My neighbour is a dairy farmer. He sells milk to the local grocery store for $1 per litre. I have a farm too, and I think I can produce milk cheaper (for whatever reason: I have access to better feed, my kids help out on the farm, I know a lot about cows). So I buy some cows and start selling my milk to the store for 95c per litre. Now everyone who buys milk at the local store gets cheaper milk.
Then I wake up one morning and two burly government employees are walking down my driveway. I approach them, but they push past me and head to the barn where my cows are. They proceed to break my cows’ legs with baseball bats and say to me: “Nobody is allowed to sell milk for less than $1 per litre. Raise your price to $1 per litre, or else”.
This happens every day in Canada.
Canada has a system called Supply Management in which government regulated organizations decide how much milk (and cheese, eggs, and chicken) they think people need, and set a price for how much they think it should cost. Anyone producing milk is restricted to selling it at that set price: no lower.
But what if someone can produce it cheaper? Shouldn’t I be able to buy it for that lower price? Yes, you should. But you can’t.
You might be wondering how such legislation could ever come to exist. One stormy day in 1970, dairy farmers got together with the Prime Minister in a secret lair inside a volcano. Here’s how the meeting went:
Dairy farmers: “Gentlemen, let’s set a high price for milk, and let’s all agree to sell milk at that price. Prime Minister, we just need you to make sure no one else sells milk cheaper than that. In exchange, you’ll get our support in the next election.”
Prime Minister (brandishing a baseball bat): “You got it.”
If that sounds like a government-backed cartel, it’s because that’s exactly what it is. But there’s no way the public would go along with it if they knew that’s how it went down. So here’s how the dairy farmers try to sell it to you:
1) With Supply Management, you will have a steady supply of milk.
2) The price will be stable.
Supply and price fluctuation doesn’t seem to be a significant issue with other foods at the grocery store. Still, sometimes the supply and price of goods do fluctuate: this is normal and healthy.
3) We’ll be able to keep Canadian dairy farmers in business, and you’ll get made-in-Canada milk.
This is the kind of thing Donald Trump would say to rally his xenophobic/protectionist base. But most people don’t fall for that anymore.
4) With Supply Management, we don’t have to use government subsidies to prop up the dairy industry.
Or in other words, instead of taking money from you in the form of taxes, we’ll take it from you in the form of more expensive milk.
Don’t be fooled. Supply Management is primarily a way for dairy farmers to extract economic rents from consumers. And you don’t really notice it happening: it’s only a few cents per litre. But the dairy farmers definitely notice it. For them, those few cents add up and could mean the difference between them keeping their farm or losing it. That means they have some real incentive to make sure this legislation is in place. So they spend time and money lobbying the government to keep it around.
I know it’s hard to be outraged by slightly more expensive dairy, chicken, and eggs, but we have to try. Those little price hikes add up: especially for the poor. Fortunately, people are starting to catch on. Some politicians (like this guy, who has a decent shot at being the next prime minister) are saying enough is enough. And we should be too. Supply Management hurts consumers, and is an affront to economic freedom.