OTTAWA (Reuters) - Canada is digging in its heels against a WTO proposal on agriculture that it says would ruin a decades-old marketing scheme that has helped its dairy and poultry farmers survive foreign competition.
Producers and processors in Canada's dairy and poultry sector have vowed to defend the "supply management" regime that controls production and prices, and limits imports with high tariffs to ensures stable incomes.
But trade experts say such protected industries will inevitably be forced to end their isolation and expose themselves to global competition. The result will be a liberalized version of supply management and the industries will survive, they say.
In the Doha Round of talks at the World Trade Organization, mediators issued revised proposals earlier this month that would force Canada to open up poultry and dairy markets to more imports.
That would spell death for an industry that generates C$42 billion ($42 billion) in activity and provides 250,000 jobs, industry leaders say.
"If those proposals were all accepted we would not be able to run an effective supply management system in Canada," said David Fuller, chairman of Chicken Farmers of Canada.
"It is a program that has not put surpluses on the world market ... What we're trying to provide is an opportunity for Canadian jobs, for stability," he said.
But securing a captive Canadian market is seen as crucial to only a small segment of farmers, and Canadian agriculture exporters see considerable gains from the WTO proposal as it now stands.
"Our previous analysis of the working text estimated that Canadian farmers would realize a potential gain of up to $3 billion each year in the sale of just seven key commodities," said Darcy Davis, president of the Canadian Agri-Food Trade Alliance.
"From our initial assessment, the terms of this text would maintain that gain."
The treatment of food products is one of the main stumbling blocks in the Doha Round agricultural talks, and breakthroughs on the issues of politically "sensitive products" and import quotas could be key to a comprehensive global trade deal.
Canada's Conservative government is concerned enough about the supply management sector that it has voiced its rejection of the latest draft and vowed not to back down.
Agriculture Minister Gerry Ritz has tried unsuccessfully to have all supply-managed agriculture designated as "sensitive products," meaning they would be subject to smaller cuts in tariffs than other products.
In supply management, the government regulates production quotas so that they match consumer demand. Prices are set by a special farmer-dominated commission. The government blocks most imports with tariffs that average more than 200 percent, but it allows limited market access by permitting a small import amounts at a lower tariff.
For example, the average customs tariff on chicken is about 230 percent. Eight percent of chicken consumed in the country is produced elsewhere.
Set up to prevent big price swings, supply management is deeply rooted in Canadian farm culture, coming into force in its current form in the mid-1970s but with vestiges dating back to the early 1920s. All three major political parties defend it.
But critics say Canada will have to loosen up its system with or without Doha because it is inefficient.
"The system is geared to ensure a living for the inefficient marginal producer," said Michael Hart, a trade expert at the Carleton University Centre for Trade Policy and Law in Ottawa. "At some point the government is going to have to solve this crisis."
Consumers pay higher prices than they would in a free market, he said, although farmers deny that. Production quotas have become so costly to acquire that they are barriers to access to the industry for newcomers, he said.
The WTO process will only speed up a process that is already under way, Hart said.
"There will be some lowering of the tariffs and some increase in the minimum access and that will have some impact on the marginal players but the industry will survive."
Reporting by Louise Egan; Editing by Peter Galloway