Reform the dairy industry

Dismantling the supply management system for Canadian dairy products would lower prices for consumers and provide farmers with long-term benefits.

At the GrowCanada Agricultural conference in Ottawa in December, former prime minister Brian Mulroney pronounced that it was time to put an end to the protectionist regime that controls the production and prices of eggs, poultry and milk in Canada. Eliminating the sector’s supply management system would stimulate agricultural exports, he added.

To publicly criticize this system is true heresy. Yet, Mulroney was only voicing what many politicians think but dare not say for fear of alienating the powerful farming lobby.

Supply management — a combination of quotas and tariffs that control imports, production and prices — artificially reduces the food supply. Producers, who have to meet onerous production quotas, can thereby set abnormally high prices with help from our politicians. And with the government levying anywhere between 200% and 300% in taxes on dairy imports, a foreign producer who wants to sell you milk at a lower price is simply out of luck.

For many years, the price of milk in Canada has risen faster than the rate of inflation due to our supply management system. According to a study by the Conference Board of Canada, Canadians pay 40% more than Americans or Australians for a litre of milk. The same holds for chicken, cheese and eggs. In total, the study reports, consumers pay $2.6 billion — or $276 per household — more each year because of this system.

In short, the system transfers money out of the pockets of millions of consumers and into the hands of thousands of Canadian producers. And since these inflated prices impact basic foodstuffs, the poor are more affected than the rich. When it’s cheaper to put a two-litre bottle of Coke on the dinner table, we shouldn’t be surprised that milk consumption per resident has been falling year after year in Canada, as statistics show.

What can be done? Dismantling the supply management system would give consumers a break and would also provide farmers with long-term benefits, The Globe and Mail reported Mulroney as saying. By eliminating competition and imposing barriers to foreign products, supply management stifles innovation in the industry and prevents Canadian farmers from seizing business and export opportunities in other markets.

It’s clear that progressively dismantling supply management would present its share of challenges. Producers are required to buy highly expensive production quotas — as much as $25,000 per cow in the case of milk producers — and most incur huge debts to cover their fees. Phasing out the system would therefore involve compensating farmers. What would it cost Canadian taxpayers? A buyout of milk production quotas alone would cost between $3.6 billion and $4.7 billion, according to the Conference Board.

Despite the cost, this is a viable option. In the early 2000s, Australia implemented such a reform. For more than eight years, the country levied a tax on retail milk sales to fund production permit buyouts and compensate farmers. Prices fell despite the tax. Australia and Canada are obviously two very different countries, but we can still learn from the example from Down Under.

The biggest hurdle, however, is the lack of political will. For a candidate seeking election or anyone in office, the mere mention of reform is utterly taboo. No politician wants to draw the ire of the farming lobby, especially since farmers form a sizable voting bloc in many ridings across the country. But how do we convince them that reforming the system is the way of the future, both for Canadian consumers and for them? Quite a challenge, indeed.