition to supply management a centrepiece of his campaign, which is impressive given that he came from the riding with the single highest number of dairy farmers in the country. Damn shame how that one turned out.
Bobby: You say that like American dairy producers are a single entity who cannot compete with each other, which is false. Also, the only reason Canadian milk is so expensive in the first place is the ridiculous cost of buying quota, which stops being an issue if SM goes away.
Is that because Canadians could not possibly set up dairy farms if prices rose to make them economically viable?
Have their been any examples of a company (or country!) producing something so cheaply so as to become a monopoly and then increasing prices and forcing customers to pay more over time than they saved from the low prices? I’m calling this an economic myth.
The USA pricing and allotment system, in many ways, converts them into a single noncompetitive entity. That’s what I meant with the ETA portion of the second comment. Once they’re price-fixed, competition is limited. The system is designed to inhibit competition. That’s its main goal.
But the main point of my diatribe wasn’t to extoll one system over another, or to argue for or against the current NAFTA regime. It was to point out that the OP article was an overly simplistic and facile mistreatment of the controversy that can only set in the minds of readers a complete misunderstanding of what truly is a complex issue. Joking that someone considers having less milk to be an enrichment completely misses what is actually happening.
If I’m understanding your point correctly, I’ll throw OPEC in here.
Once a dairy herd is bankrupt and gone – i.e., the herd is dead and sold off – the time required to develop and raise a replacement herd – time without profit – can be measured in years, especially if the entire area industry is weak. It’s not the same as “oh, look, widget prices are up, let’s make some widgets.”
I’m not advancing an anti-markets view here. The USA and Canada both have entrenched anti-market ag systems, for reasons that can be both defended and condemned. They’re just fighting for position. I’m simply saying that the article misses the point in order to create a punchline.
More likely, the Canadian farmer just buys cows from the USA or Europe to take advantage of improbably high milk prices. Or alternatively, Canada just starts buying milk from the gazillion other global over-producers.
Oh no! Another country is going to sell us stuff dirt cheap, subsidised by their own taxpayers!
Truly, campaigns against ‘dumping’ are the most witless of them all.
Bobby B:
Consider this: The USA demand in this regard would be that Canada allows the USA dairy sector to do to Canadians what it doesn’t allow it to do to Americans. USA dairy could easily get rid of their overproduction by dropping prices in the USA – but that’s not allowed.
Of course, the American price support system should be dismantled as well.
If we’re speaking entirely of economics, then, certainly.
But there’s a national security aspect to this issue that shouldn’t be ignored. It might be cheaper for us to procure our nuclear weapons from Chinese manufacturers than to build our own, but there are reasons divorced from price advantage that keep us from doing this.
But unlike nuclear weapons, milk and cars and a majority of other things can safely be purchased from multiple sources.
This is more like it:
https://www.youtube.com/watch?v=kxTpIMK5NSo.
You often hear the Canadian Left argue that Canada needs food security from America.
It’s a remarkable window into their mindset. Canada shares the world’s longest undefended border with America. A National Guard from a single US state could successfully invade Canada.
And yet, they’re certain that if America got to the point where it wanted to actually withhold food from Canadians, that’s okay because they have a dairy marketing board.
One of the most irritating traits of Canadians is that while they benefit from an almost unprecedented relationship in which a larger country with massive natural resource wealth can prosper unmolested next to a military superpower, they have nevertheless convinced themselves that America is dangerous and ignorant.
Canada’s very existence is proof of the opposite of what most Canadians believe about their neighbor.
Bobby, OPEC not withstanding, America’s “Oil Crisis” was a result of AMERICA price-fixing.
“If I’m understanding your point correctly, I’ll throw OPEC in here.”
And you would be entirely wrong. OPEC caused a temporary dislocation in oil prices (which was exacerbated by that idiot Jimmy Carter) but once his moronic price controls were removed the problem largely resolved itself. OPEC can’t even hold itself together or control its members’ production levels. Monopolies are never sustainable absent government action; OPEC is proof of that even though it is itself a collection of governments.
And I don’t buy the “national security” argument when it comes to food (or basically any other consumer good), either. Supply is too fragmented, and sources too diverse, for that to be a rational argument. It’s a crass political argument, calculated to appeal to the ignorant.
