Free trade agreements and the future of Canada’s Supply Management system

IlyasKucukcay

free trade agreement Canada, supply chain management Canada, impact of trade agreements, Canada supply chain management systemWe live in a world of globalization. The geographical and cultural limitations our predecessors had to struggle to access goods and services has virtually gone down to nothing. In a globalized world, international trade agreements that bring many economies together to benefit from each other are essential for survival. In the past, we’ve witnessed tremendous levels of effort by governments and communities to form strong alliances to grow their economies faster and provide the best available goods and services for their people.

Trilateral NAFTA (2.0) negotiations between Canada, Mexico and the USA – which culminated in this week’s United States-Mexico-Canada Agreement (USMCA) – is a perfect case study showing the long-term impact of trade agreements. Years of regulated collaboration between the three North American countries not only helped grow the respective economies faster compared to the rest of the world but also helped all North Americans build mutual trust and commitment.

Of course, NAFTA / USMCA is not the only free trade agreement out there. Canada has been progressing with other trade agreements that can generate new channels of economic development for its own and for the corresponding country’s citizens. The Comprehensive Economic and Trade Agreement (CETA) is another significant free trade agreement that brings Canada and all 28 European Union states together to grow into a more integrated world of traded goods and services. It’s been over just a year since the agreement has been provisionally applied by both parties and as a result, the deal eliminated 98 percent of the tariffs between Canada and the EU.

How is Canada’s Supply Management affected by these changes? Attempting to address this question is a progressive process considering the ever-evolving nature of the government framework. The term “Supply Management” is a generic concept, one that’s applied to different industries, markets and businesses; however, Canadians have a specific definition for this. A clear definition is given by John Paul Tasker; “Supply Management is a system that allows specific commodity sectors — dairy, poultry and eggs — to limit the supply of their products to what Canadians are expected to consume to ensure predictable, stable prices.” In other words, the system defines the boundaries, quotas and standards for the sectors mentioned above to make sure that the industry players are sufficient to provide the expected level of domestic goods for Canadians to consume. No more, no less.

Supply Management has three main building blocks (also referred to as pillars) to provide the required consistency and efficiency. These are mainly categorized as Production Control, Pricing Mechanism and Import Control.

Production Control

Production Control regulated through the Farm Products Agencies Act for the national agencies of each industry. The aim is to control the supply of the produced goods at the desired level for each Canadian province to avoid overproduction or underproduction. All farmers are informed about the production quota and may be penalized in case of a scenario where underproduction or overproduction occurs.

Pricing Mechanism

The marketing boards of each Canadian province is entitled to negotiate the pricing of the goods with the players of the supply chain, starting from the farmers. The farmers are guaranteed to have a minimum selling price for the produced products with the consideration of current market trends, consumer demand and level of supply that needs to be met. Pricing Mechanism helps the Canadian sectors reduce price fluctuations for consumers.

Import Control

Import Control is an essential component of the Supply Management system in terms of its evolution towards international free trade deals. The system regulates the supply and demand of the produced goods by imposing the minimum-level of access to the Canadian dairy, poultry and egg products to exported to trading partners while imposing high customs tariffs to those that will be imported to the country over a certain amount. This helps supply chain management systems in Canada eliminate excess import rates of foreign products and potential fluctuations in those sectors.

The impact of trade agreement alterations

Different opinions are out there to express the concerns of abandoning or altering the government’s Supply Management strategy throughout the NAFTA / USMCA negotiations, CETA and other bilateral trade agreements throughout the world. Some arguments towards abandoning the system state that the current system negatively affects an average Canadian’s annual spending for the consumption of those products for basic nutritional needs. But while abandoning such a mature, integrated system would result in lower cost to consumers in the short-term, it can cause more trouble for Canada’s overall supply of dairy, poultry and egg-related products in the longer term. Armine Yalnizyan states that abandoning the system does not guarantee Canadian consumers will pay less considering that deregulation would change the dynamics of who supplies the milk. The supply itself would become a variable parameter in the whole system, which in turn would make Canada more dependent on its southern neighbor, the US.

The quality of the goods is another raised concern as the use of bovine growth hormones (BGH) has been available for the US farms, helping them produce faster results, while use of the supplement is subject of concern for Health Canada.

Other concerns also involve the implications of current trade agreements including CETA. The building blocks of Supply Management are interconnected to maintain the balance, and if one of these components are affected, it directly impacts the dynamics of others. For example, CETA would, in principle, grant access for Canada to import massive amounts of dairy products from the European Union and eventually cause changes in the dynamics of Import Control.

We will certainly keep discussing the effects of potential changes on Canada’s Supply Management system and its building blocks. Because of globalization and ever-evolving free trade agreements, it is entirely reasonable to state that systems like Supply Management will keep evolving to accommodate the needs of Canadian consumers.

What are your thoughts on free trade agreements and supply chain management in Canada? Let me know in the comments.

IlyasKucukcay

Ilyas joined Kinaxis on November 2014 and is currently a member of Kinaxis’ Enterprise Business Systems team as a Business Systems Analyst. He works with various departments to understand and optimize their needs, and focuses on enabling available technologies to increase the productivity and efficiency. Ilyas holds a Master of Science degree in Systems Science from University of Ottawa.

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