Wednesday, April 26, 2017

Milk Duds Up a Tree

American dairy farmers are complaining about steep cuts in the price of Canadian ultra-filtered milk (mostly used in cheese production). UFM isn’t defined as milk under NAFTA, so while Canada keeps the cost of drinking milk very high, they’ve slashed the cost of ultra-filtered milk. Lowering this price umbrella to world market levels has hurt American dairymen.

If Canada can drastically reduce the cost of an industrial milk product it could also cut the cost of drinking milk for Canadians. I wouldn’t hold my breath, though, because it’s Canadian government that keeps that cost high. In effect, Canada subsidizes UFM by heavily overpricing drinking milk, which it protects with high tariffs.

Canada is a country that doesn’t even have internal free trade. The Canadian Constitution Act of 1867 prohibits internal trade barriers, but Provinces have nonetheless spent nearly 150 years erecting trade barriers against each other and preserving picayune local regulatory prerogatives.

Nowhere is this better illustrated than in provincial “supply management boards” dealing with milk, cheese, eggs and poultry. Canadian milk is subject to the precision wisdom of centralized planners - a maze of quotas, price floors, subsidies and entry barriers intended to protect incumbent Canadian dairy farmers from competition at the expense of consumers.

It should come as no surprise, then, that Canada’s barriers to international trade in those markets are even worse. This has attracted the attention of our President, who - visiting the dairy state of Wisconsin - complained about it in almost the same breath as he emphasized his “Buy American-Hire American” policy.

We’ll skip over the question of why Canadians aren’t allowed to have a “Buy Canadian - Hire Canadian” policy for the moment, because many Canadians agree with President Trump about Canadian milk policy; or at least resent the high prices they have to pay for milk.

It’s not as if the American treatment of milk is free of mercantilist shenanigans, but when President Trump says Canada’s milk policy is unfair, he has a point, even though he’s not thinking about how unfair it is to Canadians:

Canada’s dairy quota system has been Canada’s shame since it was introduced in 1970. The quota system makes milk prohibitively expensive for poor families, it denies Canadian consumers the right to purchase diverse cheeses from around the world and it destroyed Canada’s once-great cheese industry, whose many small producers capitalized on milk surpluses to make world-famous cheddars — Ontario alone once supplied England with half of its cheddar cheese imports…

Canada remains one of the West’s great bastions of protectionism, barring foreign ownership of banking and other major sectors and unable to achieve even internal free trade among our provinces, despite 150 years of trying. The provinces themselves don’t accept the provisions of NAFTA, cannot be bound by them and haven’t honoured them.
And he is certainly not bemoaning the restrictions on Canadian diary farmers:
The fact that each individual Canadian dairy producer is told exactly how much milk he may produce, and exactly to whom he may sell it (Hint: There’s only one legal customer and it happens to be a provincial marketing board) is evidence of just how transparently anti-free trade we are in this realm. And a recent agreement struck by Canadian dairy farmers and producers which effectively slapped a new import tariff on ultra-filtered milk (a product used to make cheese and yogurt, among other things), has drawn the ire of Australians, Mexicans, New Zealanders and members of the European Union.

Meanwhile, Canadian consumers pay the price. The Montreal Economic Institute estimates that the country’s supply management system costs each of us [Canadians] $258 a year. Which is not especially surprising, when you think about it. We have official, explicit collusion and price-fixing going, after all. It’s how we’ve chosen to conduct business.
Or, the barriers to entry in the Canadian market:
That governments have been so unwilling to set aside a policy that is responsible for Canadian families paying two and three times the world price for basic food items, all to benefit a dwindling number of wealthy and aging, farmers (young farmers face a formidable barrier to entry, in the form of the cost of quota: more than $25,000 per cow) is one of the great dilemmas of public policy. If we have to enlist Trump to save us from ourselves, so be it.
So, just as our tariffs on Brazilian sugar, Chinese steel and Canadian softwood lumber hurt American consumers and eliminate jobs with manufacturers using those products, milk quotas and tariffs hurt Canadian consumers and Canadian cheese and yogurt making employment.

Not to be outdone by Canada, President Trump has decided to impose higher costs on American consumers by placing an additional 20% tariff on Canadian softwood lumber. The average new house built in the United States will increase in price by around $1,000 and eliminate many thousands of American jobs in the construction, furniture and paper industries.

This is the fifth time since 1982 that softwood lumber has precipitated a dispute with Canada.

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