Institutionalized Metzler Effects: Tariff-Rate Quota Liberalization in a Supply-Managed Industry

A supply management system governs Canada’s poultry sector. Tariff Rate Quotas (TRQs), with prohibitive above-quota tariffs and low in-quota tariff, mimic import-quotas limit international competition in Canada’s poultry market. The quota part of the TRQs is a minimum access commitment under international trade agreement that is defined as a fraction of domestic production. We show in a 3-stage game involving negotiations between retailers and processors and between processors and farms that increasing minimum access commitment under current trade agreements can produce Metzler effects with larger price increases observed at the farm and processing levels. Simulations based on 2008 data support the Metzler paradox and shed light on import license allocations between retailers and poultry processors in Canada.