Canadian Supply Management System

International trade, as a critical source of revenue for a country, plays an important role in economic growth across the globe. However, free trade is not accepted widely, almost every country adopts varied methods, including tariff and non-tariff barriers, in order to maximize the benefits of trade for itself. By doing so, the market would limit the importation to protect domestic welfare and encourage the exportation to achieve better interests from the world. The focus of this paper will be Supply Management System, the well-known protectionism in Canadian dairy industry. And the purpose of which is to understand the operating mechanism of SMS and analyze the gains and losses it brings to all the parties involved.
Industry Overview The
It depends on the Supply Management System (SMS), which is managed by the Canadian Dairy Commission. The CDC is authorized by the federal government and manages the dairy supply by balancing the interests of farmers, processors, consumers, governments and trade companies (Charlebois, Langenbacher & Volondin, n.d., p. 4). It also issues policies, evaluate the demand and production, as well as monitoring the variation of industry revenue (Charlebois et al., n.d., p.
1). Specifically, the price that farmers receive is determined by CDC and each provincial government, rather than by market, based on the production cost and the usage of milk. Normally, the price of fluid milk is much higher than industrial milk (Waldie, 2010, para. 4). Moreover, to ensure the substantial return of the farmers, the price will be set pretty higher than the world price (The Conference Board of Canada, 2009, p. 2). The officials limit the dairy production by quotas, which are allocated from CDC to each province first, and then distributed to individual farm ultimately (The Conference Board of Canada, 2009, p. 2). Only the farmers own the quotas are qualified to produce and sell milk (Waldie, 2010, para. 5). However, given the upfront investment on quota, land and cattle are quite high, it’s not easy to enter the industry. The purpose of the importation control is to maintain expensive price of local dairy products and ensure the domestic production is within the pre-determinate level, thus making the government imposing high tariff extensively to restrict the imports (Waldie, 2010, para.