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A Dubious Case for Supply Management

Posted November 28, 2014

The latest salvo in the seemingly interminable debate over Canada’s “supply management” of the dairy industry comes from University of Waterloo professor Bruce Muirhead, who makes the case in yesterday’s Huffington Post for “Why Canada Shouldn’t Open Up Its Dairy Market To New Zealand” with some truly astonishing arguments.

Exactly why Muirhead choses to focus solely on New Zealand as the global free market villain of his piece is a bit of a mystery. Apparently, it has something to do with Prime Minister Stephen Harper’s recent stop-over in that country on the way to the G20 along with a few widely-cited remarks about the future of dairy farming in Canada made earlier this month by New Zealand’s high commissioner to Canada, Simon Tucker — “because the Trans Pacific Partnership talks have indirectly raised their ugly head again,” Muirhead speculates.

Presuming Canada was to open its markets to NZ dairy, Muirhead asks what the reality would be like. Surprisingly non-existent as it turns out, given the professor claims that far from being the “Saudi Arabia of milk” New Zealand actually “has no, or very little, product to sell us.” The reason for this curious situation is, according to Muirhead, because “supplies are almost totally tied up by one country — China.” This, however, is simply not true. In November 2013, NZ dairy exports to China were a record-setting $774 million and total dairy exports to all markets were valued at $1.7 billion. At 45.5% of total exports, China is far and away New Zealand’s biggest customer, but production is still well short of being “totally tied up” by that one market, as Muirhead claims. Other key export markets for New Zealand dairy products currently include the U.S., Saudi Arabia, United Arab Emirates, Venezuela, Malaysia, Philippines, Japan and Mexico.

Though factually baseless, establishing “this condition of nothing to sell” turns out to be the essential premise for the next prong of Muirhead’s case, which involves fear mongering about an imagined takeover of Canadian dairy farming by avaricious “corporate ventures and syndicates” from down under. This it should be noted is based on nothing more substantial than Muirhead’s absurd notion that with no milk to sell, the nefarious neo-liberal Kiwis must be up to something. In the dire scenario he concocts, New Zealanders snapping up Canadian dairy farms and wantonly turning them “into something that resembles their own; 1,000+ cow agri-business operations are not unusual,” would not only “completely reorder for the worse the Canadian countryside” (whatever that means) and “create significant pollution problems,” but it would also, Muirhead ominously warns, “destroy town life in the many small communities that now depend on dairy farmers.”

Aside from pointing out that every dairy farm is an “agri-business” operation, while 1,000+ herds may not be unusual in New Zealand, they’re also most certainly not the average, which is more like 450-500. Admittedly, this is still about 5-6 times larger than the average dairy herd in Canada today, but some would argue that simply means that New Zealand’s farms are far more efficient. And although the correlation between more cows and increased agricultural pollution is undeniable, if a country like New Zealand that is almost 40 times smaller than Canada with more than 5 times as many cows is capable of effectively managing the resulting effluent situation, it seems ridiculous to suggest that if the number of dairy cows in this country was to grow substantially this would have unavoidably ruinous effects on the vast Canadian countryside.

As for big agri-business destroying life in small towns, Muirhead conveniently fails to mention that since supply management was introduced in the 1970s, the number of dairy farms in Canada has dropped by a whopping 91%. Not only that, but in an amazing coincidence, Canada and New Zealand currently have almost exactly the same number of dairy farms at around 13,000 each. However, given that Canada has almost 8 times the population, this means that dairy farms arguably play a considerably more significant role in sustaining town life in small communities in New Zealand than they do in Canada.

Next, Muirhead scoffs at the relatively piffling amount of trade between the two countries – “NZ’s imports from us are only 0.1 percent of total Canadian exports, while New Zealand exports to Canada are a miniscule 0.08 percent of the Canadian total,” and concludes there is “virtually no way for Canada to increase its trade with NZ.” He goes on to note that the New Zealand market is effectively closed to foreign competition because it is mostly controlled by one enormous dairy co-operative. While all this may indeed be the case, it is also completely irrelevant as nobody (other than Muirhead perhaps, solely for the purposes of his straw man argument) is suggesting that breaking into a market of just 4 million people on the other side of the planet to compete against that country’s flagship commodity would be the first priority for Canadian dairy exporters in a post supply management world.

Muirhead’s final point concerns the price of milk, which is something most people can easily relate to and therefore presumably offers a powerful demonstration of how consumers are benefiting from the current supply management system. Never mind that analysts estimate that inflated dairy prices have cost consumers an extra $26 billion at the grocery store over the past decade ($276 a year for every Canadian family), for the past few months Professor Muirhead has been able to buy 4 liters of milk at his local supermarket for just $3.99 — $2 less than it would be in New Zealand! So there.

But is this an entirely fair comparison? Well, there are a number of factors that would suggest not. The New Zealand market is tiny compared to that of Canada, with only two dairy processors and two major supermarket chains competing for business and, somewhat unusually, the government there taxes basic foods such as milk at the rate of 15% —all of which works to drive up price of milk at the retail level. It also seems terribly fortuitous that Muirhead just happens to enjoy some of the lowest milk prices currently going in Canada, which in other cities can range as high as $7.24 for the equivalent quantity, according to the latest Canadian Fluid Milk Report.

All of this is not to say a legitimate case cannot be made defending Canada’s existing supply management system as opposed to the free market alternative of opening the domestic market to foreign competition, but simply that Professor Muirhead’s utterly fallacious and fact-challenged argument concerning New Zealand most certainly cannot be described as being one of them.