This article is excerpted from a letter by Alain Robitaille, portfolio manager of Robitaille Group at Desjardins in Quebec, Canada.

A topic garnering lots of media attention at the time of this writing is the difficulty facing President Trump and the Canadian government in reaching a new trade agreement. A major point of contention relates to supply management (quotas) in the farming sector, which controls milk, poultry and egg production.

Supply management has been in effect in Canada for several years, but it doesn’t exist in the United States. The framework coordinates the supply and demand of those products between producers and consumers. To be effective, the system limits imports of dairy products from other countries, but also ensures there is no surplus to be sold abroad. So, for the U.S. and several other countries, it represents a trade barrier that closes off the Canadian market thus creating an irritant, even though the Canadian market is very small.

That said, you may be wondering where I’m going with this. When are we going to talk investments? I’m getting to it. As you may know, before I became a portfolio manager, I co-owned a medium-sized dairy farm with my brother Marcel and my father. My brother and I ran the farm for ten years.

During that time, we “came across” Warren Buffett. In his books and interviews, Buffett often talks about sustainable competitive advantages (castles and moats). A competitive advantage allows a company to sell its products or services with increasing profitability over the years. What struck me most about his theory is that Buffett understood raw materials don’t enjoy the benefits of a competitive advantage. As he says, the average consumer doesn’t buy milk from a particular producer: he buys milk. Same thing for corn, chicken, etc.

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Disclaimer: None of these returns take management fees into account. This data represents past performance and does not guarantee future results. This document may contain statistics from third parties we consider to be reliable. Desjardins Securities makes no claim regarding the accuracy or completeness of the statistic information obtained, and readers should not rely on it in this respect. Alain Robitaille and Fanie Ouellet are registered as portfolio managers with self-regulatory organizations. They are authorized under the provisions of Rule 1300 of the Investment Industry Regulatory Organization of Canada (IIROC) to make investment decisions and provide advice on securities for managed accounts. Aside from Alain Robitaille and Fanie Ouellet, no member of Robitaille Group can exercise discretionary power over a client’s account, approve discretionary orders for a managed account or contribute to investment decisions taken on behalf of a managed account holder or to advice given with respect to such an account. Each of the Desjardins Securities advisors named on the front page or at the beginning of any section of this document confirms that the recommendations and opinions expressed within accurately reflect the personal opinions of the advisors with respect to the company and the securities discussed in this document, as well as any other company or security monitored by the advisor that is mentioned in this document. Desjardins Securities may have published opinions that are different from or even run counter to those expressed in this document. These opinions reflect the different perspectives, assumptions and analytical methods of the advisors who prepared them. Desjardins Wealth Management Securities is a trade name used by Desjardins Securities Inc., a member of the Investment Industry Regulatory Organization of Canada (IIROC) and the Canadian Investor Protection Fund (CIPF).

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