Sacred Cows: Guess Who’s Getting Milked

Agriculture, Commentary, Frontier Centre, Role of Government, Rural, Worth A Look

Except for nuclear power, Canada’s dairy industry is perhaps the most intensely regulated industry in the country – and perhaps the most discreetly regulated, too. When the federal government quietly promulgated radical new restrictions on Canada’s cheese makers in the Canada Gazette last month, it did so on Boxing Day. At the heart of the new edict is a requirement that cheese contain a higher proportion of whole milk – as opposed to milk byproducts – a change that cheese makers say would increase the cost of production. In its commentary on these protectionist regulations, the government noted in passing that the dairy industry has been getting smaller, “with typically static or declining growth,” for 15 years. The only significant exception, it observed, was cheese. From 307,000 tonnes in 1994 to 379,000 tonnes in 2005, Canadian cheese production has increased by almost 25 per cent — most of it in the form of innovative “specialty” cheeses that give consumers the illusion of access to the cheeses of the world.

And then the government conceded that the new regulations could end this singular success. “Higher cheese prices,” it said, “may result in reduced demand for varietal [specialty] cheese and food products containing these cheeses.” In other words, the regulations could induce decline in the only part of the industry not already in a dive. The increased cost to consumers won’t be all that much – perhaps 25 cents a kilogram, according to the government – but Canadian cheese is already expensive. When the cheese starts costing more than the wine, consumers could opt to reduce the subsidy that they provide to dairy farmers.

Coincidentally, Statistics Canada reported in December that the average Canadian farmer had a net worth of $1.1-million in 2006 and net cash income of $58,000. In contrast, the average dairy farmer had net assets of $2.2-million and net cash income of $97,000. The country’s best-off dairy farmers, though, operate in British Columbia (average net assets: $5.6-million; average net cash income: $155,000) and Alberta (average net worth: $4.3-million; average net cash income $186,000).

By rigging national standards to require that more milk be used to make cheese, the government will now divert an extra $185-million a year from consumers into net cash income for the richest farmers. This pay raise will get divvied on the basis of the quota (or licence to milk) that each dairy farmer holds. (The Statscan report puts the combined current market value of all farm quota – for chicken and egg producers, turkey producers and dairy farmers – at $26.2-billion.) The Canadian Food Inspection Agency, meantime, says that cheese-making companies (Saputo, Agropur, Parmalat, Kraft, Gay Lea) will incur extra indirect costs of $70-million a year; these firms themselves put the extra cost at $160-million. CFIA says these costs won’t hurt too much because the firms can recover them “from retailers and consumers.”

Whatever. The cost to consumers, in the end, will be between $250-million a year and $350-million a year – or a nice $3-billion in the next decade.

Yet the government concedes that there was no public health issue that needed fixing. “There is no evidence,” it says in the Gazette, “to suggest that there is any difference in [nutritional] quality between cheese made with milk and some other milk products versus cheese made wholly from milk.” It conceded that it has “no analytic testing methodology” to enforce the regulations – though all imported cheeses will nevertheless require federal licensing. (The regulations go into effect in December.) Three decades ago, the federal and provincial governments devised an elaborate system of price fixing to ensure the survival of Canada’s 120,000 iconic dairy farms and their iconic herds of happy Holsteins. Euphemistically called “supply management,” this protection racket required unanimous provincial-federal consent – more consent than required to amend the Constitution.

In practice, supply management has proven exceptionally Darwinian. Only 15,000 dairy farms survive (25 per cent of them in Ontario, 45 per cent in Quebec) – and the quest for quota (with its statutory guarantee of profit) will keep driving down this number. Were the disappearance of dairy farms in the past 20 years to continue at the same rate for another 20, the country would have three dairy farms left – two in Quebec, one in Ontario.

In the past 14 years, incidentally, the price of industrial, supply-managed milk has doubled – twice the rate of inflation and more than 30 times the increase in the actual cost of milk production on the farm, where the number of cows has fallen by 40 per cent. Canada’s surviving dairy farmers are, in fact, remarkably productive. These asset-rich millionaires, hard working though they are, don’t need welfare cheques any longer.

With almost half of the country’s milk output, Quebec dominates the industry – and significantly influences federal policy. Any minority national government that wants to win rural seats in Quebec must keep the province’s cows as contented as they can.