Does supply management really mean Canadians pay more for milk?

The issue of supply management in the dairy industry reared its ugly head again this week, prompting many to ask whether Canadians really pay more for our milk.

A new look at global retail milk prices says Canucks pay a fair price for milk

Chris Ryan of St. Isidore, Ont., with Ninja the cow, says he wants Prime Minister Justin Trudeau to 'put on his boxing gloves' to defend the dairy industry. (Justin Tang/Canadian Press)

"It is a cartel. It is the opposite of free markets."

That's how Conservative Party leadership candidate Maxime Bernier this week described the highly contentious practice of supply management for Canada's dairy, poultry and egg production. He encouraged his party comrades to follow suit. 

It's certainly not the first time a politician has railed against supply management. 

There are few issues that conjure more discord than supply management, especially in rural Canada, where farmers produce our milk, chickens, turkeys and eggs without the boost of direct government subsidy. Instead, they work on a quota system based on demand in return for predictable, stable prices.

Do we really pay more?

Calling it a cartel may be a bit dramatic, all things considered, but there's arguably some merit in the "free markets" part of Bernier's surprise declaration. And that's convinced some Canadians that supply management means we pay more than most other countries for milk, cream, butter and cheese.

But a new look from the Nielsen research firm, commissioned by the Dairy Farmers of Canada, suggests that the prices Canadians pay for milk are comparable to those in many countries throughout the world, at an average retail price of around $1.30 per litre. 

Conservative Party leadership candidate Maxime Bernier broke from party tradition this week and denounced supply management in the dairy industry. It was a flip-flop from his former support for the practice. (Canadian Press)

Still, Canadians who buy milk regularly might disagree.

The website Numbeo, which collects user-contributed data, pegs the average price for "regular" milk in Canada at $2.11 per litre, with a range of $1.29 to $3, based on entries from nearly 6,000 users over the past 18 months. Statistics Canada also reports higher average prices for partly skimmed milk, at $2.30, and homogenized milk at $2.46 per litre (StatsCan does not include diafiltered milk).

Americans, whom we often use as a benchmark comparison, pay slightly less at $1.15 on average. But Norwegians, for example, pay a whopping $2.90 for a litre of milk. And in China, it's $2.35 per litre, though individual Chinese tend to consume far less than Europeans.

Over the years there have been many attempts to quantify how much consumers pay for milk, a product that is consumed and used for all sorts of applications all over the world, and often the results of those studies are spectacularly different.

'Protectionist nightmare'

Part of the problem, however, is that it is "very, very difficult to come up with a number for what Canadians or Americans or Australians really pay for milk because there's so many different factors involved in that calculation," says Al Mussell, a researcher and founder of Agri-Food Economic Systems, Inc., in Guelph, Ont. 

An oft-cited look by the Organization for Economic Co-operation and Development, for example, found that Canadians pay $2.6 billion more for milk each year than if supply management was phased out, though that study has been criticized for comparing apples to oranges, generating an astronomical number. 

But there are still many authoritative voices who say supply management should be phased out of the dairy sector. 

In an op-ed published earlier this spring, Sylvain Charlebois, dean of the Faculty of Management and a professor in food distribution and policy at Dalhousie University, called Canada's supply management system a "fiscally inept ... protectionist nightmare."

"It is supported by production quotas and high tariffs on imports that have clearly reached their expiry dates," he wrote, adding that Ottawa has failed to take the lead on the issue and let it fester. 

Dairy farmer Robbie Beck of Shawville, Que., holds onto a dairy cow as he takes part in a protest in front of Parliament Hill. Farmers demonstrated to demand compensation for potential trade deals that could hurt their bottom line. (Sean Kilpatrick/Canadian Press)

"At the heart of the global economy's DNA are open markets. In that kind of marketplace, with no clear and workable trade strategy, Canada is highly vulnerable," he wrote. 

The Conference Board of Canada has argued "the policy effectively cuts Canada off from a burgeoning world demand for dairy products."

Supply management or subsidies?

But Bruce Muirhead, a professor of history at the University of Waterloo who studies food systems, argues that those who say phasing out supply management would make milk cheaper are only looking at U.S. numbers, and that that's a misguided approach. 

"Look, the dairy industry in the U.S. is heavily, heavily subsidized by the government every year," he says. 

In Canada, the cost of milk pays for the price of producing milk.

"So why bother shelling out billions in taxpayers' money every year to support an industry that is paying for itself? If we ditch supply management, mark my words, prices will be higher, they will not be lower," he said.  

Family-owned dairy operations have been on the decline in Canada for decades, critics say, and their inefficiencies set the price of milk in Canada higher than if the price was set by larger, more efficiently run farms. (Jonathan Hayward/Canadian Press)

Muirhead spent January, February and March visiting dairy farms throughout New Zealand — where the dairy industry is the country's largest exporter — and Australia, two countries which he says have been decimated by the deregulation that occurred in the early 2000s. 

New Zealand, for example, signed a free trade agreement with China in 2008 to sell it powdered milk. But over time, China stockpiled the powder and drastically reduced demand from New Zealand in 2014. The government was forced to bail out farmers with a $550-million package. 

In Australia, according to Muirhead, dairy farmers are leaving the industry in droves and family farms are almost non-existent.  

No compensation in Liberal budget

Canadian dairy farmers are fighting hard to keep the quota system. On Thursday, farmers from Quebec and Ontario brought dairy cows and tractors to Parliament Hill to demand compensation for potential trade deals that would mean more dairy products from other countries coming into Canada.

The former Conservative government had promised them $4.3 billion in compensation if the Comprehensive Economic and Trade Agreement with Europe and the Trans-Pacific Partnership trade deal go through, though it remains to be seen if either will see the light of day. 

When the Liberals tabled their first budget earlier this year, there was no mention of a compensation package. 

Either way, phasing out supply management would take well over a decade and likely cost billions. 

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