Home News Canada How Canada’s system of supply management hurts kosher customers

How Canada’s system of supply management hurts kosher customers

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In the run up to the federal election, National Post columnist John Robson posited some questions for the candidates that he felt journalists were avoiding. One of them was: “Why do we deliberately raise the price of food for the poor through supply management?”

It’s a question that has some resonance in the Jewish community in Ontario, particularly after it faced a five-year absence of locally produced kosher chickens – from the time Chai Kosher Poultry closed its doors in 2013, to the time Premier Kosher began operations in 2018.

During that time, Marvid supplied the Ontario market, but many consumers were unhappy with the quality and price of the Quebec-sourced birds. There were also complaints of shortages at critical times, often right around Jewish holidays.

At a time when other foodstuffs were readily available at competitive prices, poultry was not.

Meanwhile, last year, a Facebook page called “Canadians for Cheese” was set up to discuss what one poster called “the cheese crisis of 2018.”

The Facebook page entertained discussions over the quality and availability of kosher cheeses in Toronto, in the wake of the entry of Nature’s Best, a startup Canadian cheese producer, into the market.

Prior to Nature’s Best’s arrival, kosher consumers were able to purchase hard cheeses from the United States. But when a Canadian alternative came online, the country’s supply management system kicked in and imposed punishing tariffs on foreign imports.

When one kosher consumer approached his MP, Marco Mendocino, for help, Mendocino’s spokesperson, Nathan Bessner, replied saying: “The presence of this new Canadian manufacturer means that in order to import cheese from abroad, there would need to be proof that a Canadian producer could not meet demand through a domestic producer. Without this proof, importers would not be granted an import permit for these products and charged excess duties.

“The way that this long-standing law was written, the lack of quality or popularity of the product is not relevant to the question of import.”

That, of course, leads to the question: are the consumers of kosher food well served by Canada’s supply management system?

In a report titled, Milked and Feathered: the Regressive Welfare Effects of Canada’s Supply Management Regime, economists Ryan Cardwell, Chad Lawley and Di Xiang of the University of Manitoba describe the system as one in which “output is regulated with production quotas and imports are restricted through a system of tariff-rate quotas.”

The quotas on imports are substantial, in effect leaving domestic producers with little competition. Import tariffs range from about 150 per cent for turkey and eggs, to about 250 per cent for chicken, yogurt and cheese, and 300 per cent for butter.

While most of the parties seeking office on Oct. 21 chose not to make it an election issue, one candidate, People’s Party of Canada Leader Maxime Bernier, has made phasing the system out a central policy plank of his.

READ: KASHRUT AGENCY SUES CHICKEN SUPPLIER FOR $1.3 MILLION

In his 2018 book, Doing Politics Differently: My Vision for Canada, Bernier argues that the system, which was put in place by former prime minister Pierre Trudeau, ostensibly to ensure that farmers don’t have to deal with severe price fluctuations, is superfluous.

“There is absolutely nothing new or special about revenues fluctuating and prices going down in the milk, egg and poultry sectors. This is part of the history of agriculture in all developed countries,” he argues.

To assure price stability and a regular income stream for producers, provincial governments authorize trade associations to regulate the supply of the product by requiring producers to acquire quotas. Chicken Farmers of Ontario (CFO) is the agency that administers Ontario’s provincial chicken quota, under the authority of the Ministry of Agriculture.

When Chai Kosher Poultry stopped producing chickens, there were no shortage of companies that were interested in filling the void. But they couldn’t simply open an abattoir, acquire chickens from farmers and make them available to consumers.

In the initial round of bids, five groups came forward, but the CFO rejected them all. Following lobbying from Jewish advocacy groups, the CFO re-opened the bidding process, and three new groups came forward.

It took three years from the time Chai Kosher Poultry closed for Premier Kosher – which is run by Paul Tzellos, who had long been active in the poultry industry – to be chosen by the CFO, and another two years for it to actually begin selling chickens.

Royi Flescher, the manager of Magen Meats, a butcher in Thornhill, Ont., has seen the effects of the supply management system up close.

After Chai Kosher got out of the business, Marvid had a monopoly on the kosher chicken supply, at least in central Canada.

