The Globe and Mail reports on some relevant aspects here. But they miss the supply management angle. One important reason that Canadian dairy farmers oppose changes to the system is that they own a lot of quota rights. Under the Canadian system, the right to milk a cow costs money. And just like taxi permit owners in regulated markets hate Uber, Canadian dairy farmers hate New Zealand. But who can really blame them? If you were sitting on a big regulatory asset somebody proposed wiping out, wouldn't you object?
There is a way around it though. In simplest form, it requires:
- The Canadian government buys all the dairy quota from all the dairy farmers. It'll be very expensive. Probably close to $30 billion.
- Canada gets rid of all the tariffs on dairy products at the border. It can maintain whatever sanitary requirements it wants - if some dairy practices in the US result in stuff being in milk that the Canadian government views as unacceptable, they could still ban whatever it is being in milk. Arguments around some kind of adulterated US milk coming over the border are really a separate issue: Canada can put whatever quality controls it wants on milk sold to consumers. It just can't do it in a way intended to set up a trade barrier.
- Since tariffs at the border are around 300%, prices on dairy products would plummet. Rather than let them plummet, the government would put in place taxes, applied neutrally regardless of country of origin, that are proportionate to the amount of price reduction you would expect with the change in the system.
- Why taxes? Because you need revenue to pay off the bonds you'd have to issue to pay off the farmers in step 1. You retire the taxes as the bonds are paid off.
- Since the price of milk to consumers is no higher, and likely a bit lower, than it was before, consumers are better off. They'd see it most in product diversity and quality. Since the farmers are paid off for their quota, they're not much worse off, though some get a lot of value from the lifestyle that comes with farming under that kind of system only some of which might be capitalised into the price of quota. And since freeing up dairy would get Canada into the TPP, if the TPP is of net value, Canada would be better off.
New Zealand's milk supply is a monopoly. Fonterra controls almost 90% of the market and set the price according to a private formula. Fonterra includes farmer-owners (over 10,000) who hold shares that they can only sell back to Fonterra (although they are now experimenting with allowing farmers to sell/trade shares among themselves). As well, there is now a proportion of public non-voting "shares" that is legally separate from the actual company ownership.
Essentially, a form of supply management, and the retail price of milk in New Zealand is comparable to Canada.
- Canadian dairy
- Groser on Canada
- Dairy protectionism and Pacific Trade
- Dairy stooges
- Keeping Canadian supply management in play
- Costs of dairy protectionism
- Dairy population
- Dairy puzzle
- A permeating puzzle
- Regulatory insurance: Canadian dairy
- Cartels protect producers, not consumers
- Black markets in everything: Canadian cheese.