Thursday, November 24, 2011

Dairy defence flawed

I got an e-mail today from a defender of supply management for the dairy industry.

He said "with all of the coverage about our supply management system and its potential impact on Canada’s ability to join the Trans-Pacific Partnership, some recurring myths are cropping up again. For example:
1.       Canadians pay more for milk and dairy products than residents of other countries. Not true. For example United States Department of Agriculture reports American cheddar cheese costs US $5.70 per pound or $12.54 per kilogram. The average national price for a kilogram of cheddar in Canada is $13.70 Canadian. In Canada, dairy farmers receive no government subsidies.
Trouble is, it is true. Anybody who has shopped in U.S. supermarkets, as I have from New York to Florida, Texas, Alabama, Tennessee and Louisianna, knows milk and dairy products cost more in Canada.
2.      Canadian dairy farmers are subsidized. Not true. Canadian dairy farmers receive no government subsidies. American dairy farmers received $4 billion in subsidies last year, almost equal to the retail price of milk. Americans pay twice for their milk, once in the stores and second time, through their taxes.
Trouble is, it is true. Dairy farmers take advantage of many farm subsidies, ranging from crop insurance to cash accounting for income tax purposes, from traceability to environmental programs.
3.      Competition and open markets will result in better prices for consumers and farmers. Not true. It isn’t working anywhere in the world.
Just saying it isn't true doesn't mean it is not true. In fact, many studies indicate that Canadians enjoy stiffer retail competition and lower markups on food than Europeans and Americans. What makes you think this competition would mysteriously end if the farm-gate prices for milk decline?
4.      The price of dairy products in Canada is high. In fact, since supply management was introduced 40 years ago, the price of milk and dairy products has risen less than the CPI.
The price of dairy products in Canada is high. That's the result of tariffs of close to 300 per cent. And if you want to use the Consumer Price Index as a measure, why not start with the date when Canada switched from reliance on Article 11 of the old GATT to tariffs? Since then, the price farmers charge for milk has increased much more than the CPI. In fact, isn't that why dairy farmers in Ontario want to de-link their fluid milk pricing from the current level of reliance on the CPI: they want prices to go up faster and more.
University of Waterloo Professor Bruce Muirhead, who is part of a global team now conducting research funded by the Norwegian government on agricultural practices, says Canada’s supply management system is the envy of both governments and farmers in jurisdictions around the world.
Muirhead is not an agricultural economist, and he fared poorly in last evening's panel discussion on supply management on TV Ontario. He was much less knowledgeable and credible than Larry Martin, who is a highly-respected agricultural economist.