Agricultural markets do not self-correct. In many industries, production capacity, once built, can eventually be cut in response to market signals by slowing output, or dismantling factories altogether and selling the assets to other industries. In agriculture, however, total annual output changes little. If new suppliers on the world market cause excess supply, if domestic support and export subsidy policies cause over-production, or if new technologies enhance productivity, this in turn drives a fall in commodity prices. It does not, however, take land out of production, and reduce supply. Even if individual farmers go out of business, their land is usually taken over by another farmer. In the same vein, demand is relatively constant as well, as consumers do not tend to eat more if food prices fall. Thus, a trade regime that is based on the assumption that free market adjustments in agriculture will occur within a reasonable time is not only naïve and ill-advised, it simply will not work.

 

Supply management is the process of balancing the production of an industry with market demand. In agriculture, the traditional objectives of supply management have been to secure domestic food supply, and to increase and stabilize prices and farm income. Acreage reduction programs, production and marketing quotas, and stocks management programs have been used as instruments. A domestic supply management program should have three components: a long term program that reduces the overall utilization of the production capacity; a short term production control program that would provide the ability to do annual adjustments, and a fine tuning mechanism that would deal with intra marketing year variations. An international institution could be established to coordinate measures to prevent free rider behavior amongst participants. The distribution of the adjustment in production and/or export allocation among the participating countries, as well as the definition of what are acceptable levels of international prices should be part of a negotiating process. Regarding the supply management of staples (like cereals, oilseeds) as well as hinge products (like cotton, sugar, rice), a coordinated system that includes the countries of the Agricultural North (i.e. Argentina, Australia, Brazil, Canada, EU, USA) would be highly functional as these countries dominate much of the world market.

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