Supply Management Systems

Supply chains are notoriously complex, but fundamentally a simple thing. People make things, people buy those those things. The people orchestrating the sale want to find a price that meets their operational costs, and people buying things want to find value. Both need information in order to make those decisions. It’s why there are grocery flyers right? Find the best deal on canned soup and whatnot.

In the larger sense, most large scale retailers dominate the sales market and can both set and negotiate better supply prices. COSTCO and WalMart operate with this model… they will just buy all your stock but pay you half price for it.

Supply Management Systems start at the bottom of the pole, with a laser focus on raw goods. They have a few purposes:

  • protect the market from wild price fluctuations
  • give the producers some semblance of guaranteed income and an effective quality floor
  • give buyers an effective “floor” for the lowest price and assurance on quality
  • proposes protections to the national market from external “flooding”, typically through an import tax
  • supports the internal development of new products

Canada has supply management on major agricultural goods – grain, eggs, milk. This means that all large size eggs are bought from suppliers at the same price. There’s been a bun fight for quite a few years about the dairy market, as it hasn’t been as flexible as it could have been. There are specific types of cheeses that simply are not made in Canada and the import fees make it so that we likely never will see them from other countries.

If you’re a consumer, this can be seen as a bad thing as there’s less variety and you are “technically” paying more for the product as no one can undercut. The problem here is that of personal bias. You getting the cheapest possible eggs means that it’s a race to the bottom for the farmers to cut every corner possible to beat the next guy, or just close up shop. You may win, but the farmers lose and eventually there just aren’t remotely enough farmers left.

Second, is the protections it provides to a national economy. Dairy is a great example. Wisconsin, a single state in the US, produces 50% more dairy than all of Canada combined. Wisconsin doesn’t have supply management, and the farmers there are over-producing dairy, to the point of dumping stock. (They are subsidized, so it actually costs less to pump and dump the milk than to produce less milk.) Without a supply management system in Canada, they would flood the entire market are put most of our farmers out of a job… or force the government to subsidize equally.

Subsidization is an interesting topic in itself. The US subsidizes nearly everything because it’s functionally easier to control at a global scale as compared to import taxes, and can be done at the state level.

The best global example is crude oil, which is traded globally. In the US and Canada, we are both nearly self-sufficient in production, marginally in refinement. The lack of a supply management board (and the extreme power of OPEC) means that it makes no sense to sell locally when you can sell internationally at 4x the rate. If you’re wondering why the war in Ukraine impacts your gas prices, it’s because oil prices are “managed” internationally instead of nationally. Capitalism dictates that companies maximize profits over all else…they could sell it locally but that would be a significant loss if they instead sold it on the global market.

As with most things today, complex systems are reduced to soundbites. I’ve barely scratched the surface of the topic, and there are certainly multiple improvements that could be applied to the systems. Fun times.

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