Saturday, June 23, 2012

Sacred Cows and the Dairy Tax

Cowed by politics?
Name a product that is found in the refrigerators of virtually every home in Canada and for which we each pay too much? Yes, milk, good guess.

The average Canadian family pays up to $1.44 a litre more for milk than their American counterparts, up to $300 more per year, even though the dollars are roughly at par today. That amount does not count the additional price of cheese, butter, ice cream, or eggs. Yes, eggs too and chickens!
What's going on?
The irony here is that most Canadians are typically so disconnected from politics they have no clue they are being robbed BECAUSE of their own ignorance and misplaced trust. The scheme called "supply management" was cooked up more than 40 years ago by farmers in cahoots with politicians. The misplaced trust is in the politicians.
Everyone knows what is meant by supply and demand, that is how economics is supposed to work. Too much supply, prices should drop, too much demand, prices should rise. Price has meaning and it regulates supply. But what if supply is regulated by a powerful lobby group, that uses its monopoly powers to exclude competition, and set its own prices by controlling how much supply is produced. That is supply management. Here is another explanation from a recent article.  
"What is “supply management”? It is a government scheme to raise agricultural prices and farm incomes by a strictly enforced system of licences and quotas that controls who may produce a handful of important commodities, such as milk, cheese, poultry and eggs, and how much they may produce. High tariffs also are imposed on imports of these commodities. By thus controlling both domestic and foreign supply, supply management increases the price of covered commodities. Thus do we repel potential trade partners who would like to sell those commodities to Canadians at competitive prices." 
This issue is a sacred cow amongst politicians and the extra cost borne by all Canadians amounts to a hidden tax adding even more to the cost of living. (ibid)
"Do supply management’s domestic benefits outweigh its obstruction of trade?
On the contrary, its domestic costs are high, and are borne disproportionately by low-income Canadians.
The lower a household’s income, the higher the share of their income that goes to food. In fact, lower income households spend nearly a quarter of their income on food compared to middle- and upper-income Canadians, who normally spend 5% to 10% of their income on that category.
Just as supply management disproportionately burdens lower-income families, eliminating it and lowering prices for basic food goods disproportionately benefits lower-income families. They would immediately have more disposable income for other necessities, thus increasing their standard of living."
So much for the sham of politicians helping the poor, they just help themselves.

All of the major political parties favour supply management, why not, the parties are kept happy by generous donations from Canadian Dairy Farmers due to the unwarranted profits made through supply management.

Supply management has come to the fore in recent weeks because of two different papers published here and here, as well as recent trade negotiations.

Canada is a trading nation, however, the high tariffs imposed by supply management act as a barrier to this trade as spelled out here:
"That’s exactly why Canada agonized in Los Cabos over U.S. president Barack Obama’s invitation to join negotiations for the Trans-Pacific Partnership (TPP). Our system of supply management is not acceptable to many of that trade club’s members; and while we may now be at the negotiating table, we are not in the TPP yet.
Canada is a trading nation, and joining the TPP would give us access to the fastest growing markets in the global economy. The TPP originated in 2005 with Brunei, Singapore, New Zealand and Chile. Australia, Peru, Vietnam, Malaysia, the United States, Japan and others including China may join in due course. It may well be one of the most important trade blocs in the 21st Century.
The sheer size of the countries involved represents a real opportunity for Canada to expand its opportunities for trade. If all the potential members join the TPP, it will represent $35.2-trillion in GDP and 2.7 billion people."
The National Post ends its recent editorial on this issue with:
"...both New Zealand and Australia offer models of how Canada could manage a phased transition to a free-market dairy industry. In both of those countries, consumers and producers alike have prospered, with lower prices and higher productivity, just as economists would expect.
This is what the future of our quota-controlled agricultural industries should look like. In furtherance of that vision, we urge that the two reports published this week become required reading in Ottawa. Stephen Harper's government already has proven its free-market bona fides by removing the monopsony power of the Wheat Board. Many other agricultural sectors cry out for similar reform."

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