Raised on an egg producing farm during the 1960s and ‘70s, I witnessed the transition from free-run to caged-layer technology, a move that allowed producers to expand their operations rapidly from farms of a few thousand layers to tens of thousands of layers. That, in turn, sparked a shift in Canada's agricultural policy. As supplies of poultry and eggs surged, and prices for these products fell, the government passed legislation creating farmer-controlled marketing boards with the power to set production levels and prices.

Although supply management was created in Canada as a way to ensure farmers were justly rewarded for their efforts, I would argue that it has proven to be deeply flawed. Costly for consumers and other sectors of the economy, the benefits have accrued largely to the narrow class of producers who originally were granted quota from the government.

Those farmers have done very well indeed. Producer prices for eggs have risen dramatically and have remained at profitable levels. Meanwhile, the value of the quota itself has climbed. An average size egg farm has quota valued at some $2.7 million, which the producer can then sell at any time.

But the other classes of producers, new or recent entrants to the industry who must purchase quota at fully capitalized values, face substantial barriers to entry. Because of the high price they have to pay for quota, their operations are only marginally financially viable. Moreover, these new entrants - unlike the original recipients, which received their quota allocations for free - are not guaranteed a capital gain if and when they sell their quota: they could just as well experience a capital loss.

Meanwhile, Canadian consumers pay dearly for supporting their supply managed industries. The OECD has estimated that, in 2004, the transfers from the Canadian public to the Canadian dairy producers alone were almost C$ 2.5 billion. Including support to the poultry and egg sectors brings this total to an estimated C$ 2.7 billion. These figures do not include the costs of operating the marketing boards, which can also be significant.

Dairy, poultry and egg products are staples of Canadian diets, consumed by the relatively poor and the relatively wealthy alike, but account for a disproportionably greater share of a poor family's budget. Dairy products, which provide essential nutrition for growing bodies, are also consumed disproportionately more by children. This de facto tax on basic dietary staples may be the most regressive tax in Canada.

On the whole, Canadian style supply-managed agricultural policies have been demonstrated to be largely ineffective at addressing long-term farmer profitability, while they are also extremely costly to consumers. But for less-developed countries that may be contemplating adopting a supply managed system for agricultural commodities, there are additional issues that they should considered.

A supply managed agriculture system is, in effect, a government sanctioned local cartel, which, by its nature, is unstable because of the incentive for members to cheat and for importers of the managed commodity to evade border controls. Controlling cheating and smuggling requires an administrative structure that for a poor country can be burdensome. In Canada, the system is maintained by legions of administrative staff, analysts, lobbyists, police, lawyers and judges.

In many of the southern economies, agricultural production comes from 70% of the citizens who are farmers working small plots. Presumably, many of these relatively poor producers would be eligible for quota and the financial benefits that they create. How reasonable is it to assume that governments in developing countries would have sufficient resources to afford an administrative system capable of enforcing production limits; which are a cornerstone of a supply managed system?

In both the developed and less developed countries, producers can help themselves by becoming more market driven and embracing opportunities where they are not strict price takers; for example, by producing for organic and specialty markets, and by developing unique products or brands that can be sold at profitable levels. Yet the fundamental economic reality is that agricultural production is a risky enterprise for producers. Nonetheless, that risk can be mitigated without harming producers in poorer countries, and without over taxing consumers at home.

Richard Reesor is a farmer in Ontario, Canada. His article is based on a longer analysis of Canada's supply management system prepared for policy advisors within the Canadian International NGO community. The paper was written in respose to a conference organized by the NGO community examining the sustainability of Canadian supply managed agriculture.