The recent controversy over Canada’s ‘supply management system’ of agricultural protection during the regional US-Mexico-Canada Trade Agreement (USMCA) negotiations was a timely reminder of the entrenched protectionism in nations that retain a theoretical commitment to international ‘free trade’. It also indicates that deviations from free trade in many guises thrive in market economies where benefits are concentrated, and costs are dispersed.
This renowned public policy explanation of the public’s inability to obtain full clarity over the dynamics and implications of government policies remains a useful paradigmatic tool. When the relationship between government subsidies and the cost to taxpayers is opaque, it is extremely difficult to challenge an established policy supported by an identifiable, organised social group.
Historically, the British experience of the nineteenth century is instructive, for the anti-Corn Law campaign of the 1830s and 1840s demonstrates a rare example of the model of concentrated benefits and dispersed costs being overturned. The 1815 Corn Law, enacted to protect domestic agricultural interests but simultaneously imposing higher costs on consumers, was only repealed over 30 years later in 1846 after a protracted campaign of popular pressure conducted by the Anti-Corn Law League. Yet, historians still debate whether the League was really the crucial transformative element, with some attributing repeal to the executive actions of Conservative Prime Minister Sir Robert Peel.
Concentrated benefits for producers and dispersed costs are therefore features of the Corn Laws and Canada’s supply management system. The political and economic architecture is different. At the time of the passage (and repeal) of the Corn Laws, Britain was governed by an aristocratic class who wished to protect its economic privileges. The venerable historian of conservatism, Lord Blake, termed the Corn Laws “one of the most naked pieces of class legislation in English history”. In modern Canada, defending supply management is primarily framed in terms of promoting a stable agricultural sector that confers benefits on the wider society. While the form of protection is different, the policy objectives — restricting the number of market participants, placing high barriers to market entry, ensuring higher prices for producers, and imposing higher costs on consumers—are remarkably similar.
With the Corn Laws, there was outright prohibition of foreign corn when domestic prices fell below 80 shillings a quarter. Above 80s, foreign corn was permitted. The intention was to protect domestic producers while ensuring supply for consumers in times of scarcity. With often high prices imposed on a staple product, it proved possible to excite a popular clamour, though building a movement and conducting a coherent campaign took time. The leaders of the anti-Corn Law movement, primarily textile manufacturers with concentrated benefits of their own, managed to conflate and align their interests with prospective national gains for a wider public — a now familiar pressure-group tactic.
Canada’s supply management originated in the 1960s, amid fears over price instability, overproduction, and low farming incomes. Canada’s low population density and extensive arable and pasture land made self-sufficiency arguments improbable, but the policy pillars of production control, pricing mechanism, and import control comprise an array of market interventions and controls, arguably a more comprehensive and multidimensional protective system than the Corn Laws. Supply management imposes import restrictions, production quotas, and price controls. In doing so, it limits the number of producers in the milk, chicken, and eggs sub-sectors, for producers must hold a permit, commonly called a ‘quota’ without which they cannot sell their products to a processor.
A national organisation (the Farm Products Council) oversees agencies for each segment of produce, which in turn are responsible for setting production level quotas for each Canadian province. Provincial marketing boards negotiate prices, and farmers are guaranteed minimum prices based on production costs, consumer demand, available inventory, and prices of competing products. There are currently 16,153 quota-holders nationally, mostly in the dairy industry in Ontario and Quebec. Initially distributed for free, quotas have acquired great market value, with national quota valuation increasing from $14.7 billion in 1998 to $32.6 billion in 2014. As quotas have become valuable financial assets, rampant land equity inflation and speculation has enhanced the ability to leverage equity to purchase licences. In sum, powerful rent-seeking special interests have been created.
Not everyone agrees supply management is efficient and equitable. Studies by the Montreal Economic Institute and Fraser Institute, among others, argue agricultural produce is more expensive in Canada than equivalent products in the United States. Moreover, by stifling opportunities in domestic and international markets, the system is economically inefficient. Even some supporters accept price stability is achieved at the cost of higher prices for consumers.
Internationally, Canada restricts agricultural imports, granting trading partners a “minimum level of access”. The import quota for yoghurt, for example, is 332,000kg and that for chicken 39,900,000kg domestic production. Tariffs within these quotas are very low but above the quota, tariffs of over 300 per cent, effective prohibition, are levied. The USMCA agreement, hailed as a break-through, only provides American farmers tariff-free access to 3.6 per cent of Canada’s dairy market. Contrary to farmers’ fears, trade agreements have not seriously undermined supply management, which has been consistently defended by successive Canadian governments.
It is not merely economic incentives which exist for maintaining supply management. Ontario and Quebec possess over half the representation in the Ottawa Parliament (199 of 338) so federal and provincial electoral considerations are heavily skewed toward the economic interests of those provinces. Consistent with concentrated benefits and dispersed costs, it seems unlikely single-issue voters would vote solely on the basis of opposing supply management, though supporters, especially those whose livelihoods depend on it, might well do so.
The electoral importance of Quebec and Ontario means that Andrew Scheer, the Progressive Conservative leader, has to tread carefully if he hopes to win this year’s federal election. While tentatively suggesting a phasing-out of supply management, Scheer has acknowledged the farming lobby’s influence in securing his election as leader.
The leader of the new populist People’s Party, Maxime Bernier, is a more vocal critic but his party’s electoral prospects remain uncertain. It is in any case unclear whether public opinion broadly supports reform. After Canada’s strategic tariffs on American products in 2018, anecdotal evidence suggested many Canadians, in boycotting American products, had invested in ideas of economic nationalism and ‘Canada first’ purchasing. The message is clear: should Canada’s government feel obliged or inclined to concede more to her southern neighbour, Canadian consumer sovereignty might be the next line of defence.
Over 200 years and thousands of miles separate the Corn Laws and supply management. The Anti-Corn Law League succeeded only after a lengthy struggle and extensive propaganda campaign, using a blend of media forms from public meetings and pamphlet literature to parliamentary and electoral agitation. It is unlikely any such granular effort would be possible in Canada. Despite the advent of social media, micro-targeting, and greater ease in entering the public policy space, a technological “crowding out” effect characterised by a torrent of issues and Babel-like cacophony of voices seems to undermine the effectiveness of digital political campaigning.
More rapid communication and greater media access cannot negate considerable geographical (sheer distance) and cultural (regionalism) problems in overcoming inertia and mounting a national campaign throughout Canada. Opposition currently exists in think-tanks, academia, and political parties — a far cry from the nationwide anti-Corn Law campaign; the formation of an “Anti-Supply Management League” seems unlikely. History shows monopolists rarely relinquish their privileges easily, so change will have to come from politicians. That being the case, reform will likely be a gradual, lengthy, and tightly-controlled process.
- The post gives the views of the author, not the position of LSE Business Review or the London School of Economics.
- Featured image by Internet Archive Book Images, under No known copyright restrictions
- When you leave a comment, you’re agreeing to our Comment Policy.
Gordon Bannerman teaches business history in the business department at the University of Guelph-Humber, Ontario. He previously worked as a research assistant at LSE, a Select Committee reporter at the UK Parliament, and research officer for The Letters of Richard Cobden project at the University of East Anglia. In the latter role, he is a named contributor to the four published volumes arising from the project. His particular areas of expertise are Early Modern and Modern British social, economic and political history, and the history of business, warfare, and commercial policy. He received his PhD from King’s College, having previously studied medieval and modern history at LSE and Kings College. He was admitted as a fellow of the Royal Historical Society in 2015 for his contribution to historical scholarship.