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Our Stockholm Syndrome about supply management

Why our debates about international trade miss the point entirely


 

Consumption is the sole end and purpose of all production; and the interest of the producer ought to be attended to only so far as it may be necessary for promoting that of the consumer. The maxim is so perfectly self-evident that it would be absurd to attempt to prove it. But in the mercantile system the interest of the consumer is almost constantly sacrificed to that of the producer; and it seems to consider production, and not consumption, as the ultimate end and object of all industry and commerce.

Adam Smith, Wealth of Nations, Book IV, Chapter VII

This point is incredibly obvious to anyone who spends any amount of time thinking about the issue, but you will find almost no trace of it in Canadian public debates about international trade, including the latest over the Comprehensive Economic and Trade Agreement with the European Union. Trade agreements are always about “concessions” in which foreign suppliers are grudgingly given — or, more often, indignantly denied — the right to sell Canadians goods and services at prices lower than what we pay now. Let’s be clear here: lowering the price of consumer goods and services has the exact same effect on household welfare as an increase in incomes. But I defy you to name an elected politician who will list “the ability to buy cheaper stuff” as the most compelling reason to support free trade: more than 200 years since Adam Smith wrote that paragraph, our trade agenda is still written by and for producer interests.

We’re stuck with a system in which producer interests — most notoriously the dairy cartel that operates under the name of “supply management” — hold the rest of us hostage. Dismantling the dairy cartel is an act that would significantly increase consumers’ buying power, but this is a measure that the  Conservatives have all but ruled out under any circumstances, and the NDP has made maintaining the cartel a condition for supporting any sort of trade agreement.

Why would the two major parties (a Liberal Party of Canada under Justin Trudeau will likely join them) stubbornly insist on sticking to a policy that makes consumers worse off at the expense of producers? Because it’s a popular position. It’s one of the marvels of the Canadian electorate. Show Canadians a special interest group that uses its government-granted privileges to fleece consumers, and they’ll embrace it as a “national champion,” a “uniquely Canadian way of life” or some equally vapid catch-phrase.

This is from the Wikipedia entry for Stockholm Syndrome:

Stockholm syndrome, or capture–bonding, is a psychological phenomenon in which hostages express empathy and sympathy and have positive feelings toward their captors, sometimes to the point of defending them.

What we suffer from is the economic policy equivalent. Call it “Canada Syndrome”: a tendency for consumers to identify with the producer interests that are holding them hostage.

 


 

Our Stockholm Syndrome about supply management

  1. I don’t think you can make sweeping statements about Canada – I agree that Ontario and Que are profoundly conservative provs that protect producers but Prairies seem to be entirely different. Ontario and Que have always been conservative and liberal pols are not trying to make an argument for consumers.

    Supply management illustrates that our three main parties are social democrats and not one is actually liberal. Inept technocratic government dominates politics and voters are not really given a choice on policies. I have been really surprised by how left wing, anti taxpayer, Harper Cons have been. It is remarkable how willingly Harper has abandoned his beliefs in order to become more Liberal.

    Dairy cartel – should not be difficult to make an argument that appeals to consumers during election – dairy farmers are millionaires and working classes have to overpay for basic foodstuff to support a few rich farmers. And the middle classes don’t get their exotic cheeses from Europe either. Here in Ontario, we also have minimum price for alcohol to control consumption, we are anti-market in so many ways.

    • “The west” is only “free market” because they have big grain distributors campaigning with lines like “gee, love to pay you an extra buck an acre for all that grain.” That’s why the wheat board was turned into a tax-payer funded five year price insurance scheme. If demand goes south after that they’ll be screaming for public money loud as anyone, probably louder. Not that I blame them. When your livelihood has been tied for generations to producing a single staple good, you want the best price for it under any circumstances.

    • should not be difficult to make an argument that appeals to consumers during election

      Actually it will be very difficult if no party is making it.

  2. Why not just export our milk to the USA…. that would be because of the Farm Bill

    The Farm Bill is the United States government’s primary
    agricultural and food policy tool. It is a comprehensive piece of legislation
    that is renewed every five years or so. The Farm Bill was created in 1933 as
    part of President Franklin D. Roosevelt’s Agricultural Adjustment Act, which
    provided subsidies to American farmers in the midst of the Great Depression. The
    federal government paid farmers to stop the production of seven main crops —
    known as “commodities” — in the hopes of decreasing the supply and thus
    increasing the prices of staple crops.

