Economists Jason Clemens and Alana Wilson of the Fraser Institute unfortunately get it wrong in their assessment of Canada’s supply management system for dairy products in their May 15 column, “Free market for groceries is better for the poor.”
Is dairy supply management, where domestic demand is matched with domestic supply and overseen by provincial milk marketing boards, a reasonable model through which to license Canadian milk production?
Neo-liberal critics say no, claiming the system gouges consumers, at least when compared with prices set by “the market,” which in their world is rational, objective and infallible. Certainly that is what the Organization for Economic Cooperation and Development, the Paris-based club of the world’s 34 richest economies, believes. And we have seen where that has got us, what with market meltdowns and rising unemployment in many countries.
But more to the point, the claim is simply not true. The cost comparison between supply management and the market-determined price is like comparing apples and oranges.
When the market sets the price, the direct expense to consumers does not generally reflect the outlays incurred by the farmer. As a result, government must provide billions of dollars worth of subsidies annually to farmers if they are to stay in business. The critics of supply management do not factor these hidden taxpayer dollars into the cost of a litre of milk, no matter how critical that support may be to its production.
In Canada that is not the case. There is no hidden subsidy provided by Canadian taxpayers to dairy farmers. Each time consumers buy milk or cheese they contribute directly to dairy sustainability and resilience, to say nothing of this country’s food security.
By comparison, U.S. subsidies to dairy producers represent about 40 per cent of American dairy farmer incomes, when it reaches them. These subsidies come directly from taxpayers’ pockets. At the store, the U.S. consumer pays only a portion of the overall cost of producing milk. The rest is paid through their taxes.
Without that hidden support, American dairy products would be much more costly for consumers, and much more expensive than the equivalent Canadian product.
Supply management actually ensures the production of Canadian milk at reasonable rates when the total bill is counted. The fact that Canadian dairy farmers can make money when they receive only 21 cents of the cost of a $2.25 glass of milk in a restaurant speaks to their efficiency and productivity.
And what about the per-capita consumption of fluid milk in Canada, which the critics claim has fallen over the past two decades, largely because of price factors? It has fallen less sharply than in so-called free-market countries, such as the U.S. Indeed, in 2006, Americans drank 84 litres of milk each year, while Canadians quaffed 95. Given these figures, milk consumption seems to have little to do with supply management.
The irony also remains that prices have increased the most over the past two decades in countries where the dairy industry is least regulated, like New Zealand — the country that dismantled its dairy support systems in the mid-1980s, demanding that farmers test the vagaries of the market.
In New Zealand, milk is known as white gold. In late 2011, for example, a litre of milk in New Zealand cost so much that the country’s parliamentary commerce committee announced a milk-price investigation.
Supply management rejects the neo-liberal model and applauds the strict regulation of supply to meet demand. There is no free market in the sense that that phrase is normally interpreted, but then, haven’t “free” markets been the cause of so much dislocation in the West over the past 30 years?
Canadian dairy farms remain, by and large, family operations, helping to sustain rural communities around which they are located. In short, ideology seems to be the only raison d’être for considering a return to the 1950s, when “market discipline” was the rage among those who stood most to profit from it.
Supply managed dairy farmers make rural areas sustainable and resilient, something that cannot be said of other regions. If Canadians think that getting rid of supply management will result in lower dairy prices, more satisfied farmers and better products, I have a bridge to sell them in Florida.
Bruce Muirhead is a history professor and associate vice-president, external research, at the University of Waterloo.