The cheesemaking tradition in Canada is double-stranded, woven from our French and English heritage. While French settlers brought with them methods for making soft, ripened cheeses, United Empire Loyalists, fleeing the American Revolution, introduced us to the distinctly British characteristics of Cheddar
We can quite confidently date the start of cheesemaking in Canada from the first introduction of cattle by Samuel de Champlain at Québec in either 1608 or 1610. As more settlers arrived, the number of cattle increased. In fact, our Canadienne breed is thought to be descended from cattle brought by settlers from Normandy and Brittany in 1660.
Canada’s pizza fanatics could expect to pay less for a slice. The Canadian Dairy Commission removed restaurant-class cheese from supply-management pricing, allowing restaurant owners to purchase mozzarella at a fraction of the current price. “It’s been a long time coming,” Canadian Dairy Commission, Carole Cyr, told Global News. “It’s important because there’s such a demand for it.
Conference Board..................
Danielle Goldfarb
Associate Director
Global Commerce Centre
Police recently arrested three men, including one current and one former police officer, as part of a massive cheese-smuggling ring. The perpetrators allegedly smuggled cheese across the Canada-U.S. border and sold it to Canadian restaurants at a six-figure profit.
This sounds like the plot of a bad movie. It’s not. It’s the result of Canada’s long-standing dairy policy.
In contrast to other food products in which the market sets prices, Canada has an almost forty-year government policy of “dairy supply management”. In essence, the system limits milk production and keeps dairy imports out, in order to provide producers with higher milk prices. (A 2009 Conference Board report Making Milk: The Practices, Players, and Pressures Behind Dairy Supply Management examines how the policy works in practice in more detail.)
The system is riddled with complexities and idiosyncracies. To top their pizzas, restaurants buy “white gold” (mozzarella cheese) that is made from milk that costs cheese processors at least two times more than the same raw milk used to make other dairy products.
What about cheaper imports that undercut domestic production and prices? Ottawa has rules to keep them out. For example, only one-twentieth of Canadians’ cheese consumption is allowed in; the rest is subject to a 246% tariff (see chart). We allow in even less yogurt and other dairy products.
Holding some of this small amount of “import quota” is the only way to legally buy dairy products at cheaper prices elsewhere, and sell in Canada for huge profits. With major profits on offer, there is a huge incentive to circumvent tariffs. Hence cheese smuggling, with the cheese sold to restaurant owners happy to get a significant price break.
Companies find myriad ways around high Canadian milk prices. For example, companies started using imported “milk protein concentrates” to make cheese and yogurt instead of more expensive milk or milk proteins produced in Canada. To protect Canadian production and high prices paid to farmers, Ottawa introduced tariffs on such concentrates and requires cheese to be composed of mostly “Canadian content”. But it is becoming more difficult to sustain high milk producer prices without having to limit production more and more each year.
And to what end is all this work to protect Canadian milk production? The policy came into being to boost low farmer returns. It has largely succeeded at doing so. But these higher returns have come at the expense of inferior economic performance for the sector. A just-released Conference Board study Canada’s Supply-Managed Dairy Policy: How Do We Compare? shows that Canada is the only country among its peers with stagnating dairy production. Production has been at the same level since the 1970s (see chart).
Moreover, the policy fails to prepare farmers for even a partial opening of Canada’s dairy market. It also prevents them from seizing opportunities to sell into fast-growing markets with growing middle classes such as China and India. In other words, the policy may not even serve the interests of the dairy industry itself.
And much more than the dairy industry’s well-being is at stake. High milk “policy prices” come at the expense of all other Canadians. Buyers of dairy products—processors, restaurants, retailers, and consumers—effectively subsidize dairy producers by paying higher prices than they would otherwise. The OECD estimates the subsidy at $175,000 per dairy farm. The poorest—for which dairy products form a larger share of their budget—are hit the hardest. Processors that use milk or butter as inputs into their products pay double or triple their competitors in peer countries, which renders them uncompetitive in global markets.
Perhaps most importantly, Canada needs to open up its dairy market in exchange for opening doors for all Canadian businesses in the rest of the world. This is not merely theoretical. It is a critical issue in Canada’s almost complete trade negotiations with the European Union. And it will be an issue as Canada enters Transpacific Partnership trade talks. Countries involved in these negotiations include Australia, New Zealand, and the US, all of which have more open dairy markets than Canada. In fact, the just-released Conference Board report Canada’s Supply-Managed Dairy Policy: How Do We Compare? shows that Canada is the last one standing. We are the only country that maintains dairy supply management policies long after similar countries have reformed their systems or abandoned them altogether.
In short, the policy fails to satisfy the long-term interests of either the dairy industry or the broader Canadian public. And it looks increasingly unsustainable. Businesses are constantly looking for new ways around high Canadian dairy prices or ways to profit from the system (as the alleged cheese smuggling ring illustrates). Officials must constantly look for work-arounds to ensure that imports don’t cut further into Canada’s stagnant milk production. As live trade talks force Canada to open its dairy market, even if only partially at first, the system will have to change.
Policy makers should no longer be asking whether to reform dairy supply management. They should be asking how to do so in a way that is fair to farmers, processors, restaurant owners, Canadian businesses going global, and, last but not least, consumers.
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