March 14, 2013

 

 

Due to obsolete rules and government regulations, Canadian dairy prices are higher than they should be, and consumers do not have access to the best products.

 

This is according to a report from the C.D. Howe Institute.

 

The prices paid for, and the availability of Canadian dairy products are subject to a Byzantine set of regulations that were originally designed to ensure a constant supply of milk for Canadians while guaranteeing farmers a living wage for their products.

In the modern economy, however, the dairy industry's supply management rules no longer work and should be changed, C.D. Howe said.

 

The system relies on an import tariff on dairy products that effectively shuts the door to imported products, except for some nominal access commitments made to secure free trade deals, say report authors Colin Busby and Daniel Schwanen.

 

"Canada's system of dairy supply-management restricts the availability of milk to Canadian households, food processors and restaurants to maintain a higher price for milk and dairy products than Canadians would otherwise pay," they say in the report.

 

Under current rules, Ottawa delegates power over dairy trade to the provinces under the jurisdiction of a Crown corporation called the Canadian Dairy Commission (CDC). The CDC is mandated to look out for the interests of all stakeholders. But "consumers can have a better deal on milk without denying efficient farmers the opportunity to earn a fair return," Schwanen said.

 

Currently, the CDC sets limits on the total amount of milk products that can be produced, and issues "support prices" at which it would be willing to buy different dairy prices. That's designed to ensure supply and keep consumer prices in a range.

 

In practice, however, C.D. Howe said the beneficiaries of the outdated system are Canadian dairy farmers who own quotas to produce a certain amount of milk.

 

"New dairy farmers must purchase quota, often at prices they can ill afford, to sell milk in Canadian markets," C.D. Howe said. "As a result, a significant amount of income from the population at large is transferred to a dwindling number of dairy farmers." The think-tank advocates not for a total overhaul of the supply management, but rather changing the rules to make the system more efficient over time.

 

The paper lays out three broad recommendations: one is to change the members of the CDC's board of directors to make sure consumers' and industry's interests are represented, as is the case in many other Canadian industries; next is capping retail prices for milk until a fair benchmark can be set using international benchmarks.; and restoring powers to the federal government that it has delegated to the provinces, so that trade can expand for farmers who wish to operate outside the quota system.

 

"A sharper focus on efficiency would also benefit the industry, where many new farmers are beset by debts, high quota values make entry difficult, and opportunities to access new markets are lost," Schwanen said.