Site Search

Custom Search

Thursday, September 1, 2016

Are big dairy making the poor even poorer?

As regular readers of  this blog are aware, one of my pet peeves is the supply management regime imposed on Canadian consumers of dairy and poultry products. As if the cost of food were not already too burdensome on average low-income families in Canada, September 1 will see the price of industrial milk increasing for the second time this year.

The objective of supply management is to balance the supply of milk, cheese, butter, poultry and eggs with demand. To do so, production quotas, which farmers must purchase, are set to restrict production, while Canadians are discouraged from importing cheaper products from abroad by the imposition of crippling import duties.

Time and again, however, we read studies showing that supply management causes higher consumer prices than would be the case with open markets. Furthermore, these higher prices place more of a burden on poorer households than on richer ones.

The most recent study—Supply Management Makes the Poor Even Poorer—by Vincent Geloso and Alexandre Moreau of the Montreal Economic Institute concludes, in part, that:

… A reform plan that would phase out production quotas and import duties would benefit all Canadian consumers, … especially … poorer individuals, raising their living standards and effectively lifting many of them out of poverty”

It is indeed sad to think that this study, as with so many before it, will fall on the willfully deaf ears of our elected officials. Of course, those who govern us are well paid with handsome benefit packages so a few hundred dollars added on to their food bills each year will have little impact on them. Moreover, the poorer among us are hardly an influential voting block, so let them like it or lump it.

According to the MEI study, “the poorest 20% of Canadian households paid $339 more per year than they would have in the absence of supply management.” This pushes between 148,396 and 189,278 Canadians into poverty, using the Basic Necessities poverty line. Using Statistics Canada’s measure of relative poverty, the Low Income Cut-Off, between 133,032 and 161,435 Canadians are pushed into poverty.

All this to protect fewer than 15,000 farmers—some say only 12,000—who operate under supply management, which seems to this onlooker as a relic of the now thoroughly discredited Soviet-type economic planning.

The majority of Canadian farmers (over 90 per cent) operate under open-market rules. That is to say, they either sell their products in Canada at world prices or they export them to other countries. This is much the way virtually every other industrial segment of our economy operates.

What’s so special about dairy and poultry farmers?

As former Liberal MP for Willowdale, Ont. Martha Hall Findlay pointed out as far back as the summer of 2012, numerous economists, think tanks and consumer advocates have repeatedly recommended that Canada phase out its supply management system. And, although many elected officials apparently agree in private that it should be dismantled, they steadfastly refuse to speak out publicly against the system. According to Ms. Hall Findlay, they say that “politically, it’s not possible” and “there are too many votes at stake.”

The dairy lobby repeatedly reminds us that the Canadian government pays no subsidies to dairy farmers. How disingenuous can these people be? Of course there’s no need for a subsidy to be paid out of tax revenue, consumers pay a premium directly out of their weekly food budgets—including those low-income Canadians who don’t even make enough to pay taxes. So how’s that a good thing?

Personally, it wouldn’t matter to me one bit if the milk in my cereal bowl came from cartons reading “Product of the U.S.A.” I buy imported fruits and vegetables all the time and get them at world prices. So why shouldn’t I be able to buy English or French cheese the same way? I buy New Zealand lamb at zero per cent duty, why not eggs, poultry, etc.?

The answer, of course, is simple: the politically powerful vested interests will not let me. Period!

So on it goes. A privileged few millionaire dairy and poultry farmers continue to cry “poor us” while they prosper at the expense of the poorest Canadians. Well-to-do politicians continue serving their crass political purposes, while Canadian consumers pay unnecessarily high prices for their most basic and important nutrition.

Makes me spitting mad.

4 comments — This is a moderated blog and comments will appear when approved. Please don’t resubmit if your comment doesn’t appear immediately, and please do not post material that is obscene, harassing, defamatory, or otherwise objectionable.

