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Canada's Dairy Policy Costs Consumers $2.5 Billion Per Year

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Release Date: August 30, 2002
Canada's milk policy costs consumers $2.5 billion per year and is focused on helping political parties gain or retain office rather than on the needs of consumers, according a new electronic publication The Politics of Milk in Canada released today by The Fraser Institute.

This new study shows that through a combination of a government-mandated cartel for milk and tight constraints on imports of milk and the products made from it, Canadian milk producers have persuaded federal and provincial governments to create policies that forcibly transfer about $2.47 billion per year (in 2000) from Canadian consumers to them.

This constitutes an average income transfer of about $120,000 per dairy farm.

"Canada's milk policy is another example of the triumph of the well-organized few over large numbers of people by using the power of government," says William Stanbury, Professor Emeritus, University of British Columbia and the study's author. "It is in the best interest of politicians to create policies that benefit vocal groups like milk producers because it increases their chances of election or re-election."

Stanbury shows that as a result of these political pressures, Canada's dairy policy has become increasingly counterproductive: industrial milk prices have risen faster than the overall rate of inflation, produced rising prices for milk quotas, (the right to sell a certain volume of milk to a provincial milk board each day) and required massive efforts by the federal government in international trade negotiations to limit changes that would open up the market and reduce quota values.

"Canada's dairy policy is an example of a policy that may be 'bad' in economic terms but is quite successful in political terms and so is very difficult to change," notes Stanbury.

He argues that a political leader who seizes this issue and is able to gain sufficient political support to get into power and dismantle the system is necessary to bring about major reform.
Stanbury points out that the increased burden of the failed milk policy may eventually provoke a strong reaction from Canadian consumers and taxpayers. In the first half of 2002, the value of milk quotas rose by 18 to 19 percent in Quebec and Ontario-this occurred at the same time the stock market was falling.

"Canada's dairy policy has not become sufficiently awful, but the rot is becoming more and more evident," explains Stanbury.

Technological change in the industry could also make continued regulation and government control impracticable and undesirable.

Finally, Stanbury says that a major scandal involving the Canadian Dairy Commission or the milk board of a major milk-producing province (like Quebec or Ontario) could help undermine the legitimacy of the entire system and bring much needed reform to Canada's milk policy.

"Canada's dairy policy is a very complex system which has been motivated almost entirely by milk producers. If milk producers wanted to end the elaborate supply management marketing scheme, open up the border to imports, or renounce the cash subsidies from governments, these changes would be made very quickly by governments," according to Stanbury.