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decoder

Milk and dairy products at a grocery store in Aylmer, Que., on May 26.Sean Kilpatrick/The Canadian Press

The cost of milk is rising at its fastest clip in years, propelled by a big annual hike in the benchmark regulated price in Canada’s supply management system.

And now, dairy farmers are asking for an unusual mid-year increase that, if approved, is certain to push retail prices even higher. That may seem like a slam-dunk condemnation of Canada’s tightly regulated dairy market, with its production quotas, government-dictated prices and even a butter-storage surcharge.

But as this chart shows, milk prices have also been on the rise in the United States, driven higher by market forces. The prices for homogenized and partly skimmed milk in Canada and whole milk in the United States are indexed to January, 2013; a 1-per-cent increase adds a point to the index.

That approach removes the effect of fluctuations in the value of the Canadian dollar and makes it easier to compare how prices have changed in Canada and the United States. (An important caveat: The indexed values aren’t comparing prices in the two countries but rather are capturing changes in those prices over time.)

Milk prices in the United States are generally lower than their Canadian equivalents once currency differences are factored in. But U.S. prices are far more volatile. They rose more quickly than Canadian prices in 2014, then declined through early 2017 to mid-2018. At that point, U.S. prices were 20-per-cent lower than in January, 2013. Meanwhile, Canadian prices rose, including a mid-year hike in 2018. Fast forward to April, 2022, and U.S. prices have rebounded sharply, catching up with changes in milk prices in this country.

It’s worth noting, however, that U.S. consumers enjoyed relatively low milk prices for more than a half-decade. Regulated Canadian prices were generally trending upward during that time; Canadian consumers did not get the price breaks their U.S. counterparts did.

So, supply management has cost Canadian milk consumers – but those costs arrived long before the current inflationary surge.

Decoder is a weekly feature that unpacks an important economic chart.

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