  1. I don't wish to defend the indefensible, but there are a couple of points worth remembering when looking at this study. Supply management tries to balance the supply/demand for raw milk, produced by the dairy farmers. Butter, cheese. yogurt are manufactured by the Dairy Industry, prices are not controlled by those milking the cows.
    It is not disingenuous to point out the dairy products have no direct subsidy, SM eliminated $ millions of direct support price payments to dairy farmers in the 1960s, along with mountains of milk powder stored and promoted in aid programs. The reason all governments, including Hall-Findlay's Liberals support SM is that it costs them nothing.
    In contrast, US dairy products are massively subsidized by direct and indirect
    subsidies as part of the famous House Agriculture Bill.Some of these measures go back to the Roosevelt depression era.
    This is why if is misleading to simply compare US and Canadian retail milk prices, the US price only covers the cash portion, not the hidden tax portion a consumer pays.Interesting that dairy SM survived the TPP negotiations and the main opposition was not from the US. Simply put no Congress is apt to dismantle the Farm Bill and their subsidies are not subject to negotiation.
    It is true that poultry and manufactured dairy products could be imported cheaper from other countries, but not the fluid milk. A very perishable product, the closer to market the better; there is no practicable way that milk can be imported in large quantities from USA.
    To me this means fluid milk in Ont will continue to be produced on Ont dairy farms, whatever happens with SM.
    No one criticizing SM has yet put forth any plan to disentangle it, or address the thorny issue of compensation.The dairy quota alone is valued at over $25B, capitalized into farm value. Obviously no government is going to compensate at market value, yet farmers have borrowed the money on straight government directive, a necessary cost of being in business.
    Hall-Findlay's study and most others including this one gloss over the issue, but Australia with far fewer farmers employed a one time tax on milk, a hefty 11c/litre. Somehow I can't imagine a Canadian government explaining to consumers why they have to compensate "millionaire farmers" with an additional tax on retail milk.
    In short governments could spend billions disentangling SM to find down the road that dairy prices did not descend to the fire sale levels predicted.
    Consumers need to beware of what they are demanding and have a close objective look at the actual costs involved. I would welcome just such a study.



























    ReplyDelete
    Replies
    1. Martin, your words: "Supply management tries to balance the supply/demand for raw milk, produced by the dairy farmers. Butter, cheese. yogurt are manufactured by the Dairy Industry, prices are not controlled by those milking the cows."

      Remember that supply management includes high tariffs on imported goods, encouraging higher consumer prices on butter, cheese, etc. Also the high price of the raw milk ingredient sets the foundation for higher consumer prices--it's all tied together.

      Your words: "No one criticizing SM has yet put forth any plan to disentangle it, or address the thorny issue of compensation.The dairy quota alone is valued at over $25B, capitalized into farm value. Obviously no government is going to compensate at market value, yet farmers have borrowed the money on straight government directive, a necessary cost of being in business"

      Martha Hall Findlay and Jack Mintz have done some useful work in that area. So has The Conference Board of Canada, among others. With due respect, this subject has been studied enough--it's now time for political action.

      Thanks for your feedback.

      Delete
  2. Interestingly enough in Martha Hall Findlay's analysis she showed (using the 2011 results) it would have not cost anyone any seats scrapping supply management when you consider the number of farmers. Off course in 2015 you had a lot more three way races in Quebec as well as the Tory wins were by much smaller margins in Rural Ontario, but point being the actual size of the dairy farmer lobby is not that big.

    I too think this should be scrapped although it would be phased out say over 10 years like New Zealand and Australia did and ironically dairy farmers are actually doing better in those countries than before. I am no Justin Trudeau supporter but he has a lot of political capital and its time to spend some and this is something he could spend his political capital on that would actually benefit many Canadians. Likewise I think the Tories promising to scrap this might not be a bad idea. They won't be Justin Trudeau on style, so they need to beat him on ideas and it is through bold ideas that will grab people's attention, not who can take the most selfies.

    ReplyDelete
  3. If supply management disappeared overnight, all that would happen is that there would be a lot of bankrupt farmers. I want you to think back to the good old days of BSE aka "mad cow". There was no drop in price on meat at the grocery, but farmers were hard pressed to give away cattle. I know, I lived it with my dad on our dairy farm. A bob calf worth $100-$150/head was worthless the day after BSE was diagnosed out west. Its no different than when the Canadian dollar was at par with the US. Were the prices of cars, tv, stereos, etc the same in both nations? Of course not, as we were charged more for the privilege of being Canadian.

    As for this study, its BS from start to end, if you check Stats Can, for household expenditures you will find that food costs, with and without supply managed commodities, food costs are anywhere from 1/2 to 1/3 of household expenditures, so to claim that supply management is causing harm is facetious.

    As with all food products, the profits flow to the producer and the retailer, not the farmer.

    http://www.statcan.gc.ca/tables-tableaux/sum-som/l01/cst01/famil131b-eng.htm

    dairy & eggs are 10% or less of total expenditures on food http://www.statcan.gc.ca/tables-tableaux/sum-som/l01/cst01/famil132g-eng.htm

    household expenditure per income quintile http://www.statcan.gc.ca/daily-quotidien/150122/t002b-eng.htm




    Oh, and for the idea that farmers are happy in Australia / New Zealand w/o supply management as per Anonymous.

    http://business.financialpost.com/fp-comment/counterpoint-ending-supply-management-didnt-help-australians-and-it-wont-help-Canadians

    https://theconversation.com/murray-goulburn-and-fonterra-are-playing-chicken-with-dairy-farmers-59595

    ReplyDelete

ShareThis