Milking Our Gullibility: Many Canadians pay twice what Americans pay

Frontier Centre, Marketing Boards, Rural, Uncategorized, Worth A Look (historic)

What are you paying for milk these days? In Montreal, we’re over $6 for four litres. Know what they pay in the United States? $3.39 a gallon. A U.S. gallon is only 3.8 litres, but if you pump it up to four litres, they’re still only paying $3.57. That’s in U.S. dollars. Turn it into Canadian dollars (using the exchange rate for the first part of this year, since that’s when the milk data here and in the chart are for) and you get all the way up to $3.66. Three and two-thirds bucks compared to more than six bucks. Anybody feeling milked? If not hosed?

To be fair, Montreal has higher milk prices than some other parts of Canada. In the first quarter of this year, the average four-litre price in Toronto was “only” $5.65, while in Vancouver it was $4.83. On the other hand, it was $6.11 in St John, N.B., and $6.94 in St John’s, N.L. — getting on to twice the U.S. price. Note, as well, that the U.S. data are a city average for the entire country. In many U.S. cities, the price is actually less than the average quoted. Lots of Canadians, even outside St. John’s, probably do pay more than twice for milk what many Americans do. And for cheese and other dairy products, since high milk prices raise their prices, too.

Man does not live by dairy products alone, but Statistics Canada says they do account for 1.71% of consumer spending. If your family is spending $50,000 a year, that’s $855 and if you’re overpaying by a third to a half, we’re talking $285 to $425 — not a bonanza but not an amount most people would usually refuse if they had a chance to get it back.

Why we pay more for dairy products couldn’t be simpler: Our dairy cartel artificially restricts supply. Now, according to economic theory, industries with literally thousands of competitors, as there are in dairy, aren’t able to form cartels. It’s too easy for members to cheat by cutting prices on the sly. Even the world’s most famous cartel, OPEC, with only a dozen members, often has trouble keeping oil prices high.

But when you get the government to enforce your cartel’s rules by making it literally illegal for overenthusiastic competitors to produce more output than their godfathers have allotted them, your cartel can run its supply-restriction racket forever. Which is just what the country’s dairy farmers have been doing since the early 1970s, when “supply management,” which is misnamed — it’s really supply restriction — began.

To make the legalized price gouging work, of course, it’s necessary to keep cheaper alternatives out of the market. Which is why, in addition to police protection against excessive production in Canada, we have enforcement at the border via outrageously high tariffs: 241% to 295.5%, including 277% for ice cream. Imagine! A country that puts punitive taxes on ice cream!

What adds insult to injury is that the people who run this scandalous system not only gouge us in this way but insist we agree that their taking our money is a good thing. Thus in Monday’s Post Mr. Wally Smith, head of the Dairy Farmers of Canada, wrote that “the supply-management system … is working and not just for dairy farmers … it is working for Canadian consumers, taxpayers, as well as the food industry.” And he argued, surprisingly and counterintuitively, that if we did away with supply management, dairy prices wouldn’t fall. Of course, if he and his members really believe that, they have nothing to fear from the freeing up of supply to reach its natural level in the market.

Mr. Smith’s main justification for output restriction is that before it came along, dairy prices would fluctuate. “When the price of milk increased, farmers increased supplies. Prices dropped and dairy farmers went bankrupt. Less supply drove prices up again and the vicious circle repeated itself. Supply management stopped that cycle in Canada, bringing stability to the market.” (Note that one of OPEC’s official aims is “the stabilization of prices in international oil markets with a view to eliminating harmful and unnecessary fluctuations.” All cartels believe devoutly in “stabilization.”)

There are two things wrong with this argument. First, many dairy farmers have taken Economics 101 and know that not all price increases last. They therefore don’t always respond by ramping up supply.

But, second and more important, how many industries don’t experience fluctuating prices and supplies? When times are good and people are dining out a lot, restaurants go into business that go bust when the peak passes. When times are good, homebuilders build homes whose prices sometimes fall when times aren’t so good, occasionally with disastrous consequences. The list literally goes on and on. Steel, computer chips, cellphones, wheat, newspapers, magazines, meat, potatoes, cars, lumber, nickel — you name it: Producers in these and countless other industries all have to worry through the basic business problem of whether good times today mean good times forever.

Should we therefore have marketing boards in all our industries to make it illegal to produce more than whatever restricted supply producer organizations agree on? Of course not! But if even the thought of that is ridiculous in these other industries, why in the world does it make sense in dairy?