    The Farm Bill has since expanded to include many different
    categories, or “titles.” The last bill to be authorized, in 2008, had 15
    titles, including nutrition (food stamps), crop subsidies, conservation,
    livestock, crop insurance and disaster assistance. The 2008 Farm Bill approved
    $300 billion in spending. Of that amount, 67 percent was spent on food stamps;
    15 percent (45 Billion per year) on agricultural subsidies; 9 percent on
    conservation; and 8 percent on crop insurance[1].

    Recently fiscal battles have blocked work on an
    overhaul of the Farm Subsidy Bill[2].
    Congress enacted an extension to the 2012 Farm Bill which extends
    provisions and subisidies until the end of 2013 to avoid a crisis that would
    force milk prices to $6 to $8 a gallon[3].

    Some will argue that the USA has reduced its subsidy payments to just $25.5 billion,
    down from $31.4 billion a year ago, but this is mainly due to increased global
    commodity prices and have little to do with reductions in supply management or
    subisidies[4].

    [1]http://topics.nytimes.com/top/reference/timestopics/subjects/f/farm_bill_us/index.html?inline=nyt-classifier

    [2] http://www.nytimes.com/reuters/2013/01/23/us/23reuters-usa-farmbill.html?ref=farmbillus

    [3] http://www.nytimes.com/2012/12/21/us/milk-prices-could-double-as-farm-bill-stalls.html?ref=farmbillus&_r=0

    [4]http://www.google.com/hostednews/afp/article/ALeqM5jLhm9mFi2KxB1snlyeUSpsZ6d0iA?docId=CNG.45a44728e048f5f22cfd3b6bd7a4e34b.e1

    • Funny that the cheap cheesers always avoid mentioning these subsidies.

      • I’m not pro supply management, its just if you actually look at the international farm subsidies picture, you quickly realize that the whole world stinks for farm subsidies

        • I’m not pro supply management either. I just don’t like it when pundits lie by omission. Tell the whole story or don’t say anything.

      • So Americans want to tax themselves so they can sell us goods for less than they cost to make? And we’re opposed to this notion?

        • Our dairy farmers would not be able to compete with those subsidies.

          • Is that a problem?

            If dairy farmers can’t make a living, much like Zellers and Nortel employees, they should find something more productive to do with their time/capital. I don’t see why we should impose additional cost on consumers to allow dairy farmers to farm uneconomically.

            Besides, there will always be fresh milk production in Canada. Fresh milk is always produced close to consumers due to high perishability and transport costs. Dairy competition comes in the form of butter, cheese, and milk ingredients.

  3. Or perhaps we should send our Milk to China….

    Why not
    export to China?

    China’s subsidies to farmers soared
    six-fold between 2008 and 2010 to $147 billion, making it the global leader in
    farm subsidies. Even in terms of the proportion that subsidies contributes to
    farm income, China’s was at 17 percent in 2010, over twice that of the United
    States’ 7 percent.

    • Wait! The world wants to tax themselves to sell us goods for less than it costs to produce them… and we are opposed to this?

      • It’s a Trojan Cow.

  4. Or the best place of all… the EU… they will buy our Milk…

    How
    about the European Union for growth?

    The Common Agricultural Policy (CAP) is a
    system of European Union agricultural subsidies and programmes. It represented
    46.7% of the EU’s budget, €49.8 billion in 2006[1].

    The CAP combines a direct subsidy payment for crops and
    land which may be cultivated with price support mechanisms, including
    guaranteed minimum prices, import tariffs and quotas on certain goods from
    outside the EU. Reforms are currently underway reducing import controls and
    transferring subsidy to land stewardship rather than specific crop production
    (phased from 2004 to 2012)[2].

    By 2013, the share of traditional CAP spending is projected
    to decrease significantly to 32%, following a decrease in real terms in the
    current financing period. In contrast, the amounts for the EU’s regional
    support represented 17% of the EU budget in 1988, but will more than double to
    reach almost 36% in 2013[3].

    The highest proportion of farm support was recorded in
    Norway, where 60 percent of farm receipts came from subsidies, followed by
    Switzerland with 56 percent and Japan with 49 percent for the year[4].

