Governments tend to forget about consumers when managing supply. Open trade to more cheese and challenge our farmers
Cheese heads – it’s what Canadians are called in many of the United States border regions.
It’s because when many Canadians visit their American neighbours, they head straight to the nearest supermarket and buy cheese – and milk and eggs.
Dairy and eggs are much more expensive in Canada than in the U.S., even when the dollar exchange rate isn’t in our favour. And these high prices are the result of Canada’s supply management policies.
Consider milk as an example of a supply-managed product. Milk has long been considered a basic food necessary for health, especially for children. Not providing little ones with milk would be a sign of dire poverty or even child abuse.
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Since milk is such a vital commodity, Canadian governments wanted to ensure there was always an adequate, safe supply. It was decided that production could be assured by enabling producers to receive a profitable price for the milk they produced. To keep the price high enough, potential dairy farmers had to be constrained from flooding the milk market and lowering the cost of per litre.
Quotas were issued and only those farmers holding a quota could sell fresh milk and receive these high prices. So Canadian milk production was limited and barriers at the border meant that Canadians at home had to pay more than world prices for their milk and other dairy products.
Hence cheese heads.
This system achieved its goal of supporting dairy farmers and assuring supply for many years. But now we see demand for milk and other dairy products starting to fall. There are several possible reasons:
- changing demographics and fewer children;
- a larger available variety of drinks and foods;
- a growing trend toward more plant-based eating;
- more dairy substitutes like soy milk;
- the high and rising costs of dairy products induced by supply management.
All industries and all sectors have to deal with changing demographics and changing tastes. However, high and rising prices are maintained by the supply management program for the benefit of quota-holding dairy farmers.
Because milk was seen as a vital but relatively small part of consumer purchases, it was felt that the higher cost wouldn’t deter demand. However, substitutes can be found for even something as basic as milk if prices keep rising.
I was a student on a very low income when my children were small, yet it seemed that every time I went to the store, milk cost more. I stopped buying as much fresh milk but I wanted healthy children, so I bought cheap skim milk powder. I wouldn’t ask anyone to drink it, but I could turn it into yogurt and put it into pancakes and baked goods. The budget stayed balanced and the family got the nutrients they needed.
Governments tend to forget about consumers when managing supply. Yes, producers are important. But there are 3,500 Canadian consumers for every one dairy farm and the number of dairy farms is expected to fall by 50 per cent over the coming decade. That would leave one farmer for every 7,000 consumers.
A recent study from the University of Guelph and Dalhousie University suggests changes to the dairy supply management program in the face of reduced domestic demand and growing international competition.
It recommends government buy out less profitable dairy producers as the market for fresh milk falls.
The study proposes increased competition to encourage dairy farmers to start producing a wider variety of products. For example, in Europe cooks can choose from many kinds of butter. In Canada, butter is butter – take it or leave it.
The resulting wider variety of products could come from opening our borders to more dairy. Only eight per cent of our dairy market faces international competition. The remaining 92 per cent is still protected and other sectors pay a price in our various trade agreements to continue to coddle this small sector.
We could also have more world class-dairy products by removing the inter-provincial restrictions that hamper mobility and innovation.
Farmers have started to express the fear that more competition could kill them. I don’t believe that.
As long as they’re protected at the expense of consumers, they can just keep on keeping on. Once the winds of competition are felt, most will rise to the challenge and become more innovative and productive.
Not only will they maintain their Canadian markets, they will find growing markets overseas. Look at what New Zealand farmers accomplished when their markets were very suddenly opened to free trade.
Canadian dairy products are widely seen as safe and of high quality. Let’s share them with the world and enjoy them more at home.
Roslyn Kunin is a consulting economist and speaker.
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