Supply management a buffer to trade uncertainties

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Canada’s system of supply management for most poultry and cows’ milk production avoids the sort of uncertainty that has begun to crowd agricultural trade.

That farmers find themselves caught up again in big power politics should come as no surprise. It has happened many times for diverse reasons.

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In 1980, then-U.S. president Jimmy Carter, a Democrat, enacted a grain embargo on sales to the Soviet Union after the USSR invaded Afghanistan. While the Soviets found other sources of imported grain, the embargo significantly disrupted North America markets. The embargo’s agricultural consequences were thought to have played a role in the election of Carter’s Republican successor, Ronald Reagan, who promised to end the embargo.

Establishment of the World Trade Organization (WTO) in 1995 appeared to recognize an international agreement about the need to reduce tariffs and smooth trade. Recent export expansion both in Canada and the U.S. has depended to some extent on the existence of dependable rules for trade. However, the 2016 election of Donald Trump threatens those calculations, as notable observers have warned.

A June policy note by economists Al Mussell and Douglas Hedley on the website of the Guelph-based consultancy Agri-Food Economic Systems cites “ominous” threats to Canada’s agricultural interests in the continuing U.S./China trade war. Their paper, Global Trade Policy in Disarray, describes weakening U.S. support for WTO which has overseen significant, post-1995 expansion in agricultural trade to the clear benefit of Canada.

Likewise, University of Ottawa fellow Carlo Dade in a recent opinion column in the Globe and Mail described “the global rules-based trade system . . . in profound crisis.” Dade argues “the Trump administration is openly threatening to destroy the principal trade-governing institution, the World Trade Organization.”

What may once have seemed an esoteric discussion about economic theories seems suddenly to have gotten down to earth. For Canadian agriculture, recent trade disruptions have become suddenly consequential and occur directly within Canada’s present, and expected, trading sphere.

Not only does Canadian agriculture rely heavily on trade with both the U.S. and China, the planning of successive Conservative and Liberal governments has targeted agricultural exports as a likely source of future economic growth.

Early in its term, Justin Trudeau’s Liberal government adopted the advice of its Advisory Council on Economic Growth led by consultant Dominic Barton. The Barton report to Finance Minister Bill Morneau recommended, among other things, that the government target a doubling of agricultural trade by 2027 to $75 billion citing “a strong endowment and untapped and significant growth potential” both in primary agriculture and further processing.

Since then, the Ottawa-based non-profit Canadian Agri-Food Policy Institute (CAMI), an independent think-tank funded mainly by federal and provincial governments, has examined some hurdles to achieving Barton’s targets. While CAMI found the Barton targets achievable, the report’s authors warn also of slowing economic and population growth in China and the world, as well as an existing labour and skill shortage in Canadian agriculture and related in scientific research. The CAMI report also cites three key trade policy factors: the lack of existing trade agreements with China and India as well as “U.S. policy uncertainty.”

The thing about supply management: it targets production of poultry and cows’ milk to Canada’s domestic consumption in exchange for regulatory limits on the volume of imported products and tries hard to avoid international complications. Supply management was introduced to Canadian agriculture 50 years ago in order to avoid exactly the sort of trade complications that arrived with Trump.