Mr. Speaker, I will do something I usually do not do, which is to actually give my speech in English this time. The reason is that in Quebec, there is no debate about supply management. People get it. There is no controversy about it.
When I read economists or pundits from large urban centres such as Montreal, Toronto, or Quebec—actually, rarely from Montreal, but from Toronto, Vancouver, or any other large setting—they are always against supply management. It does not make sense to me.
It happens largely in urban centres because they take the perspective of the consumer, even though they are wrong in this perspective or they are wrong in their statements. I would like to explain why supply management actually makes sense from an economic perspective.
It makes sense because there are coordination problems that are unique to agriculture. Some other domains can have those problems, but we witness them in agriculture. If in natural resources, for example, the price of copper decreases, the mining company or processor will tend to reduce supply by laying off people and reducing its production until prices rise again. The people on the boards making those decisions will make them without fearing for their livelihoods: the company will still be standing, so they can afford to make the decision to reduce supply.
For farmers faced with the same type of decision—if the price of milk drops, for example—the sensible move would be to do the same thing and decrease supply. That is what we might see if there was coordination. However, the lack of coordination in a pure market in determining the need for milk, for example, makes it impossible for the individual farmer to do that, because the farmer relies on production for a livelihood. Even though the individual decision should be to reduce supply, the mass of farmers will actually increase their supply, because they need to sell more to compensate for the drop in price. This is what we call the “tragedy of the commons”: individually it makes sense, but as a collective decision, it is a call for disaster.
The other point is that there is also a problem of asymmetry in market power. In the pure market economy, the individual farmer is a price taker. He has to take the price. He has no market power compared to the large processors, the large buyers of his product. Those companies, such as Agropur, Parmalat, or Saputo, are the price setters.
If there is no coordination among farmers, obviously the power in itself is really unbalanced. This is why there is a need for a countervailing power to make sure that the farmers can actually get organized. In some other jurisdictions, it takes different forms. In Canada, we have chosen to go with supply management.
To address this type of market failure, different countries have taken different routes. We often hear from the opponents of supply management that New Zealand is the way to go. New Zealand used to have supply management, but scrapped it. According to opponents of supply management, New Zealand let the market do its part.
The example is actually a fallacy, because in New Zealand there are now fewer farmers and fewer milk-producing farms. They decided to go a different route. Basically there is only one buyer, the Fonterra Co-operative Group, which is the result of the merger of 12 co-ops in New Zealand. Fonterra is buying 95% of the milk produced. Basically it is a large co-op that exports to about 140 countries.
There is one single buyer for all the milk. That means that the farmer actually has some protection. This process is very reminiscent of the Canadian Wheat Board, which we scrapped here in Canada thanks to the Conservative government. That is the way New Zealand decided to go. It is not a pure market economy. They have not scrapped supply management. They are not leaving anything behind. They left that large co-op, that large single buyer.
Looking at the European Union or even the United States, we see that they have taken the direction of subsidies. Even though there has been some progress in decreasing the level of subsidies in the European Union, it is still significantly high, to the point where the gains that we could make in the dairy industry in Europe are very theoretical at this point.
Obviously if the dairy products from Europe actually come to Canada, they are supposed to come without any subsidy to help production. On the other side, if we are exporting, we will be faced with a subsidized industry in Europe. So it is not sure at this point if we are going to be on a level playing field with the European Union on its own turf.
The United States is often referred to when we talk about the “high cost” of supply management because we tend to compare our prices to the consumer here with those in the U.S. We look at the U.S. and think the prices there are much lower. We say supply management has been a failure, but the prices are subsidized either directly or indirectly by the U.S. government or by the individual state's government.
Between 1995 and 2012, a period of 17 years, U.S. farmers actually received over $5 billion in direct subsidies from the federal government in the U.S. That is an average of $313 million a year. Looking at the last year available, 2012, it was actually close to $450 million in subsidies to the farmers in the U.S. The prices we see there are largely subsidized, which makes many economists say that basically the U.S. consumer is paying twice. The consumer is paying the regular retail price and paying through taxes as well, which is not the case here. Supply management is not something that the taxpayer is subsidizing. It is a mechanism that actually helps to ensure stability in the price that the producer receives.
Looking at Australia, which is probably the closest example of the liberalized market, it is almost liberalized, but it had so many problems when it decided to scrap what was akin to supply management that it basically had to subsidize those farmers who were in jeopardy. At the time when it started to fully deregulate at the end of the 1990s, it attached to the deregulation bill about $1.8 billion Australian, to actually help the transition. If things were not bad enough, because the farmers could not actually live on what they were getting, they had to add about $122 million Australian by the end of 2000, to help the industry, and that was given to about 7,750 producers.
As an example of the impact this deregulation had on farmers, the number of dairy farms actually dropped from 2000 to 2007 from 13,000 to 8,000, while the average herd, which is an important number to evaluate the productivity of the farm, increased from 170 cows to 225 cows during the same period. Therefore, we are seeing increased productivity, but supply management has also increased productivity. In my riding and in my region, even small family farms are a lot more productive than they used to be.
Economists say that prices are much higher here. There are many more aspects to the equation than just supply management. If we look at the price for pork in the U.S., for example, which is not a supply managed industry, and compare it to Canada, often it is half the price. It is not supply managed.
There are many more reasons, and I know my time is limited, so I will not be able to address some of those criticisms, but we know that supply management is not something that is a hindrance to our international trade negotiations. It is not detrimental to our processors, who are doing very well, and the criticism that it does not give incentive to make efficiency gains is not accurate, because obviously if they are working through a quota system, producers have to decrease their costs and be more productive, so they can make a better living.
For all these reasons, supply management is a productive and positive element of our dairy industry. We urge all members to support it by voting yes on this motion.