In addition to complaints over the quality of the birds and the supply, there were concerns over price. That’s what happens when you have a monopoly, Flescher said.

But since Premier Kosher entered the marketplace and began to compete with Marvid, prices have gone down dramatically. Four years ago, boneless chicken breasts sold for $18-$20 a kilogram. Now they can be had for $11-$13.

“That’s a huge change,” Flescher said. “Supply management stopped that from happening. Without supply management, someone could have opened up quicker.”

Flescher said that because of his experience in the kosher meat business, he was approached by one of the first groups that applied for a quota.

“I wouldn’t touch it with a 10-foot pole,” he said. “I didn’t want to go into an industry that is so heavily regulated. I just didn’t want to be part of it.”

Flescher contrasted the poultry business with the beef industry, which is not subject to the rules of supply management.

“If I want to buy a cow, I can go and buy a cow. I don’t need permission. I don’t need to fill out paperwork. I just go and buy the cow. There are no restrictions in the meat industry.”

Flescher – a native of Australia, which dismantled its supply management system more than a decade ago – said he favours a free market, not the highly regulated one kosher consumers now face.

When the CFO solicited bids for a kosher chicken quota, there were five applicants. Flescher believes consumers would have been better served if some, or all, of them had been able to open poultry businesses. “Why couldn’t five people be given the quota?” he asked.

What’s more, Flescher said that chickens produced by Empire Kosher in the United States are superior to those available in Canada. Why shouldn’t the Canadian consumer have access to that poultry, he asked.

“I believe in a free market system and the consumer will decide what they want,” he said.

In an emailed statement, the CFO defended the process used to find a new kosher supplier, as well as the supply management system overall.

“CFO is committed to serving the needs of Ontario consumers who demand safe, fresh, high quality, locally grown chicken, including safe, high quality, local, kosher chicken,” read the statement.

“It is because of supply management – the orderly planned system in which production is calibrated to demand –that we are able to ensure Ontarians have consistent access to the chicken they need. In addition, supply management allows farmers to remain self-sufficient and profitable without relying on the government and taxpayer for support and subsidy programs.”

Referring to the selection of the current kosher processor, that CFO said, “That decision was the culmination of tremendous effort on the part of farmers and industry to find a suitable business partner. We recognize that it was a long process, but it was very important to ensure that the company met all of the application criteria.”

The Centre for Israel and Jewish Affairs (CIJA) has been engaged on the issue of supply management for years.

“In general, our experience has been that Canadian officials – at all levels – try to be sensitive and responsive to our representations and the needs of the kosher consumer. At times, there is a challenge to adequately explain the finer points of kashrut or religious observance, but there is generally a sincere effort made on the part of government officials,” said Shimon Fogel, CIJA’s president and CEO.

Of course, supply management is a broad issue that affects all Canadians. “Essentially, (supply management) is a political question – and our constituency is as divided on the issue as the rest of Canadian society,” Fogel said.

“On the one hand, the supply management system is intended to protect domestic producers in the context of the subsidies other countries provide their producers. On the other hand, for our relatively very small market, supply management tends not to work in our favour and imports come at a significantly higher cost than they would otherwise – which represents a hardship for the kosher consumer.

“That said, there is a principle in Jewish law about preferential treatment accorded to locally produced foodstuff, so it is not entirely a clear issue to navigate.”

Nevertheless, Fogel conceded that, “The majority of our constituency is of the view that competition typically favours the consumer – both in terms of quality, variety and, of course, price.

“Although it may appear that the kosher consumer is more adversely affected by supply management constraints, the same dynamic impacts on the choices and price points for non-kosher cheese and the like. However, it could fairly be argued that because there is such a limited source of kosher foodstuffs affected by supply management categories, the impact on choice and cost is indeed magnified for the kosher consumer. While access to foreign-produced products are always available, the tariff rate quota premiums can make them very expensive, even for basic items.”

Kosher cheese consumers have faced their own set of unique challenges. For years, the kosher cheese market largely consisted of hard cheeses imported from the U.S. But in 2017, Ari Lipsey and Joseph Bitton opened Nature’s Best and things changed.

As Richard Rabkin, the managing director of the Kashruth Council of Canada described it, “If a particular product is not available in Canada, then it is generally exempt from the supply management regulations and can be imported from the United States quota free.

