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What the Media Has Wrong About Dairy Farmers

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With reoccurring and recycled negative commentary about dairy supply management in the Canadian media, one would think that it, and not money, is the root of all evil. I believe that this country's media and punditry is either ill-informed on the merits of the system, or committed to a world view in which data and practical reality have no place.

The question often raised in Canada, and around the world, is this: does dairy supply management, represent a reasonable model through which to license Canadian milk production?

Neoliberal critics like Canada's Conference Board or the CD Howe Institute, and international critics like the Organization for Economic Cooperation and Development, say no, claiming the system gouges consumers, at least when compared with prices set by "the market," which in their world is rational, objective and infallible. And we have seen where that has gotten us, what with market meltdowns, imposed austerity, and sharply rising unemployment in many countries.

But more to the point, the claim is simply not true. The cost comparison between supply management and the market-determined price is like comparing apples and oranges. When the market sets the price, the direct expense to consumers does not generally reflect the outlays incurred by the farmer. As a result, government must provide billions of dollars worth of subsidies annually to farmers if they are to stay in business.

The critics of supply management do not factor these hidden taxpayer dollars into the cost of a litre of milk. In Canada that is not the case. There is no hidden subsidy provided by Canadian taxpayers to dairy farmers.

By comparison, U.S. subsidies to dairy producers represent about 40% of American dairy farmer incomes, when it reaches them. These subsidies come directly from taxpayers' pockets. Without that hidden support American dairy products would be much more costly for consumers, and much more expensive than the equivalent Canadian product.

Further, a 2009 report, "The Economic Impacts of Immigration on US Dairy Farms," written by Economics professors from Texas A & M University, suggests that US dairy is further subsidized by foreign workers, primarily Mexican, through lower wages paid to them than would be the case in Canada. In fact, they hypothesize that if all immigrant dairy labourers were barred from entry into the US, retail prices of milk would rise by 61%!

Supply management actually ensures the production of Canadian milk at reasonable rates when the total bill is counted. The fact that Canadian dairy farmers can make money when they receive only 21 cents of the cost of a $2.25 glass of milk in a restaurant speaks to their efficiency and productivity.

The irony also remains that prices have increased the most over the past two decades in countries where the dairy industry is least regulated, like New Zealand -- the country that dismantled its dairy support systems in the mid-1980s, demanding that farmers test the vagaries of the market. In NZ, milk is known as white gold.

In late 2011, for example, a litre of milk in NZ cost so much that the country's parliamentary Commerce committee announced a milk price investigation.

In short, ideology seems to be the only raison d'etre for considering a return to the 1950s, when "market discipline" was the rage among those who stood most to profit from it.

That is certainly the case in other jurisdictions, such as Europe and the U.S. Consider an October 2009 report prepared for the European Court of Auditors which noted: "Between 2000 (when the EU started to relax dairy quota regulations) and 2007, the producer price fell six percent. During the same period, consumer prices increased by 17 percent." Similarly, in the U.S., a report from the U.S.-based Farm Foundation focused on the volatility of farm prices, but noted "that while farm prices [were] plummeting, real food prices [fell] very little."

It is clearly troubling that supermarket prices did not follow the trend as producer prices fell. If all we consider in the industry is the price paid by the consumer for good milk, and not the price paid to the farmer for his product, it is indeed a race to the bottom that will disfigure significant parts of rural Canada.

Supply management rejects the neoliberal model and applauds the strict regulation of supply to meet demand.

Supply managed dairy farmers make rural areas sustainable and resilient, something that cannot be said of other regions. If Canadians think that getting rid of supply management will result in lower dairy prices, more satisfied farmers, and better products, I have a bridge to sell them in Florida.

Bruce Muirhead is a history professor and associate vice-president, external research, at the University of Waterloo.