Dairy cows rest at a farm in Eastern Ontario on April 19, 2017.Sean Kilpatrick/The Canadian Press
Kevin Yin is a doctoral student in economics at the University of California, Berkeley.
Milk and cheese aren’t typically thought of as synonyms for power. Yet British negotiators stopped two years’ worth of trade talks with Canada last week, largely because the latter’s dairy industry would not budge on market access for the former’s cheese makers.
Our overbearing dairy sector is part of the reason that $2-billion of bilateral trade with Britain could disappear overnight. Without an agreement to replace the interim deal that ended in 2023, trade with the country is set to revert back to barebones World Trade Organization rules.
Under these guidelines, tariffs for those cheesemongers will rise from essentially nothing to 245 per cent. Tariffs are expected to rise for other sectors as well, most notably for vehicles and parts. The uncertainty about new regulations will also be harmful for services we import, particularly within construction and business services.
These costs will be borne by small businesses who import the products and Canadians already facing unprecedented costs of living. All in all, we will export about half a billion dollars less to Britain, and more than $1-billion worth of British exports will be too expensive for Canadians to buy anymore. Caught in the crossfire of no deal, the vast majority of those harmed will be consumers buying goods and services that have nothing to do with milk.
Canada can and should risk these kinds of outcomes to negotiate terms of trade. But keeping out foreign competition for the dairy industry is a dubious aim at best, and it is unfair that the risks of doing so are borne entirely by everyone else.
The trade talks with Britain are only the latest victim. Discussions with the United States, Australia and New Zealand have all faced difficulties in the past. Every time Canada makes dairy market access a hill to die on, we are losing out opportunities to develop other industries, make our own farms more productive and create jobs.
Our supply management system, where dairy farmers hold exclusive licences to produce quotas of dairy products, keeps out competitors both domestic and foreign. It keeps prices stable but makes them higher, and reduces the variety of cheeses, milks and eggs consumers can have. It is also actively harmful to the productivity of the dairy farmers themselves because less competition disincentivizes investing in innovation while protecting laggards. Why bother to improve if Canadians have nowhere else to buy from?
It is worth noting that Australia, which no longer has either supply management or large agricultural subsidies, is a net exporter of a large range of dairy products because opening the market helped make the country’s dairy more competitive. In Canada, by contrast, we still import more dairy than we export, even under a mound of import restrictions. A policy intended to help farmers at home prevents them from competing abroad.
A better strategy for Canadian negotiators would have been to play hardball at first, but ultimately give up some access as a bargaining chip to grow our exports in other sectors. This would have been impossible, however, because challenging the dairy lobby has always been politically infeasible.
Advocates for “Big Milk” are deeply entrenched in our government decision-making. Dairy lobby groups spend around $80-million to $120-million annually convincing the government to protect its interests. A quick search on Canada’s lobby registry shows 141 actively registered advocates for the dairy industry, compared with only 136 for oil and 121 for pharmaceuticals.
The Canadian Dairy Commission, which is supposed to be a branch of government serving the interests of the general population, has historically been dominated by farmers themselves. As a result, an unquestioning support of supply management has held bipartisan support in Canada since the policy’s inception.
The issue is not necessarily that supply management needs to be scrapped, or that dairy farmers’ concerns should not be heard. It is that a single industry is capable of unilaterally sacrificing jobs and affordability so that their margins are protected, while Canadians are powerless to ask for anything in return.
Trade negotiations are about give and take. If Canadian dairy farmers can bargain with our affordability, we ought to be able to bargain with their profits. It’s only fair.