“This was the case for many years when it came to kosher cheese, namely, that there was no domestic production of chalav Yisra’el (dairy products made from milk that has been produced under the supervision of an observant Jew) cheese in Canada. As a result, Canadian distributors imported a variety of chalav Yisra’el cheese brands from the United States.

“A couple of years ago, a domestic operation began making chalav Yisra’el cheese in Canada. This triggered the relevant provisions of the supply management system, so that American cheeses, which were previously imported to Canada quota-free, would now be subject to supply management import quotas, which would increase the (price) by nearly three times.

“A second domestic company began manufacturing chalav Yisra’el cheese in Canada, as well. So for the most part, consumers are still able to access their preferred kosher cheese brands and there have been no shortages or significant price increases that I am aware of.”

For his part, Lipsey, who co-founded Nature’s Best, doesn’t think supply management has a big impact on the dairy sector. “On the retail end, consumers have access to both local and imported product, with prices in the chalav Yisra’el sector cheaper than American prices on certain items, (such as) processed cheese at $20, cream cheese at $2.99 per case, big bags of shredded cheese at $9.99,” he said.

As for the impact of quotas under supply management, Lipsey said, “There are several types of quota. There is domestic production quota and import quota.

It is the import quota that is plentiful and cheap, so that has allowed competitors to compete with us at the restaurant level, where they can match our price on competing items. This was not the case last year, but with the new trade deal, there will be more, not less, import quota and the price should stay low.”

As for whether the kosher dairy consumer is well served by supply management, Lipsey said, “I think the detraction to the kosher consumer has been lack of domestic competition and some have taken advantage of that, which is often unfairly linked to supply management. Prior to Nature’s Best appearance, there was only one fluid milk available after Stern’s milk went under, and it retailed at $5.49 per jug. That same milk today is under $4 at most major grocery stores. It’s still supply managed.

“That said, during the period where we were, (for a) limited time, (the) only game in town for wholesale cheese, we proudly did not raise the price. In short, it’s more about the actors (and how many of them there are) than the system,” Lipsey said.

Of course, the effects of the supply management system are not unique to kosher consumers.

Sylvain Charlebois, an expert on food distribution and policy at Dalhousie University, said the system was introduced “to support and protect farmers.” But that leads to higher prices for consumers across the board.

Charlebois was in France to attend a conference when contacted by The CJN. He said the cost of cheese there is dramatically lower than in Canada. You can purchase 150 grams of cheese for less than one euro, “which is impossible in Canada, because input prices are so high,” he noted.

Making the supply management system even more problematic is the rigidity and the lack of innovation that results from it. The industry, for example, was slow to introduce organic milk, even though there was a demand for it.

In recent trade agreements with the European Union and Asian countries, Canada agreed to open the dairy market to a small extent – from four to eight per cent over the next few years. Canada was forced to open the industry to more U.S. imports, as well, in its updated free trade agreement with the United States, but that treaty has not yet been ratified, Charlebois said.

Still, there’s a cost: dairy farmers, many of whom are situated in Quebec, will receive government compensation for their loss of market share. That means consumers will pay twice for the products – once as consumers and again as taxpayers, Charlebois said.

“I don’t think (supply management) serves the public well,” he continued. “We are paying for the inefficiency of the Canadian farmer. Some are doing well, but we’re paying for mediocrity.”

Dairy farmers, however, have a lot of political clout and no mainstream political party dares change the current supply management system, Charlebois added.

The study by the economists at the University of Manitoba found that the effects of supply management fall disproportionately on the poorest families: “Canada’s supply management policies are highly regressive, imposing a burden of approximately 2.3 per cent ($339) of income per year on the poorest households, compared to 0.5 per cent ($554) for the richest households. The burden is larger for households with children.”

Although there are good reasons to be unhappy with the limitations imposed by supply management, it doesn’t appear that it is going anywhere soon. During the election campaign, hardly a word was spoken about it.

For CIJA, it’s now a question of making the best out of an imperfect situation.

“The reality is that the poultry producing and processing industry is governed by a supply management system,” Fogel said. “Our challenge is to find the best way to achieve maximum choice, quality and cost effectiveness for the kosher consumer within that system.”

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