Winnipeg, Nov 25 - Canada's protection of its supply-managed farm industries in World Trade Organization talks makes for good politics at home, but it puts at risk big trading gains for the larger meat industry.

Supply management is a system of quotas and tariffs to restrict production and support prices. Since the 1970s, Canada has managed supplies of its dairy, poultry and egg industries, which account for a fifth of the country's farm revenue.

Those sectors aren't big enough to influence global prices, but import restrictions keep other countries -- such as dairy producers New Zealand and Australia -- from tapping a rich market, agricultural economists say.

The WTO's draft negotiating text for agricultural trade proposes higher import quotas for sensitive products and a reduction in steep tariffs on over-quota imports, measures that Canada's Conservative government rejects.

"We have to protect our supply management system," International Trade Minister Stockwell Day told legislators on Oct. 8. "That's our position and we're going to continue to maintain it."

Even so, Canada's own chief agricultural negotiator, Gilles Gauthier, has said the government's position is extreme and difficult to defend.

It also undermines Canada's push for easing trade restrictions to other countries, which is important given Canada's export-driven economy, said Karl Meilke, an agricultural economist at University of Guelph.

"Internationally, we're seen as speaking out of both sides of our mouth," said Richard Barichello, an associate professor of food nutrition and health at University of British Columbia. "It does weaken our bargaining position."

The Canadian beef sector has said it stands to gain up to C$1 billion ($952 million) in new global trade through expansion of import quotas and reduction of tariffs, especially in the European Union.

"We've come to a point in the road where the government... (is) making a choice between doing what the few farmers who operate under supply management want (or) what the majority of Canadian agriculture needs," said John Masswohl, director of government and international relations for the Canadian Cattlemen's Association.

Canada's depressed hog industry is also eyeing Europe for pork imports, said Martin Rice, executive director of the Canadian Pork Council.

SENSITIVE POLITICS

Politics is at the heart of the government's defence of supply management, economists and industry officials say.

The dairy industry is based in Quebec, the populous French-speaking province that is critical to any political party's ambitions.

Canada's Conservative government holds a minority of elected positions in Parliament, leaving it vulnerable to unpopular positions triggering an election.

The dire straits of American dairy farmers, who have no supply management to shield them against low prices, gives politicians one more compelling reason to defend the system.

"It has been clear in the last two years that the free market principles have failed agriculture and food around the world," said a Dairy Farmers of Canada statement this week.

Stability through supply management means the dairy industry hasn't had to ask for government assistance like other sectors, the group said.

Processors and consumers also have much at stake.

An eventual end to supply management would likely mean lower milk, chicken and egg prices, while easing restrictions would invite stiffer competition for Canadian processors.

Major publicly traded processors in Canada include Maple Leaf Foods (poultry) and Saputo and Parmalat (dairy).

The WTO talks are unlikely to reach a conclusion before late next year, Meilke said.

"There's no question, at the end of the day, Canada is going to sign" the WTO agreement, he said. "We're not going to cut ourselves off at the knees. But we're going to get what we perceive as the best deal for the dairy farmers."