Friday 16 December 2011

Dairy population

Canada has roughly thirty million people and about a million dairy cattle [update: 1.4m including replacement heifers]. Its dairy markets are completely controlled by the government through supply management which works to make poor people pay too much for milk and inflate the capital value of dairy quota owned by relatively wealthy dairy farmers.

New Zealand has roughly four million people and about six million dairy cattle. It has the world's most free dairy markets and relatively rich dairy farmers; rents capitalize not via quota but rather via the relatively small proportion of land suitable for irrigated pastoral systems (most of the country isn't green pastures; rather, it's mostly mountains and dry steppes).

But isn't supply management wonderful?

And let's bat down a few defences I've heard of supply management.

First: without it, Canada wouldn't have a dairy sector any more; they'd just be swamped by American dairy imports because shipping costs are so low from the States. Interesting. Note that it's as cheap to ship milk powder from the US to New Zealand as vice versa. We have 1.5 cows per capita and ship large volumes of milk to the US every year. And NOTHING stops the Americans from selling us milk other than the basic economics of our being better at it. Our free markets have not resulted in our being swamped by foreign milk. Not that I'd particularly complain if that were the result; I don't mind that we export milk and import cars rather than the other way round, but either one's fine by me. Keith Ng's post of a few years back was great fun on this point.

Second: without it, Canada would be swamped by GE-modified, chemical-additive-ridden milk. Free markets would only supply adulterated awful product. This is utterly insane. Complete madness. First, it isn't the case here in NZ. Second, it only would happen to the extent that consumers value a price reduction over a quality reduction. Third, even if most consumers want lower quality product at lower price, the granola folks can still pay extra to get higher quality product. On the grocery shelves here, I can pay a bit more to get certified organic whole milk; I also can get raw milk, but not from the supermarket. I don't attach pejorative weight to granola here: I often get raw milk and buy the organic milk when the supermarket's out of whole (silver-top) milk. Free markets generally mean product diversification and market segmentation, not homogenization. The most reasonable, but still repugnant, form of this argument would be that the current system lets granola people satisfy their preferences at the expense of poor people who'd prefer cheaper product; economies of scale get granola folks product a bit cheaper than they otherwise would if everyone's forced into buying the no-hormones version. Why not ban cheap cars on similar argument?

Third: without it, Canadian farmers would be beaten down by some kind of big multinational to which they'd be forced to sell their milk. Again, this is utterly insane. First, here in NZ, Fonterra is a cooperative owned by its farmer-members and has the vast majority of dairy production. Nothing stops Canadian farmers from setting up their own cooperatives. Co-ops have a long history in Canada; my grandfather was on the board of one for decades. Second, nothing would stop any dairy farmer who has a tiny bit of nous from branding himself and taking his own product to market. Third, dairy companies have to compete with each other for milk.

I really don't get the status quo bias among otherwise sane Canadians about dairy. I've heard these arguments from reasonable people whose rationality flies out the window when thinking about cows.

Do hit the dairy and "transitional gains trap" tabs below for prior posts in the series...


  1. On your second point - there is the issue of labelling. Because of various labelling issues around GMOs, country of origin has been substituting for labelling of GM status. _If_ there is labelling, then markets can act as you describe.

  2. @Bill: So long as nothing forbids labelling products as GM-free, things ought to work out. If something does so-forbid, getting rid of the silly reg seems to make more sense than effectively banning imports.

  3. this should be a good fight with the Greens,
    environmentalists lose, Fonterra sending milk to schools, very interesting,