If the US is foolish enough to pay agricultural supports (we are, and it is utterly foolish), the Canadians should be grateful that American taxpayers are being forced to subsidize their food purchases. They are the richer for it, and we the poorer. This is just another species of protectionism, which we discussed recently in another thread. It is always harmful to the people of a country which practices it.
It isn’t only milk production that’s involved. To produce milk, a cow has to get pregnant and give birth. Milk production is a by product of beef production. Or vice versa.
Although Chip (October 23, 2017 at 12:17 am) is so right in general about the absurdity of the Canadian left today, “Canada’s very existence is proof” of the strength of the British empire in the 18th century and the primacy of the US civil war in the 19th century. As proof of the absurdity of the Canadian left in the 21st century, the meaning of Canada’s continued existence vanishes beneath the meaning of a thousand more immediate points. 🙂
In terms of practical politics, it will obviously be difficult to dismantle Canadian agriculture arrangements while US ones remain in place – which is no reason why the abstract argument for it should not be discussed here, of course.
I’m more interested in what the UK will do after Brexit. The system we had before we joined the EU (the EEC it was back then) was much better at letting the third work sell us food, kept food prices low, did not aim at self-sufficiency, just at maintaining enough of a farm sector that we’d survive another WWII. Given that WWII was a recent memory back then and the USSR was very much in existence, the argument from national security was not wholly vacuous. (Milton Freemen, in “Free to Choose” grants that it’s an argument that can have content, though frequently abused).
The system was one of deficiency payments, not minimum prices. Each year, all British farmers were promised a set sum from the government for every pint of milk they actually sold, every pound of prime beef a customer actually bought, etc. Thus till prices remained low while British farmers had some hope of charging the end customer a price comparable to that of cheap imports. I will not have to tell this audience that payment increments set by bureaucrats had issues, but at least they were year-on-year market-data driven, and showed no tendency to produce surpluses. The contrast with the ‘common agricultural policy’ on the continent was marked.
If Americans were giving dairy products to canadians for free, would that also be terrible? To answer in the affirmative is to view domestic production as the end to be pursued instead of domestic consumption. Its a perverse case of putting the cart before the horse. If you aren’t getting something for free, the next best thing is getting it at an artificially low price. The correct Canadian response to American ag subsidies should be ‘Thank you very much. Please continue to enrich Canadian dairy consumers at the expense of American tax payers.’
The simplest solution would be for the US and Canada to introduce a free and unsubsidised market in dairy–and all other agro-products.
Wonderful for consumers and of the producers whoever wins wins and without govt interference.
Not sure I do myself, but that wasn’t the point of my bringing it up.
Let me re-reiterate my point.
This is a complex controversy. There are several underlying issues, and varying viewpoints that are sincerely held by intelligent people. To come to an intelligent resolution, everyone involved is going to need to attempt to understand the logic and concerns of everyone else.
Did Lau’s article attempt to explain any of these? Did it even acknowledge their existence?
His endpoint logic was this: “”Don’t you see how much richer we would be if we had less milk?” Ha ha ha.”
What he presents is the Libertarian version of the progressive who calls me racist as soon as I disagree with him on any point. He leaves his friends chuckling among themselves, he convinces absolutely no one of anything they didn’t believe before, he insults the views of others without considering them, and he cements the Libertarian reputation of superior smartassery.
We all do a lousy job of advocating for libertarian thought amongst people who don’t know libertarian thought. My initial comment above was triggered by a text from an acquaintance – an American dairy farmer who read the article, and who would love it if Canada loosened imports – whose only response was “he really doesn’t understand the issue, does he?”
(Don’t get me wrong. I like Lau’s writings generally. This one just clunked.)
Bobby b
Nobody has to attempt to understand the logic and concerns of the unilateral free trade people, when their position can simply be ignored. Trade as a zero sum game in which the aim is to maximize exports while minimizing imports is the tacit default assumption baked into virtually all mainstream news coverage of international trade issues.
Similarly, nobody has to understand the logic and concerns of the racist sexist conservatives, when their position can simply be ignored. (See what I did there?)
