Free Trade In Food? Not Until The Milking’s Done

Worth A Look, Agriculture, Frontier Centre

OTTAWA – Quebec’s cows are a powerful bunch. Unlike the rest of us, when they go “meuh ” (that’s French for “moo”), they get noticed.

Politicians in Quebec City and Ottawa quickly cock their heads from whatever scandal they’ve been grazing on whenever the province’s 375,000 cows, or their 7,000 owners, start making meuhs . Witness the light speed with which federal Agriculture Minister Gerry Ritz expressed “serious concerns” about the draft text released last month by World Trade Organization negotiators aimed at liberalizing food markets.

Freer trade in agricultural goods would be a $3-billion annual boon to Canadian farmers, from grain growers to hog producers, not to mention offer a few developing countries a way out of destitution. But for the Canadian cow owners, the latest WTO proposals aren’t worth mulch. Ergo Mr. Ritz’s reservations.

The federal agri chief and his counterparts in Quebec and Ontario – which account for about 70 per cent of Canada’s milk output – are afraid what awaits them if they ever try dismantling the quota system that protects farmers here.

Tens of thousands of farmers in Germany and neighbouring countries had a cow last month when prices tumbled in the wake of a European Union decision to increase milk quotas. The farmers went on “strike” and refused to deliver their milk to processors, disrupting the entire dairy sector. Germany’s Agriculture Minister Horst Seehofer caved and sided with the discontented cow owners: “Dairy farmers need a price they can live on.” He almost sounded Canadian. After all, that “price they can live on” has been the underlying justification for Canada’s supply management system since its inception 40 years ago. Back then, quotas to produce milk were handed out free to existing dairy farmers. In our dairy autarky, output levels have been adjusted regularly ever since to ensure supply never exceeds demand.

Dairy farmers in each province get enough quota to supply fluid milk – the kind sold in cartons at the grocery store – for their own internal market. But quotas for industrial milk used to make butter, cheese, yogurt, ice cream and other processed dairy products are not proportionally distributed. Quebec farmers have 47 per cent of that market.

The industrial milk quota serves as the basis for a huge dairy processing industry that employs thousands of Quebeckers and “exports” more than half its production to the rest of Canada. Heading the list of processing powerhouses is Agropur, the $2.5-billion farmer-owned co-op that ranks with Montreal-based Saputo as the country’s biggest dairy player.

Dairy products from the rest of the world, over and above a small import quota, are kept out of Canada by punishingly high tariffs of 299 per cent for butter and 246 per cent for cheese. The latter has helped spawn Quebec’s thriving industry of increasingly celebrated specialty cheese makers, the ones the foodies in T.O. rave about.

It’s easy to understand why Quebeckers like supply management. They’ve milked the most out of it.

Consumers just shrug and swallow. A 2007 Montreal Economic Institute study suggested that supply management costs the average Quebecker an extra $75 a year for milk, eggs and poultry compared with his or her U.S. counterpart.

The price differential – which has declined as world prices have risen – is not in itself proof of supply management’s failure. U.S. dairy farmers receive direct government aid, so taxpayers there, not consumers, bear the cost of subsidization. The use of recombinant bovine growth hormone, which is banned in Canada, means the U.S. cows produce more milk on average. And U.S. grocery stores use milk as a loss leader, while Quebec sets a minimum retail price for it.

Nor are prices here clearly to blame for slowing milk consumption. After all, the proportion of Canadians in their peak milk-drinking years has been in decline. Aging boomers, on the other hand, seem unfazed about doling out a premium for bacteria-enhanced yogurt to keep their bones healthy and bowels moving. Yogurt consumption is up more than fivefold in the past 25 years.

No, focusing on prices hasn’t swayed the politicians or the public. If supply management is to be reformed, you have to get to farmers.

Instead of voicing “serious concerns” at the WTO, Mr. Ritz could be reminding Quebec’s farmers that supply management doesn’t reward their productivity, since a farmer can’t sell more milk than their quota allows, and it discourages their children (and other potential quota buyers) from taking over because they would have to take on too much debt. At about $30,000 a cow, the average Quebec quota costs $1.6-million. But without buyers, it’s a paper asset.

Mr. Ritz could inspire Quebec’s dairy farmers to imitate their 11,000 New Zealand counterparts, who’ve spurned protection and, through their massive $11-billion Fonterra co-op, have become the world’s biggest dairy exporters.

But as long as the minister just listens, the farmers will just go meuh.