The Udder Futility of Centrally Planned Milk Production

by Gregory Cummings
Dec. 19, 2012

Dairy products in Canada cost roughly two to three times more than in the U.S. This has the Canadian Restaurant and Foodservices Association (CRFA) feeling cheesed.

In an open letter to the Canadian Dairy Commission (CDC), the CRFA decried the current state of affairs:

Canada's restaurant industry purchases $2.5 billion a year in Canadian dairy products. As one of your largest customers, we want to do more to promote and grow the market for Canada's high-quality dairy products. Unjustifiably high prices, however, are having the opposite effect. This should be of concern to all of us along the supply chain, from farm to fork.

When applied to the Canadian dairy industry, the term "market" is a substantial misnomer. In fact, the "unjustifiably high prices" for dairy products in Canada are a direct consequence of supply management, or the centrally planned production of milk.

Our national supply management apparat is the Canadian Dairy Commission, whose commissars purport to calculate a national milk production target, or quota. This national quota is then divvied up amongst the provinces who then allocate it to farmers. As per the CDC mandate, it is designed to "stabilize revenues and avoid costly surpluses." In order to achieve predictable profits for dairy farmers, the quota is designed to achieve a target price for milk, which is calculated as a function of farmers' costs.

Because of this, there is less economic incentive for dairy farmers (especially the least efficient among them) to reduce their costs. This helps keep marginal operators in business. It also contributes to ever-increasing dairy prices that continue to outpace CPI growth. With higher prices, less dairy is demanded. In fact, milk production is actually lower than it was four decades ago.

Further conflagrating matters is the fact that protective tariffs (for example, a 299% mark-up on imported butter) restrict competition from foreign exporters.

Of course, this socialist methodology is deeply flawed. It has resulted in the current mess.

The answer to prices as a function of costs is prices as a function of consumer preferences. By comparison, in an unhampered market economy, costs have no influence on prices. Indeed, the law of price, as stated by Murray Rothbard, reveals that:

Individuals, on their value scales, evaluate a given stock of goods according to their utilities, setting the prices of consumers' goods; the stock is produced according to previous decisions by producers, who had weighed on their value scales the expected monetary revenue from consumers against the subjective costs (themselves simply utilities foregone) of engaging in the production. In the former case, the utility valuations are generally (though by no means always) the ones made by consumers; in the latter case, they are made by producers. But it is clear that the determinants of price are only the subjective utilities of individuals in valuing different conditions and alternatives. There are no "objective" or "real" costs that determine, or are co-ordinate in determining, price.

Alternatively, William Stanley Jevons explains:

Labour once spent has no influence on the future value of any article: it is gone and lost forever. In commerce bygones are forever bygones and we are always starting clear at each moment, judging the values of things with a view to future utility. Industry is essentially prospective, not retrospective.

The free market is resilient. Incredibly, supply management in Canada has led to a flourishing underground market in cross-border cheese. That's right, cheese-smuggling.

"With U.S. cheese being as little as a third the price it is in Canada, drivers are making $1,000 to $2,000 a trip," the story says.

Adding to the absurdity, the police department's internal affairs division is also investigating, because officers were allegedly involved.

Mario Sebastiano, the owner of Super Mario's pizza in Port Colborne, told the CBC he was approached by a Fort Erie man.

"He was gonna sell me a case for 150 bucks -- normally its $240," he said.

When it comes to socialism versus capitalism, it should be obvious on which side your bread is buttered.
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Gregory Cummings is a Pharmacist and Certified Diabetes Educator. He has owned and operated his own retail pharmacy business since 2009. An alumnus of Dalhousie University in Halifax, Nova Scotia, Cummings received his bachelor’s degree in pharmacy with distinction in 2008. He lives in Sault Ste. Marie, Ontario with his fiancee and pet dog.