Hidden costs of supply management in a small market

Canada regulates its dairy and poultry industries through supply management. The supply-management programs use target prices, production quotas and import tariff-rate quotas to raise domestic prices. Canadian supply-managed producers cannot export their output to world markets as exports would be considered subsidized under World Trade Organization rules. In this paper, we show that once foregone export opportunities are accounted for, supply management may no longer be beneficial to domestic producers of the supply-managed commodities. The extent to which foregone profits from exports dominate domestic rents depends on Canada's comparative advantage, domestic market elasticities and the extent of supply management distortion in the domestic market.