A new report by former Liberal MP Martha Hall Findlay says it's time for Canada to end supply management of the dairy industry — and that there's no reason to fear political fallout for doing so.

Dairy, poultry and egg farmers in Canada control their own pricing. The system started in the 1970s with the goal of keeping consumers' and processors' prices stable and ensuring farmers got a fair price.

Opponents of supply management argue the system is unfair to consumers, driving up the cost of milk, butter, yogurt, cheese and other products, that it prevents Canada from getting agricultural concessions on international trade deals, and that it hasn't protected the family farm the way it was intended to. 

But, those opponents argue, politicians won't make any changes because dairy farmers are concentrated in politically valuable seats in Quebec and southwestern Ontario.

Hall Findlay says her report tries to disprove the idea that it's politically dangerous to mess with supply management.

"There might have been a lot of votes associated with this only a few years ago, but those numbers have decreased significantly," she said.

There are fewer than 13,000 dairy farmers in Canada, down dramatically from 145,000 when the system was brought into place.

"Contrast that to the fact that there are over 10 times as many farmers who grow or raise crops or animals that benefit from increased trade," she added.

"This is all about how do we move forward in a way that benefits the agricultural sector as a whole."

Prices keep rising in other countries

Supporters of supply management say the farmers deserve to earn a fair income and that the controls ensure Canadians get high-quality milk without the hormones U.S. farmers can use in their milk. They say consumers would not pay less if the market were open, pointing to prices in Australia that have continued to rise since the country eliminated its supply management system.

Hall Findlay's report looks specifically at the dairy industry, where prices are set by the dairy commission. The government controls the supply of dairy products into Canada, adding tariffs of up to 300 per cent on imported products to lower demand.

"It's frustrating to hear politicians say we know what the right policy would be, but we can't do it for politics," Hall Findlay said.

"First and foremost, this is a consumer issue. Consumers in Canada are paying two to three times more for milk and all of their other dairy products than they should be," said Hall Findlay, a lawyer who has worked on competition issues.

"In any other circumstance, the supply management regime in Canada would be regarded as a cartel."

"The worst part is … it's actually regressive, so you have the lower-income families in this country paying a proportionately higher part of their income for some basic nutrition," she added.

The report, produced through the school of public policy at the University of Calgary, lists prices for milk in Canada at $9.60 for four litres last March, compared to $3.68 in the U.S. It cites Statistics Canada prices, although the agency collects prices per litre. The price used in the report is the one-litre price multiplied by four rather than the price for four litres, which is cheaper.

'Deeply flawed'

The Dairy Farmers of Canada called Hall Findlay's research "deeply flawed," pointing out the price used in the report is "$3 to $4 more than what most consumers pay.

"This misleading data does not match the experience of consumers in the Canadian marketplace," the dairy farmers said in a statement.

The report comes at an interesting time. Hall Findlay admits she's considering a run for the Liberal leadership. The party says it's rebuilding and looking for new ideas.

On the international side, Canada was invited Tuesday to join the Trans-Pacific Partnership trade negotiations. It was widely assumed supply management would be a barrier to that invitation, since Australia and New Zealand, two of 10 partners in those talks, eliminated their systems years ago.

The dairy farmers dispute the notion that dairy protectionism hurts Canadian trade.

"It is a fallacy that Canada cannot conclude trade agreements and maintain supply management. Since 1986, Canada has concluded NAFTA and bilateral agreements with Jordan, Colombia, Peru, Costa Rica, Chile, Israel and EFTA (Switzerland, Norway, Iceland and Liechtenstein)," the statement said.

Canadian politicians have long maintained support for a supply-managed system for dairy, poultry and egg farmers. In 2005, MPs voted unanimously in favour of a motion reiterating that support. All the parties in the House say the system is necessary so farmers can earn a decent living, with the Liberals yesterday putting out a press release telling the Conservatives they "must protect supply management."