I guess I see more possibility of improvement if we DO try to understand the logic and concerns of everyone involved, so that, if they’re wrong, we understand how to help them see the light rather than just calling them names. We can ignore them forever if we want, but we can’t ignore their votes or their influence.
Sadly this is true and it says a lot about both education and journalism.
Strangely, Canada seems fine with having the American taxpayer subsidize their military equipment.
If Americans were giving dairy products to canadians for free, would that also be terrible?
Because giving food aid for free to developing countries has worked out so well?
“I’m calling this an economic myth”
I won’t tell Jeff Bezos if nobody else does, ok?
A much better option would be for some supra-governmental body to allocate Canadian fields to USA farmers, and then for the farmers to sell the food to Canada at an increased price. Canadian farmers could live on benefits. C.f. UK fishing waters.
bobby b, I don’t agree with any of your arguments (9:28 AM).
If this is a “complex controversy”, that is only because of political considerations, not economic ones. And while there may indeed be “varying viewpoints that are sincerely held by intelligent people”, that doesn’t make those viewpoints correct. Their (supposed) intelligence is irrelevant; they are simply pursuing their own narrow interests, not those of the nation. Those “varying viewpoints” are driven by a combination of crass political calculation (politicians), simple greed (farmers), and gross economic ignorance (nearly everyone).
And I also disagree with you about Lau’s closing line. It was a simple, easily understood refutation of the central fallacy behind the protectionists’ argument. At the very least it forces everyone to step back and rationally consider the ultimate consequences of this policy, utilizing the classic “reductio ad absurdum” technique. And it was directed to Lau’s Canadian readers, not to your American acquaintance (who, actually, is the one who “doesn’t understand the issue”; his only interest is in maintaining American price supports).
I don’t need to know the substance of their arguments to know that they are fallacious. But I agree that is useful to know their motivations, so they can be exposed.
If I could have an internet motto . . .
😆
End the insanity of Canadian “Supply Management” and end farming subsidies AS WELL.
Ted Cruz won the Iowa Caucus events even though he proposed an end to ethanol subsidies for corn farmers (perhaps he won BECAUSE he proposed an end to the subsidies), this is a principle that should be generally applied. End all the subsidies – and get rid of the department.
By the way the Department of Agriculture is not just a welfare department for farmers – it is also the Food Stamps Department. Food Stamps were created in 1961 so the brainwashed (sorry “educated”) who think that people starved in the streets under President Eisenhower in 1960 will be very upset by the end of Food Stamps.
By a total coincidence…… there was no vast problem of mass illegal immigration in the 1950s (although there was some illegal immigration) before the creation of government schemes such as Food Stamps and “emergency” health care.
To narrow the focus.
NAFTA is a supposed to be a Free Trade agreement.
A “free trade agreement” that says “Canada and Mexico get to export stuff to the United States – but there are restrictions on what the United States sells to them” is NOT a free trade agreement.
It is such unfairness in trade deals that led to Donald Trump winning the primaries – he was the only candidate who really stressed the rigged nature of many of the trade deals. He got many of the details wrong – but they are generally rigged against the United States.
The United States can not just keep borrowing money to pay for imports – that is NOT how Free Trade works.
Free Trade works by “you sell us what you are good at producing, and we sell you what we are good at producing” – NOT “we endlessly buy vastly more from you than you do from us – and we finance the deficit by borrowing money”.
The same is true of the British trade deficit with the European Union and the one with China.
Borrowing to finance CONSUMPTION is not a sustainable policy – not for an individual, and not for a nation either.
But, more to the point . . .
I agree. But you say “political” like it’s a dirty word. Try accomplishing something without politic speech.
You want to remain secure in the purity of your economic thought. I would rather convince some people to think a bit differently and maybe find some common ground so that we can actually accomplish something.
Um, no. He’s someone who recognizes that political change, when not at the point of a gun, comes about through persuasion, and he was not impressed with the persuasive character of that article – specifically because it speaks to nothing that would persuade anyone to change their mind about any of the several issues that surround this controversy. And they do remain as issues, and he knows them far better than you or I. He would like Lau’s viewpoint to prevail; he’s not impressed with the effort.
