Dairy stooges

Back at GMU, Peter Boettke liked to compare tweaks to regulatory regimes to the Three Stooges doing plumbing. Every time Larry turns the monkey wrench to fix one pipe, he's bashing two other pipes that start new leaks. And then it all descends into slapping and nose-pulling as the basement floods.

Today's example: Canada's wonderful dairy supply management system. Some people hate the system for inflating the costs of dairy products for Canadian consumers. But I'm coming to love it for its comedy value. Consider mozzarella cheese.

Fifteen years ago, frozen pizza makers convinced Ottawa to exempt cheese for frozen pizzas from the high tariffs that otherwise protect the supply management system. Restaurants hated the move as frozen pizzas compete with Dominos and the like. This sparked some cheese smuggling. And, according to the Free Press, it also caused this:

A number of restaurant chains recently began circumventing hefty cheese tariffs by importing their mozzarella by way of pizza topping kits.

The Canada Border Services Agency last year designated the boxed cheese-and-pepperoni combinations as a food preparation, rather than simply cheese, meaning they could be imported duty-free.

So we had this big plumbing mess. Fixing one leak causes others.

That sent dairy farmers into panic mode, with the Dairy Farmers of Ontario telling delegates at a regional meeting last fall that the designation was having a "negative impact on domestic mozzarella sales and could have an even greater impact going forward."

The case is currently before the Canadian International Trade Tribunal, and is seen as a serious threat to Canada's farm supply management system.

The CBSA decision allowed importers to bring boxes of the pizza topping, consisting of about 20 per cent pepperoni and 80 per cent cheese, into the country duty-free rather than being hit with the 245.5 per cent tariff that is charged on cheese from outside Canada.

And now the Canadian government has created a new mozzarella milk class so restaurant and frozen pizza makers will be on the same footing. If you like blue cheese on your pizza, you're SOL.

Agriculture Minister Gerry Ritz blames Canadian high prices on economies of scale:

But there will likely always be a price gap between Canadian products and those coming in from bigger markets, particularly the United States, says Agriculture Minister Gerry Ritz.

"At the end of the day I can get a hotel room in the same chain cheaper in the U.S., I can get a steak dinner (for less), it just goes on an on and on," said Ritz.

"It comes down to economies of scale."

Economies of scale matter, but they're hardly a first order explanation for high Canadian dairy prices. New Zealand's supermarket duopoly, despite providing rather high prices for most other things, somehow manages to deliver us a kilo of good cheddar for $9 NZ. Canadians: have a browse down the Countdown (our version of Safeway) aisles. $1 NZD = $0.85 CAD; our 15% GST is included in all listed prices.

But please keep dairy supply management, Canada. Whenever somebody here wants to do something dumb, I love having Canada as "look what happens if you try that" exemplar.

Update: it looks like Canadian prices won't actually drop much.