Hello, and welcome to today’s deep dive into a topic that’s as complex as it is crucial for business valuators and asset appraisers alike: the risks involved in valuing businesses that rely on regulatory privileges—specifically, quota-based systems like Canada’s supply management for dairy, poultry, and eggs.
I’m Eric Jordan, your guide through the sometimes murky waters of valuation in regulated industries. If you’ve ever wondered how much those government-imposed quotas really matter when putting a price on a business—or how stable that value truly is—you’re in the right place.
So, let’s get into it.
Canada’s supply management system is a bit like the Goldilocks of agricultural policy: it tries to keep production just right, prices stable, and farmers profitable—all without the direct subsidies that make other systems look like welfare queens at the farm gate.
At the heart of this system are production quotas—essentially permits to produce a set amount of milk, eggs, or poultry—which are transferable and tradeable. These quotas are big assets, literally worth billions when you stack them up nationally.
To give you a sense of scale: a dairy cow inside this quota system can be valued at ten times the price of an identical cow outside it. Outside the system? That cow is basically just good for beef or export at commodity prices, worth maybe $1,500 to $3,000. Inside? That same cow, thanks to the quota’s economic privileges, can fetch anywhere from $26,500 up to $61,000 in value.
That’s a massive premium—and it shows just how much regulatory privileges can inflate asset values.
This system’s value doesn’t come from natural market forces. It’s baked into policy, which means it’s always at risk of political, economic, or legal upheaval. We’ve seen it before—in Australia in the early 2000s, dairy quotas were dismantled, causing values to collapse and farms to go bankrupt.
Here in Canada, the story is far from settled. Western provinces like Alberta, British Columbia, Saskatchewan, and Manitoba feel shortchanged—getting fewer quotas than their population or economic contribution might suggest. Alberta’s Premier Danielle Smith even floated the idea of exiting the system entirely, calling it “worth considering” as a move toward provincial sovereignty.
Why does this matter for valuation? Because if Alberta pulls out and floods the market with unregulated production, the quota values elsewhere could crash. After all, Section 121 of the Constitution mandates free interprovincial trade, so a flood of cheaper Alberta dairy could undercut the prices protected by quotas in other provinces.
For valuators, this means caution. A valuation model that assumes these quotas will remain forever stable is playing with fire.
Imagine you’re valuing a Quebec dairy farm where quotas represent 60% of the business value. If the Western provinces exit and cause prices to fall, you might need to apply a risk discount of 20 to 30 percent—or more. Suddenly, your prized asset—the quota—could lose much of its worth.
This kind of scenario analysis and risk adjustment isn’t just prudent; it’s essential.
The supply management system is a textbook example of a wider issue. Whether it’s taxi medallions, fishing quotas, or telecom spectrum licenses, special regulatory privileges create monopoly rents that boost value—sometimes spectacularly.
But with privilege comes vulnerability:
Valuators should always factor these risks into their models through scenario planning, adjusted discount rates, and rigorous sensitivity testing.
We have hard evidence to learn from. Australia’s dairy deregulation saw quota values dive 50-70%, with many farms closing shop.
In Canada, recent trade deals forced the government to compensate farmers with billions, signaling that quotas aren’t bulletproof.
Public support, particularly in Western provinces, is eroding. Polls show only 35-45% support in the West compared to over 60% in Quebec, with nearly a third of Canadians overall favoring abolition.
This political reality translates directly into valuation risk—and the need for transparency and disclosure.
So, what’s the best practice?
These steps help protect your clients and maintain your credibility.
In summary, valuing businesses tied to regulatory quotas—like those in Canada’s supply management system—is not for the faint of heart. Those quotas can multiply asset values tenfold, but they also carry substantial political and economic risks that can materialize quickly.
With Western provinces challenging the status quo and international pressures mounting, valuators must adopt a forward-thinking, risk-conscious approach. It’s about balancing optimism with caution and ensuring valuations remain credible no matter what the regulatory winds blow.
Thanks for tuning in. I’m Eric Jordan, helping you see beyond the numbers to the real story behind value in regulated industries. Until next time, keep valuing wisely.
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