Sunday, July 5, 2015

supply management

The Canadian government intervenes in the market for dairy with a tripartite scheme of price controls, quotas for domestic producers and quotas / tariffs for foreign producers. The net effect of these policies is to screw the Canadian consumer while benefiting domestic producers. There is a very simple alternative to this ridiculous scheme which is to deregulate the dairy (and egg) market and allow for free and unfettered competition.

The price system is beautiful in it's elegance and it's simplicity.  If demand for a particular good increases (and supply stays the same) then the resultant increase in price is a signal to entrepreneurs that scarce resources should be directed towards the production of this product. Likewise, ceteris paribus (all other things being equal) if the demand for a good falls, so will the price, and resources can be directed away from this industry. Through the price system the efforts of billions of individuals globally can be coordinated towards the most efficacious ends. There is simply no other means of rationally allocating scarce resources. When price controls are imposed on a market, however, the price system is prevented from working and either a shortage or a glut will result. Prices must be allowed to rise and fall on the basis of consumer demand.

Quotas serve only to protect established business interests from competition. What possible rationale could there be for insisting that someone not be able to raise cattle for dairy without purchasing a quota for $28,000 a cow? Surely we should be encouraging small competitors to enter any market not using the power of the state to keep them out. The imposition of high fixed costs through regulations is a classic tool by which large firms have smashed smaller competitors but this practice is unfair and should be ended. Anyone who wants to go into the business of farming should be able to, without jumping through unnecessary bureaucratic red tape or paying ridiculous amounts of money to the government. Most people in rural areas do not have a random $250,000 lying around to pay for the privilege of working in addition to the mortgage on a farm, equipment, feed, bills, etc. What we should do is scrap the quota system entirely and look to subsidize farmers by not taxing their income or property. We shouldn't restrict supply, and thus an increase in the price of food. Nor should we make farmers jump through regulatory hoops to operate. What we need is a policy of laissez-faire in our agricultural industry. Live and let live. The 21st is going to be the century of a global renaissance in agricultural and Canada should lead the way by encouraging this industry through tax breaks and deregulation.

Tariffs and import quotas should also be removed. People are struggling as it is to make ends meet, the last thing we need to do is subsidize established business interests by preventing cheaper foreign goods from entering our markets. Competition is healthy.  If a firm cannot compete then it should go out of business. The capital doesn't just disappear; it is purchased by a company which can do a better job and put to more productive use. Canadian consumers need lower prices and eliminating tariffs and quotas is an effective means of accomplishing that goal.

The supply management system needs to go.


  1. I agree the current GoC policy stinks. But releasing the quota system would allow citizens to buy cheaper quantities of basically unhealthy foods, namely milk and eggs.

    Governments are chiefly regulatory bodies. Their job is to organize the marketplace for the benefit of citizens in the present and the future. Canada is the worst environmental offender, spewing out per capita more GHCs than any other nation. The prices for milk and eggs should be kept high to discourage consumption, and the addition charges should be paid by the producers.

  2. Thank your comments it's always nice to hear from someone with an opposing point of view. Personally I review the role of the state in a different fashion; the function of government has always been to exploit the economic class, but we're talking about supply management not the origin of the state so perhaps I shouldn't stumble so violently off topic. While I'm not an expert on nutrition I really do not think milk, and in particular eggs, are unhealthy. Nor is it the role of the state to instruct people on what they are eating. It's important to understand how utility works. The real question isn't 'which foods are the healthiest' (although if it was I'd imagine eggs would be up there) but rather 'what do people want'. If we distort the market by subsidizing good a and penalizing good b then necessarily people are going to end up with less utility than they would have otherwise. Health isn't the only factor. A lot, too much perhaps, maybe even the majority, of food is produced and consumed without health in mind. Unhealthy snacks are a massive industry. And I don't think you can say that people shouldn't be eating them. That's their decision to make. Health isn't the only metric. Even people who eat healthy most of the time, or almost all the time, have been known to enjoy the odd donut or whatever, which is clearly not good for you but at the same time oh so delicious. And that's their decision to make. Because only the individual in question is qualified to comment on whether a particular ends is suitable for their given means. Only an individual is really qualified to decide how they should live their life. But certainly if we are to put foods on the chopping block because they are unhealthy we would target sugary junk foods instead of nice healthy eggs with their quality proteins and fats.

    As to the issue of environmentalism I reject the basic premise of the green movement, which is that nature is some sort of pristine state and any effort by man to alleviate scarcity by transforming nature into something which can better serve his needs is perverse. I do not place the rights of the sea otter above those sentient people who are able to understand their plight. Is there a link between GHG emissions and warming? Yes, but the hysterical models of alarmists have not been backed up by more recent temperature measurements such as those obtained from the ARGO system. Frankly this is an unimportant problem. As technology evolves it gets cleaner. Long before global warming ever becomes a problem we'll be on to the next great thing in terms of energy. There is no optimal level of climate. If the earth gets a degree or two warmer it's not going to be the catastrophic doomsday scenario described by those who are fundamentally opposed to energy in and of itself.