Can supply management be defended?

Canadian farmers’ argue their American counterparts are subsidized, but that only tells half the story.

 
(Photo: Muffet/Flikr)

Farmers operating under supply-management boards in the Canadian dairy, chicken and other protected agricultural sectors can be expected to offer justifications for the market power that enables them to sell their wares at prices substantially higher than in most other countries. After all, there is a lot at stake financially (see “Dairy prices go up again“).

One of the more common arguments is that farmers in the U.S. are subsidized. U.S. milk may be half the Canadian price but much of the cost is paid indirectly through the U.S. tax system, argue Canadian farmers.

But the U.S. subsidies appear to be rather small on a per-capita basis. In a November 4, 2011, Globe and Mail article,Federal Agriculture Minister Gerry Ritz says U.S. dairy subsidies amounted to US$450 million annually. That works out to about US$1.50 per American citizen. Canadian families pay about that much extra every time they go shopping for milk at the grocery store.

James Hymas (ordinarily immersed in the arcana of preferred shares recently turned his incisive intellect toward other rationalizations presented by farmers. You can read the lively discussion in a thread on the Free Your Milk Facebook page. Here is a sample of his analysis:

“I do not claim that overpricing of retail milk in Canada is due to excess profits, although that is certainly part of the answer. A major reason is gross inefficiency of production due to the small size of farms, which remain in business solely due to the distorting effects of quota.

According to the Dairy Farmers of Ontario, a hectolitre of milk produced on a small farm requires 1.94 total hours of labour, whereas on a large farm (still pretty rinky-dink by U.S. standards), only 0.81 total hours are required. How would you characterise the 1.13 hours difference? Useful?”

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