OTTAWA, June 21, 2012 - Low-income Canadians and those looking for jobs are only two of the important groups of Canadians harmed by agricultural supply management (SM). While a small number of relatively well-off farmers may benefit from SM - which covers agricultural commodities like eggs, chicken, and dairy - it is both a barrier to increased trade and a regressive income re-distribution system, according to a new report published today by the Macdonald-Laurier Institute.
Canada's continued support of supply management, which restricts both domestic production (through quotas and licences) and international imports (through tariffs), is a significant barrier to this country's access to foreign markets, including the Trans-Pacific Partnership (TPP), writes Ian Lee, one of the authors of essays included in Milking the System: How Agricultural Supply Management Impedes Trade Opportunities and Egregiously Transfers Income.
The TPP originated in 2005 with Brunei, Singapore, New Zealand, and Chile. Australia, Peru, Vietnam, Malaysia, the United States, Japan and others including China may join in due course. It may well be one of the most important trade blocs in the 21st Century.
The sheer size of the countries involved represents a real opportunity for Canada to expand its opportunities for trade. If all the potential members join the TPP, it will represent $35.2 trillion in GDP and 2.7 billion people. At the recent G20 Summit in Mexico, Canada was finally invited by US President Barack Obama to enter negotiations to join the TPP.
According to Lee, the biggest obstacle to Canada securing entry is supply management. In fact, close allies like New Zealand and Australia have adamantly stated that Canada must dismantle SM if it wishes to gain entry. This requirement was one of the reasons that Canada hesitated before accepting the invitation to join membership talks.
If Canada is to maintain its high standard of living, Lee argues that it is imperative that it secure trade access to other countries - including those within the TPP. Should Canada fail to join the TPP (which is the likely outcome of the government's current stance that SM must be defended unconditionally), there is a further danger according to Professor Lee. As part of the TPP, the U.S. would gain a significant advantage in attracting business development, investors, and entrepreneurs who want access to TPP countries but wish to remain in North America.
Finally, "Mexico's potential entry to the TPP would mean that in many ways it would become the super-NAFTA. Being on the outside of such a critical trade agreement would have both short and long-term negative consequences for Canadian prosperity," concluded Lee.
A second essay included in the study examined the nature of income transfers implicit in agricultural supply management. Professors Chris Sarlo and Larry Martin concluded that the overwhelming financial burden of supply management, which by design increases the prices of covered commodities, falls on lower income households. According to their analysis, low-income households spend almost one-quarter of their income on food while upper-income households spend between 5 and 10 percent. The higher food prices resulting from supply management therefore impose a disproportionate burden on lower-income households. While SM transfers income from all households to a small group of legally privileged farmers, the burden on low-income households is highest as a share of income. It is in effect a highly regressive tax on food.
Brian Lee Crowley, one of the editors of the series concluded that "an outdated and regressive program, long since abandoned by many of our key allies and trade partners, and that benefits only a small group of farmers, should not stand in the way of Canada participating in the most important trading agreement since NAFTA. The TPP offers Canada enormous benefits for business investment, job creation and trade with a large number of high-growth countries."
Chris Sarlo is Professor of Economics at Nipissing University in North Bay, Ontario. Larry Martin is a Senior Research Fellow at the George Morris Centre in Guelph, Ontario. Ian Lee is an Assistant Professor at Carleton University's Sprott School of Business in Ottawa.
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