“Can someone explain why milk is so much more expensive here?” asked a colleague after reading The Sun’s Page One story on Tuesday about how British Columbians stock up by the gallon in stores just across the Canada-U.S. border.
The short answer is a single word: monopoly. We have one, they don’t.
A more detailed answer requires twice as many words: supply management. Which is a high-sounding and highly expensive way to create a monopoly ... which brings us back to the short answer.
The price difference between us and them — between monopoly and competition — varies over time, but on balance it’s huge. According to the story by my colleague Michael V’inkin Lee, milk that costs $1.25 a litre in supermarkets here sells today for the equivalent of just 55 cents a litre in a Bellingham big-box store.
A Canadian price that’s way more than double a competitive comparator is astonishing, even by the standards of monopoly marketing. This may be because supply management is even more perverse than most monopolies, with its specialized, nearly unique, mechanism for widening the price gap even more than it might otherwise be.
Most monopolies gouge customers in two ways. They use their market dominance to entrench inefficiencies regardless of cost, and they ensure what they consider a “good” return, even if those with no choice but to buy their products would choose a less-flattering term.
Supply management adds a large third element to the price premium extracted by Canada’s dairy monopoly. It hugely drives the cost of starting and running a dairy farm by requiring milk producers to buy “quota,” which is the technical term for the fee to join the monopolists’ little club. Quota sells for upwards of $20,000 per cow, sometimes as much as $30,000, thus driving a farmer’s overhead into the stratosphere. Which is not, of course, a problem for those who buy it because they can, in return, count on their little club to also inflate the price consumers must pay for their products.
Dairy farmers routinely respond to criticisms by noting milk prices are more volatile in competitive markets. This is true. But volatility isn’t all bad — it means prices go down as well as up. In Canada, the prices start high and stay high in good times or bad, changing fairly slowly. Other places often have genuine bargains interspersed with periodic spikes, which our dairy farmers love to pounce on so they can pretend their prices are competitive, too.
Dairy farmers also stress the safety of their products, which I believe is generally true, and “family farm” values embodied by their industry, which I believe illustrates they’re as adept at shovelling the manure of bulls as of their cows.
To deal with the safety issue first, if Canada gave up the high tariffs that effectively keep competing products off our grocery store shelves, federal or provincial safety standards would still apply. As with other imports, our standards can be enforced if the authorities want to.
As for family farms, the average dairy herd in Canada is 77, compared with about 100 — the number usually deemed necessary for efficient farming — in the U.S., thus suggesting some of our farmers may indeed have closer relationships with their animals and even know their names. But the average herd for B.C.’s 512 dairy farms is 140 — 40 per cent more than on those U.S. farms that are dissed for being too big and impersonal.
These farms are, no matter what dairy farm apologists tell you, no mere mom-and-pop operations. Using $20,000 per cow, the low estimate of the value for quota, an average B.C. farm has $2.8 million tied up in quota alone, not to mention the substantial investment in animals, land, buildings and equipment. Average revenues Canada-wide, even when other province’s generally smaller farms are added to the mix, is about $3.5 million a year.
So that’s why the price of milk here is so much higher than across the border. And that’s why British Columbians flock to Washington in numbers so great that American customers are starting to complain we’re crowding them out of the best parking spots and beating them to the best deals.
dcayo@vancouversun.com
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