We just went through an election in which one side’s position was, in essence, “you’re wrong, you’re simpletons, shut up and listen.” They lost. We don’t need to follow that same strategy. Plus, their arguments are only fallacious if they are looking to attain the exact same goals as you. They have different concerns and needs. This isn’t “2+2=4.” This is more “green is better than pink.” Your argument reduces to “no, stupid, pink is better.”
The question of whether a nation can increase its overall prosperity by the use of tariffs or subsidies is an empirical one, not a subjective one.
The answer is either yes or no. I’d argue that the evidence points overwhelmingly to no. To my mind, the only reason that wealth eroding tariffs and subsidies can continue is that publics around the world remain in the grip of powerful intuitively appealing fallacies.
The question of whether a region or a sector or a group can increase its prosperity by the use of tariffs or subsidies is also an empirical one. I don’t think we’ve addressed it. So long as regions and sectors and groups wield democratic power, they are going to address it, usually by voting. We can rail against ignorance, or we can come up with arguments that convince people that they will eventually share in the growth. That’s not being done.
The answer to your question is an obvious yes. But it is ONLY because the public at large believe that protectionist measures can produce net gains for the nation as a whole, that calls for such measures have political traction. How to disabuse the public of that fallacy is the question. Can it even be done? It is a psychologically satisfying fallacy that goes with the gain of man’s tribal instincts and intuitions. Unilateral free trade has proved profoundly counterintuitive.
>Monopolies are never sustainable absent government action<
John Rockerfella had a monopoly. The price went down until gov't involvement. Gov't peeps got to be paid.
bobby b, this is precisely “2+2=4”. It is an economic question, pure and simple, and anyone who pretends otherwise is simply seeking to advance his personal interests, not those of the public. And the only way to counter such self-serving rationalizations is to expose them for what they are: to show the public in very simple terms how they are being exploited and lied to for the benefit of a relative handful of others. Which is exactly what Lau’s clever remark does. It forces people like your acquaintance to fall back on ridicule and denigration (“he really doesn’t understand the issue”) rather than advancing a cogent argument in support of what is, frankly, an indefensible policy.
I usually find myself in agreement with you. But not here.
Bobby B
Whether a region or sector can increase it prosperity by means of subsidies or tariffs is neither here not there. The ONLY reason why its politically possible to have them is because the public is under the illusion there are net national gains to be had through such policies.
The question, from the Canadian point of view is very simple, and US agricultural subsidies (a dumb policy) are irrelevant.
The question is: should all Canadians be taxed (by being forced to pay more for milk) in order to support Canadian diary farmers?
In general: is it ok for government to take money from A (taxes) and give it to B ?
Is it desirable for the Canadian government to subsidize sector A of the economy, by imposing higher taxes on all Canadians?
The “national security” argument is especially spurious. Is Canada afraid that the vicious Yankees will deny milk to Canadian children when the next war between Canada and the US breaks out?
The problem is that the zero sum mercantilist view is psychologically appealing in that it converts trade into a kind of national team sport. ‘National Team’ thinking is a friend of the state and facilitates the spreading of costs, concentration of benefits and influence peddling that is the great motor process of politics. Its hard to debunk a myth that the political class has such a vested interest in fostering AND that people enjoy believing in.
Good point, Jerome.
I repeat my point – free trade is good, but borrowing to finance consumption is NOT good.
Actually, some monopolies CAN occur without government support. The diamond cartel is still going strong. Usual arguments don’t explain it. Maybe it’s only necessities that aren’t monopolies. Whilst some diamonds are used for industries, the majority seem to be luxury goods. Perhaps elite luxuries are an exception? Because alternatives aren’t viable?
One aspect in this, and it can’t be ignored, is simple geography.
With very few exceptions, farming is a higher-cost, more marginal business in Canada than the US.
Canada, for simple sovereignty reasons, needs to maintain a level of domestic farming for staples. That requires some extent of either subsidies or import limitations, particularly given the level of subsidies in the US farming business.
The current system is a disaster, and needs replacing, but any agreement to allow US imports needs to be matched by a removal of US subsidies on said imports.
As to the CWB, it’s been gone for 4 years and most everybody is happy except the ~900 residents of Churchill, MB (whose community lost its primary employer and primary land transportation link as a result of the end of subsidies from the CWB to ship grain via the Port of Churchill)