Tuesday, March 11, 2014

Farming Dystopia: Supply Management for Everybody

Many are convinced that Supply Management is the greatest thing that ever happened to farming; even better than sliced bread, or lights on tractors.

When doing system design, I was taught to be careful of scaling up any system.  That means design the system for the specific case that is in front of you today.  To check the feasibility of your proposed design, you need to think to the future as that same system is rolled out from your initial guinea pig through to the last group to implement, then roll the whole system forward in time.  If all of that is still feasible, you likely have a properly designed system.  If the system explodes, or can't be scaled up, then you need a different idea.

For example, the telephone system in North America was growing leaps and bounds in the 1940's.  Everything looked great, string some new wire, hire a few more telephone operators, and make lots more money.  Then one day, somebody calculated how many telephone operators they would need when every home and business had just one phone each.  They would need every woman and girl in N. America, and would have to start bringing in shiploads of women from overseas to staff the switchboards.  Their system couldn't scale.  They needed a new idea.  They invented direct dialing; no operators needed.

Perhaps that same idea needs to be applied to Supply Management.

I assume that the SM5 members (chicken, turkey, egg, dairy, and hatchery) would say it's their God given right to be under SM.

I also assume they wouldn't deny that same right to their fellow farmers.  Therefore, let's assume that all farmers sign up for SM.  After all, what's good for the goose, should be good for the gander.

Will it scale?

When I mentioned this to a few farming friends, Jim said, "That doesn't work.  You see grains, cereals, and stuff like that, they need to export.  You can't be exporting if you're under SM."

Agriculture Canada says the total Agri-food exports from Canada in 2011 was $40.303 Billion.  If Jim is right, and we need to kiss this GDP good-bye if everybody joins SM, that is going to be a big hit to the Canadian economy.  Our total GDP in 2011 was $1.7 Trillion.  Add to that SM hit the spin-off effects (often 2.5 times the main effect, eg. suppliers and mechanics and parts manufacturers no longer needed due to the reduced farming activity), and we have a huge 5.9% hit to Canada's GDP from everybody joining SM.

SM for all would put us into a recession, or possibly a depression.

Median Canadian Farm Incomes, 2010 with SM's chicken & egg
farmers leading the crowd to the bank
OK, if we assume Jim's right, that means no  (or virtually no) farmer will export from now on.  Will it scale?

In a previous Blog posting (see Tail Wagging the Dog ), I showed how chicken & egg SM farmers are living like Kings, the highest paid farmers in Canada.  Here is that graph again (click on graph to make it bigger).  All data originates from StatsCan, analyzed by yours truly.

I find it hard to justify why SM's chicken & egg farmers deserve to lead the pack.  Somebody has to lead, but there is an obvious significant jump that they have taken past their next nearest farming brother (Greenhouse/nursary/floriculture).  How come SM dairy farmers are trailing the pack?  Many questions, too few answers.

If we also assume that everybody is equally deserving as the SM chicken & egg farmers, we should boost all other farm families up the the same median income level enjoyed by the chicken & egg farmers.  In 2011, there were 197,045 farming families in Canada. Multiply through the fraction of farms in each sector, by the SM pay supplement, and we get a total bill of $3.04 Billion for SM Income Supplements that Canadians would have to pay to all SM farmers through higher food prices.

Don't worry about these SM farmers getting caught in a squeeze by rising prices, thereby losing any gains received from the SM Income Supplements.  If grain prices go up suddenly due to grain farmers joining SM, that higher input cost for chicken feed automatically gets reimbursed under SM rules, thereby protecting the chicken farmer.  He couldn't care less how high his costs go, as he is always fully compensated.

Too bad Canadian citizens can't find somebody to fully compensate them, protecting them from rising prices.
2011 Canadian Farm Sector Median Incomes, with calculated SM Supplement
to equalize all farmers to SM's chicken and egg farmers

Annual SM subsidy ($/yr) to various Canadian farming sectors
if all farmers were paid as well as SM's chicken & egg farmers
So as to help selfish greed kick into high gear, here is the extra income that would come to each type of farmer who joins SM.  This is calculated by the difference between actual 2011 median income, and that of SM chicken & egg farmers.  For example, if beef cattlemen joined SM, they should "expect" that they would receive an extra $23,377 per year in SM Supplement income.

Well, beef farmers, what will you do with your $23,377 per year in SM Income Supplement payments if your group joined SM?  A pool in the backyard for the kids?  A down payment on a condo in Florida?  A cruise?  Pay down your FCC loan?

Before we start spending what we can only dream of having, perhaps we need to think about where all this money will come from.  There are 12.438 Million households in Canada.  The SM supplement of $3.04 Billion will have to be paid, so that is $244.41/yr/household in higher food prices.

However, if it's their right to join SM, we need to respect their right and cheerfully accept our fate.

The only other option is to wake up and realize that SM doesn't scale, it's a mistake, it's a bad idea, and rather than have everybody join SM, we need to get everybody out of SM and the system shut down.

That would be progress!

1 comment:

  1. Supply Management in Canada Poultry Farming is an important business in Canada. This article highlights the issue.


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