For pig farmers the NAFTA renegotiation period was an emotional rollercoaster; it was marked by misinformation, threats, and a general feeling of uneasiness given how desperately our industry needed to maintain tariff free access to US markets. When the three countries came to an agreement in principal on September 30th I felt like the sun was starting to poke through the clouds. It is never a good idea to overreact to a trade agreement given the long timeframes required to properly evaluate a deal but given the importance of the US market to our industry it was hard not to feel a sense of great relief.
While our industry needed this, our farming brethren in the supply managed industries did not share our happiness in the proposed deal. This agreement, like CETA and TPP before it traded away supply managed market access in return for market access in member countries for export oriented industries like red meat and grains, not to mention our diverse manufacturing industries.
The reaction amongst supply managed farmers has been diverse, ranging from ‘it could have been worse’ to ‘this is the worst thing to happen in the history of Supply Management.’ One thing that all criticisms of USMCA have failed to do is explain what the perceived alternatives to this deal are. Ultimately, Canada is a small nation in terms of population but rich with resources, making it absolutely necessary to have robust export markets for our varied products. You simply cannot sustain economic growth with a slow growing population of 36 million people when you are in a developed state like Canada. For arguments sake, let us assume that not having a free trade deal with the US is untenable and USMCA was the best deal Canada could get. How does Supply Management adapt their system to ensure it is viable going forward?
I know it borders on heresy for a pig farmer to comment on Supply Management policy development however we do know a thing or two about managing businesses through prolonged periods of financial upheaval and uncertain market conditions so humour me: Here is a pig farmers guide to reshaping Supply Management for a post USMCA world.
Conduct a one-time only quota buy back, financed by the Federal and Provincial governments using the pre-existing 60/40 cost sharing funding formula for all producers that wish to exit the market at current market rates in each jurisdiction. As extra motivation for producers, exempt these sales from capital gains taxation.
Create a merit based formula that indexes producers on past performance, variables to consider could include
- Current Quality Metrics, for example, SCC count and component scores for dairy farmers
- Current Quota Utilization, those currently filling their allocations receiving the highest score and then deducting points for under filling allocations
- Adherence to Quality Assurance programs, use scores from inspections to rank producers on their ability to meet national programming
- Time Elapsed Since Purchasing Quota, this is the hardest to quantify, but in my conversations with friends and family, capital debt loads for those that have entered the industries are rigid and they are the most sensitive to cash flow reductions while also representing the future of the impacted industries
- Ability to accommodate increased production within current facilities
Using the merit scores, create a grid system to rank producers and prepare a market for the government held quota. Pricing for the government held quota would be determined by a producers ranking, i.e. the highest ranking producers could access the lowest price point for government held quota while the lowest ranked producers would have the highest price point.
After knowing their ranking, producers apply for their preferred amount of quota based on the pricing accessible to them in their grid. Applications would require proof of ability to finance the purchase and pre-existing capacity for the additional production.In theory, this system should allow the farmers that are invested in the system and delivering a good product to grow and adapt for the future while farmers who are lagging in compliance or production are forced to consider exiting the market.
The nature of farming is that we are better off working together whenever possible but at certain times that can be difficult. When it comes to Canadian agriculture and trade, there are always going to be winners and losers given the diametrically opposed nature of export oriented and supply managed industries. The goal should be that we can emerge on the other side of turmoil still feeling like the other is empathetic to our situation while never fully understanding how the opposite system works.