The Canadian Dairy Commission (CDC) this week raised the price of industrial milk by 1.5%. It doesn’t seem like much, but a succession of such increases over the past four decades has given Canada some of the highest prices in the world for cheese, yogurt and other products made from industrial milk.
For example, a 300-gram brick of cheddar cheese currently costs an average $6.99 in Canada, about 45% more than in Europe and nearly 100% more than in the U.S., as recently noted by the Winnipeg Free Press. These high prices for cheese and other dairy products are protected from foreign competition by tariffs of 200% to 300%. If you want to buy a $10 wedge of cheese from France, you have to pay a duty of $24.50.
Supply management seems to have become a huge boondoggle with many unintended side-effects. To give another example beside the excessive transfer of wealth from consumers to farmers, it also prevents Canada from fully participating in free-trade agreements, thus curtailing job- and wealth-creation in industries that could be exporting to other countries.
When first issued, dairy production quotas cost nothing. Now the quotas in Canada are valued at $30 billion. A farmer with $2 million in quotas isn’t going to be persuaded of the need to scrap supply management. Unless, perhaps, he or she is duly compensated, in which case, the total bill would be an astronomical $30 billion.
But buying out the farmers would be a one-time payment that would halt an even greater transfer of wealth over time (and drag on the economy). Some countries have indeed deregulated their dairy sectors by levying taxes on dairy products to pay off farmers. The CD Howe Institute recommends increasing the number of quotas until prices drop closer to zero. I wonder if the transition costs should also be borne by the farmers who sold their quotas for windfall profits. Other ideas welcome!