THE BLOG
05/09/2014 05:59 EDT | Updated 07/09/2014 05:59 EDT

What Level of Spending Will the Canadian Market Bear?

It truly is unfathomable that supposedly independent think tanks are producing papers to support one-track agendas. It is striking that they minimize factors like currency rate when it does not support this agenda. For many years (1994-2004), dairy products were actually cheaper in Canada than in the US, and supply management was not given any credit then.

The C.D. Howe Institute is decrying the discrepancy in prices between Canada and the United States and, in the process, making the erroneous claim that tariffs and supply management are to blame.

The data used by the C.D. Howe Institute -- which, it must be noted, is a frequent critic of supply management -- to posit its claim is nebulous, and misleading. For example it seems to have bizarrely and incorrectly lumped products like margarine and 'milk substitutes' in the "supply managed" products.

Furthermore, C.D. Howe has failed to note that prices increase the further you get from the border. Its study looks at Washington State as an example, where it claims B.C. consumers can jump across the border and get products cheaper than at home.

A supermarket milk price survey by the International Association of Milk Control Agencies found milk price in Washington State are cheaper. But not just compared to Canada. In June 2013, a gallon of low-fat milk in Seattle retailed for an average $2.79. That same gallon of milk in San Francisco was $3.88, and in Portland, Ore., it sold for $4.84. And those who follow the US dairy trends know that price is going up in 2014.

A typically suburban Ontario shopper will likely find those prices are in line with what they can find.

The reality is the only price supply management sets is what is paid to the farmer at the farm gate for raw milk, and the system aims to help efficient farmers cover their cost of production and make a living raising dairy cattle.

It has been proven time and again around the world that deregulating dairy leads to price variations for farmers, processors, retailers and consumers - though the first is hardest hit than the last.

The Australian milk market deregulated in 2000. An initial drop in retail price was followed by steady increases, which were accentuated by a tax levied to help farmers with a 10-year transition. Today, the average cost for milk in Australia is roughly the same as what we pay in Canada -- between $1.47 and $1.50 per litre.

Coming back to price discrepancies, it is the reality of for a wide selection of products between Canada and the U.S. It is across the board. So putting a narrow focus on supply management and tariffs is ignoring that simple economics is at play. Moreover it is amazing to have the CD Howe say in their release that the Competition Bureau should not do what it is mandated to do.

It truly is unfathomable that supposedly independent think tanks are producing papers to support one-track agendas. It is striking that they minimize factors like currency rate when it does not support this agenda. For many years (1994-2004), dairy products were actually cheaper in Canada than in the US, and supply management was not given any credit then. The retail price increased more in Canada in the last decade and the difference is currently narrowing again. During this time, we have seen movement in the dollar, and, one thing the CD Howe will not tell you, a lot of volatility in the US dairy market.

Consumer prices are set by what a market will bear, and we have to keep in mind that associated costs in Canada -- wages, payroll taxes, rent, utilities, property taxes, bilingual labeling and transportation for example -- are higher than in the U.S. These costs are factored into how much we pay for goods here.

Would eliminating supply management bring down wages, rents, utility bills and property taxes? Not one bit. Would scrapping tariffs accomplish this? It has not happened before. In fact, Canada has already eliminated or significantly reduced tariffs on several consumer goods -- hockey equipment, story books, greeting cards, cars -- and they still cost more in Canada than they do in the U.S.

In the end, the final price will continue to be what the market is willing to bear.

On food, however, Canadians have a pretty good deal. Could you get the picture of what happens on various farms by looking at the retail price for food here? I'd be surprised. One thing though, on average, Canadian household spending on food and alcohol is among the lowest in the world, and the percentage of income being spent on dairy products has fallen from 1.2 per cent in 1990 to 1.05 per cent in 2010.

With that, our consumers have the assurance of food safety, good quality and protection from wild price variations. And Canadians generally agree it's a pretty good deal.

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