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Editorial: The ‘free’ market

Over the years a lot of ink has been spilled about the “indefensible” supply-managed system in Canada, to quote just one recent article from the Globe & Mail newspaper.

There’s a certain similarity to the arguments against the status quo. Some say the system is nothing but a price-fixing cartel or closed-shop union. Others liken it to a private tax or surcharge, levied with government consent, to the disadvantage of consumers.

Most critics seem to feel it runs counter to the ‘free’ market and that consumers and farmers alike would be better served by an open and free system that placed fewer barriers to entry and had lower-cost products.

That’s been a very attractive, and even fashionable, position to take in past years. After all, the world had settled on a consensus that markets, the freer the better, are what makes the world go around. Since the spring of 1979 when Margaret Thatcher became prime minister of the United Kingdom, followed just months later by Ronald Reagan becoming U.S. president, everyone, to some degree or other, has become a market supporter in the western world.

“New Labour” only regained power in the U.K. by largely adopting this platform and world view under Tony Blair, as did the Democrats in the U.S. under Bill Clinton and our own Chretien Liberals when they took over from Brian Mulroney. Here at home, the Manitoba NDP largely stuck to the approved script too, with a few notable exceptions, as did a similar government next door in Saskatchewan.

That’s just how human affairs are ordered over time. A similar consensus emerged a generation earlier under the presidency of Franklin D. Roosevelt that aimed to save capitalism from itself. By the end of that era everyone was a liberal, including notables like the late former U.S. president Richard Nixon, if one actually looks at the policies of his administration.

Somehow, through these years of trade and markets trumping all, Canada’s supply-managed system for dairy, eggs and poultry is still standing, though not for lack of trying to knock it down, both internationally and domestically. From trade deals to political posturing, the system has been remarkably durable.

For proponents of free and unfettered markets, the past few months must have been terribly frustrating. A cynic might go so far as to say at times the best argument against capitalism is capitalism itself.

The recent bread price scandal is an excellent example of this. Without going into too much detail, our federal Competition Bureau alleges that major Canadian grocers — everyday household names like Loblaw, Walmart, Sobeys, Metro and Giant Tiger — conspired over the course of 14 years with two more household names — Canada Bread and Weston Bakeries — to move the price of bread products up in lockstep.

In fact, documents from the Competition Bureau allege, the practice was so long standing the players had even come up with a catchy name for it: “the 7/10 convention.” The Competition Bureau alleges the agreed-upon price increases were on average, about 10 cents per product per year, with seven cents going to the suppliers and three cents to the retailers, according to the Toronto Star newspaper.

That equals a cost per Canadian family of about $400 over the years, according to Ontario-based food market analyst Kevin Grier, if that family consumes about a loaf of bread a week. If the conspiracy played out the way the Competition Bureau says it did — and the rush by Loblaw to get in front of the scandal with a $25 gift card offer is a powerful indication there’s some fire to go along with this smoke — bread became a profit centre, rather than its traditional role as a loss leader.

Compare that to the milk market. Most big-box retailers are paying $6.99 for a four-litre jug of the white stuff. But outside of a convenience store, you’d be hard pressed to pay anything close to that. The day before press time, a local outlet was selling it for $4.65, or a loss of $2.34 for each unit. The economics of that work, of course, because it gets feet through the door and carts get filled with higher-margin merchandise.

So somehow we’ve reached a point where the supposedly free market is holding up consumers for more, while the nasty supply management cartel delivers a product that’s priced well below cost.

Our supply-managed system isn’t perfect. There are valid criticisms to be made, including that the system acts as a barrier to new entrants, the mechanism to price products is a non-progressive ‘tax’ on consumers and that the system is needlessly complex.

But compared to the shady backroom shenanigans of corporate Canada, as seen in the bread price-fixing scandal, the more bureaucratic supply-managed system, with its greater oversight and surprisingly — greater transparency — appears a fair alternative.

About the author

Editor

Gord Gilmour is Editor of the Manitoba Co-operator.

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