Behind the scenes of supply management By Carl Meyer Published May 5, 2010

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Usually before and after every round of free trade talks Canada is involved in, Gilles Gauthier, the country's chief agriculture negotiator, holds a secret conference call with a wide-range of top agriculture industry players.

As a condition for participation in what's called the Advisory Group on Trade Negotiations, participants must sign a confidentiality agreement stating they will not divulge any information on the substance of the talks.

The calls serve as an opportunity for industry to air its concerns and battle for the ear of Mr. Gauthier, the bespectacled, white-bearded veteran government policy wonk, who represents Canada's large and influential agriculture industry to the trading world.

"They're very forthright when it comes to questions and answers.... I don't detect that there's anything held back," said Robin Horel, president and CEO of the Canadian Poultry and Egg Processors Council, one of the members on the calls.

But while the conversation is private, it soon becomes apparent in interviews with heads of industry groups that one of the major topics on everyone's minds is the issue of supply management.

Thanks to laws developed over 40 years ago, the federal government controls the price and production of dairy, poultry and eggs. It also limits exports and imports on these products, sometimes to a small percentage, other times completely.

The system works well for the industries involved. Protected from the harsh trade winds of the world market, limited in their production to Canadian consumers and assured a certain profit margin, they are unique success stories in the face of a Canadian economy battered by recession.

Canada is also an agricultural powerhouse. It exports over half of its agricultural products. The country has the natural resources, the space, the technology and the know-how to keep its massive agricultural machine humming—and to succeed internationally.

It also has the pro-trade agenda. Colombia and Peru were successful targets for expansion. Now Canada is negotiating with the European Union, the biggest agricultural open market in the world.

Billions of dollars and the future of a large portion of the Canadian economy are at stake, and the players all know this. Industry group heads regularly travel to Geneva, Brussels and other negotiating centres, trying to grab the ear of negotiators from all sides, trying to inform them that the official Canadian position is not the whole story.

Advocates of supply management say Canada is not the only country to protect certain segments of its agricultural industry. They also say that, at the WTO, other countries are less transparent in their negotiating positions.

But the players on the other side argue that while the controlled sectors are assured protection and profits, they themselves depend significantly on exports to keep their businesses alive.

These non-controlled sectors say they need Canada to negotiate more aggressively for liberalized trade, and its insistence to stick to its guns on supply management is hurting its negotiating position.

While one side doesn't like to directly snipe at the other, considering the interdependence of their businesses—farmers of beef and dairy cows might both go to the same feed suppliers, for example—many are also quick to point out that they are destined to clash at the international trade level.

"We're headed on a collision course. At some point, it's going to have to be us or them," said John Masswohl, director of government and international relations at the Canadian Cattlemen's Association.

"We constantly hear from politicians that 'I'm not going to play one off the other. I'm not going to pick winners and losers.' But by saying that, basically they're saying, they win and we lose."

The Conservative government's position on supply management appears to be as solid as the profit margins of its controlled producers. Both Trade Minister Peter Van Loan and Agriculture Minister Gerry Ritz have stated unequivocally, and on several occasions, that these sectors are off the table in trade negotiations.

This is the situation faced by Mr. Gauthier. Having received his marching orders from his political masters in Cabinet, he must judiciously represent both sides of Canadian agriculture—one side that would be perfectly happy if Canada never negotiated another trade agreement, and another that is desperate to open more markets.

It is not an easy task. Speaking in a boardroom at the top of one of the towers in Agriculture and Agri-Food Canada's sprawling complex in central Ottawa, he strikes an insistent and clear-headed tone.

"The fact of the matter is, we have supply management in Canada, we've had it for over 40 years, the government is committed to defending supply management in all our trade negotiating positions and all trade agreements, so that's the position that I carry to the negotiating table," said Mr. Gauthier.

He refused to budge when asked whether Canada's position on supply management has been indirectly hurting other industries at the negotiating table, saying his job is not to "speculate."

'Silly games'

The supply management sector is proud of the fact that its system is public. Many interviewed said this fact already puts Canada far ahead of other countries in negotiations.

"We do not try and play silly games with non-tariff barriers to stop the stuff from coming in," said Mike Dungate, general manager of the Chicken Farmers of Canada.

"I think that every country in the world walks on two sides of the street. They all have their defensive issues, they all have their offensive issues...we put everything out in front, we've been transparent, we've operated within the rules," said Mr. Horel.

Asked whether the system indirectly impacts on other agricultural sectors, Mr. Horel was blunt.

"That's a bit of a stretch," he said.

The past few years have seen the Conservative government adopt an aggressive free trade agenda, and non-supply managed industries have often expressed their support of this position.

Yet Canadian protectionism has also made international news. Last month, New Zealand Prime Minister John Keys raised Canada's supply-managed dairy sector as a reason why Canada was not being invited to take part in the Trans-Pacific Partnership trade talks. This prompted some calls for an end to the practice.

But Yves LeDuc, trade director for the Dairy Farmers of Canada, which represents all the provincial dairy farmer organizations, said it's a fantasy to assume that profitable markets are out there in the first place.

"If we were to tell our farmers that we can access world markets that will generate profitable sales of milk and dairy ingredients, yes, they would be open to that. But the fact of the matter is that these markets are virtually non-existent at this time," he said.

Mr. LeDuc also argued that fluid milk, as a highly perishable product, is simply not conducive to international trade, and thus lends itself better to being a nationally controlled commodity.

"If you don't have a system that allows producers to obtain a better price for the products that they are producing, in a timely manner as well, being a very perishable product, that product can lose its value very rapidly," he said.

'There's going to be a showdown'

But while supply-managed sectors say they are happy with the situation as is, trade is integral to the rest of the agricultural sector, says Kathleen Sullivan, executive director of the Canadian Agri-Food Trade Alliance, a major player in the agriculture lobby.

CAFTA represents beef, pork, grains and oil seeds, and the majority of these industries have either been grown specifically for an export market such as canola, or have been hit by circumstantial problems such as the beef industry with mad cow disease, she said.

"If we only produced enough pork or beef in this country to feed Canadians, we'd have pretty significantly smaller industries," said Ms. Sullivan.

Dan Dempster, president of the Canadian Produce Marketing Association, said maintaining supply management hurt Canada in the NAFTA negotiations. Horticultural products, he said, were impacted in tariff changes because Canada refused to budge on supply management.

"Sure, they've maintained their regimes, but somebody had to pay for it. What you have now is you have two types of agriculture, one in the world markets, and the other living under these supply management regimes," he said.

And, he argued, this same bargaining position has continued to have ramifications for other agreements.

"If you're not prepared to increase access on supply management, then you're not necessarily going to be able to negotiate some further tariff reduction," he said.

Mr. Masswohl said he tries to bring his message to foreign trade negotiators, informing them that Canada's official position on supply management is not supported by all industries.

The beef industry, he said, wants to see the government shorten the list of products it is protecting.

"I start to have a concern when I see the Canadian government positioning itself in negotiations to be able to name as many agricultural products as possible as sensitive products," he said.

"Unwittingly that's going to give other countries the ability to add more beef, more pork, more wheat, more Canadian export products to what they consider sensitive products.... You can see that even though we don't have supply management in our crosshairs, there's going to be a showdown."

Mr. Gauthier can only listen to all these complaints as he conducts his conference call.

"It's not a zero-sum process here, where you're trading out one against the other," he said. "You're trying to advance your overall interests. You're building something; you're not trading off something."

cmeyer@embassymag.ca