During the 2016 US Election, NAFTA came to the forefront of public consciousness as American President Donald Trump sought to renegotiate the free-trade agreement with Canada and Mexico. One issue that was propelled into the spotlight: Canada’s Dairy Industry. Americans argued that Canada’s protectionist stance on dairy products could not be present in a new free trade agreement.
Canadian dairy farming is unique to many other developed nations. It is regulated and controlled by The Canadian Dairy Commission. This regulatory board was created to protect and manage the supply of dairy products in the country and protect its farmers from price volatility. The Canadian Dairy Commission Act (CDCA) established the organization as the overseer of the industry in 1966 and by 1974 all provinces with significant milk production answered to the Milk Marketing Boards.
However noble the initial intentions of this outdated organization were, it should be viewed for what it really is today: a powerful cartel – or COWtel? – that looks out solely for the interests of a small group of dairy farmers, that undermines Canada on the world stage and hurts the average Canadian.
In most countries, including Canada, cartels are illegal. Creating arrangements with groups of producers to control the supply of products and manipulate prices that hurt consumers are almost universally seen unfavourably and to be harmful.
The CDC is a perfect example of a Cartel. The organization is made up of provincial boards of producers that all dairy farmers must sell their products to. The Commission then makes the decision on prices to sell at and regulate supply by imposing quotas on production. Dairy farmers are only compensated for the products sold up to their quota amount. This highly regulated system has led to a small number of dairy farmers who control the quota rights to exercise substantial power in the space
This arrangement hurts Canadian consumers who historically have seen high retail prices for dairy products when compared to US counterparts. There is no incentive for the board to reduce prices on their de-facto monopoly, instead choosing to keep supply low to require a higher price. A removal of this system would benefit all consumers, especially low-income Canadians. A 2012 Macdonald-Laurier Institute report on the subject accurately points out that the removal of supply management “would disproportionally benefit lower-income households who spend a higher share of their income on food”. Allowing a more open system of competition would directly help average Canadians.
The cartel protects a small (and shrinking) number of farmers, approximately 12,000, who own the rights to all the quotas. Barriers to entry for new farmers who want to join are steep – with a price tag to buy a quota of $24,000 – $40,000 per one cow equivalent of production – which creates this elite club of farmers who are protected by the powerful board.
The Canadian government goes a step further by imposing tariffs on foreign dairy products while supporting the cartel at home. This creates a hypocritical mess when any Canadian leader is at a negotiation table with a foreign country. How can they champion free trade with their counterparts on the world stage while they endorse protectionist policies at home? There have been a number of recent examples of Canadian Prime Ministers trying to navigate this. When Stephan Harper looked to strike the Trans-Pacific Partnership agreement, one of the very first concerns raised by other members of the deal was the dairy cartel. One critique of NAFTA, and a contributing factor to the renegotiation under the Trudeau government that produced the USMCA agreement, was Canada’s Supply Management.
The question becomes: should we protect a small number of farmers from competing on the open market, like the majority of other industries, or consider the benefit to all 37 million Canadians if we said good-bye to the Dairy Cartel?
Canadian Dairy Commission, and Communication Dept. “Canadian Dairy Commission.” History of the CDC, 2019
Chase, Steven, and Daniel Leblanc. “Ottawa Plans Compensation for Farmers to Blunt Impact of Trade Deal.” The Globe and Mail, 15 May 2018
Milke, Mike. “Canada’s Dairy Cartel vs. Consumers.” Fraser Institute
Nielsen, Kevin. “Why Did Donald Trump Attack the Canadian Dairy Industry?” Global News, Global News, 19 Apr. 2017
Osborne, Michael. “It Really Is Time to Kick Canada’s $2.6-Billion Dairy Habit.” Financial Post, 6 July 2018
Sarlo, Christopher, et al. “Milking the System: How Agriculture Supply Management Impedes Trade Opportunities and Egregiously Transfers Income.” Macdonald-Laurier Institute , June 2012, doi:10.3897/bdj.4.e7720.figure2f.