    [1] http://www.nao.org.uk/publications/0708/financial_management_in_the_eu.aspx

    [2] http://en.wikipedia.org/wiki/Common_Agricultural_Policy

    [3] http://en.wikipedia.org/wiki/Common_Agricultural_Policy

    [4] http://www.google.com/hostednews/afp/article/ALeqM5jLhm9mFi2KxB1snlyeUSpsZ6d0iA?docId=CNG.45a44728e048f5f22cfd3b6bd7a4e34b.e1

  5. You’re making an economic argument about an emotional issue. Your argument is compelling as far as it goes but it misses the real reason that consumers support a system against their own self-interest. Canadians have an emotional attachment to farmers and they see marketing boards as the protection that farmers need.

    You can’t reason people away from a position unless they first arrived at that position through reason.

    • ‘Canadians have an emotional attachment to farmers’

      What??

  6. Terrence Corcoran a couple of years ago reported that Canadians pay on average about $1 /dozen more for eggs than Americans ($2.74 vs $1.73). About 8 cents per egg.

    So, for every 30 eggs ($2.36/$.08) you could afford another Starbucks grande coffee.

    Yipee.

    • Of course, there’s all the eggs that are used as inputs in other products, driving up the price of those products. Toss in the inflated price of milk, and the inflated price of products that use milk as an input (cheese, yoghurt, ice cream). A little here, a little there, it starts adding up to some serious money.

      • Per capita egg consumption Canada, 2006 – 16 dozen (12 shelled, 4 processed) so, say $16 potential annual savings.

        But then, you’d eat more eggs too. Per capita US egg consumption = 21 dozen (2006), so remove 5 dozen @ $1.73 = $9.

        Total annual savings = $16-$9 = $7.

        And you have more cholesterol, and get fatter.

    • Corcoran, like most silly cheap cheesers, reported only the retail price difference which is not the same as the farmgate price difference.

      • 2005 Canada farmgate price~ $1.50/dozen. US about $1 /dozen. So, yeah, difference of $1/dozen retail could be also due to lack of competition/economies of scale in Canada costing consumers $0.50/dozen.

        Reduced savings to 4 cents per egg.

      • Which do you think is more relevant for consumers?

        • I think the point he is making is that wholesale and retail have mark-ups that could be considered as fixed costs, so savings should be much less by allowing in foreign competition.
          Maybe consumers save 50 cents instead of $1/dozen as Corcoran implies.

        • The farmgate price is more relevant if you’re pitching savings since that is the only price that would be affected by ending supply management.

  7. Are you posting comments about why and how it’s important to support farmers? Then you completely missed the point of the post. The purpose of a dairy industry is to produce dairy products that people will consume. The measures for how well it is performing are the measures consumers use: large quantities and low prices.

    If you think that the purpose of dairy production is to generate high incomes for farmers, you are probably not alone. But you are still wrong.

    • In any case the utopian vision of the subsidies going to support small ‘family’ farms typical of a century ago is pretty much nonsense.

      Big agribusiness is the rule these days rather than the exception for farming.

      The same thing is true in the US, where the vast majority of subsidy dollars goes to big investors in corporate farming.

  8. Another good post. I think the phenomenon has something to do with the psychological of valuing losses as more significant than gains. In other words, people feel more strongly about what is lost then they do about gaining the same thing (something I’ve read elsewhere which I think is true). In terms of a billiards analogy, the pool shark will be obsessed with the $10 he lost rather than the $20 he won later.

    In terms of producers vs consumers, people value the security of what the producers have been able to provide for consumers and for employees in the past, and they wish to do all they can to coddle and protect the producers so that this never ends. So they erect barriers and safeguards. Supply management is all about protecting what exists now and what existed yesterday in our economy. People fret over the jobs that will be lost with the end of supply management rather than gains to consumers and the gains to other sectors or the economy that will be gained when supply management is ended. People worry about what will happen to farmers in supply management rather than value the benefits that will accrue to everyone else, and the new opportunities that will open up in the economy with a more dynamic farming sector freeing up opportunities elsewhere.

    It’s especially depressing to see this phenomenon when it’s so clear that the standard of living we know today has been brought about by the never-ending change and innovation in free markets, rather than the resistance to change symbolized by supply management.

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