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Dairy cows are seen at a farm in Sainte-Marie-Madelaine, Que., in 2018. The Canadian Dairy Commission announced last Friday that it plans an 8.4-per-cent increase in the 'farm-gate' price that dairy farmers get for the milk they produce.Ryan Remiorz/The Canadian Press

These are worrisome financial times for Canadian consumers and businesses. Food prices have risen, gas prices are spiking and there is ample talk of inflation in the air.

The Bank of Canada reiterated last week that the inflation rate, which could hit 5 per cent by the end of this year, is likely the temporary result of worldwide supply-chain problems and a surge in postpandemic consumer spending. But the central bank has also hinted that, if the inflation rate doesn’t settle down as expected, it will start to raise interest rates in spring 2022.

This page is on the side of those that argue inflation will slow as the global economy revives. But it’s also easy to understand why people might feel anxious about how far their dollars will go next year.

Cue Canada’s arcane dairy supply-management system.

The Canadian Dairy Commission announced last Friday that it plans an 8.4-per-cent increase in the “farm-gate” price that dairy farmers get for the milk they produce.

The CDC is also raising the price of butter by 12.4 per cent. Both hikes come into effect on Feb. 1.

The jump in the farm-gate milk price is unprecedented. In previous years, the CDC’s recommended increase – which is always rubber-stamped by provincial marketing boards – has been in the 1- to 2-per-cent range. One exception was in 2018, when it jumped 4.52 per cent. This new increase is nearly twice that.

Sylvain Charlebois, the senior director of the Agri-Food Analytics Lab at Dalhousie University, expects the retail price of dairy products to increase by an average of 8 to 10 per cent next year as a consequence.

The CDC insists the increases are necessary to “partially offset increased production costs due to the COVID-19 pandemic.” But the only supporting evidence it offers is an unaudited cost-of-production report that includes no raw data and is based on a random survey of 224 farms.

The insensitivity of announcing so steep and quick an increase during the pandemic is stunning, but not surprising. Indifference to the real world is baked into Canadian supply management, a thoroughly opaque system of production quotas, price fixing and protectionist import tariffs that has produced some of the highest retail costs for dairy products in the world.

It is a system that allows dairy farmers – along with chicken, egg and turkey producers, who also benefit from supply management – to thrive in a bubble, safe from the global economic palpitations that are being felt by everyone else.

Its plusses are that it guarantees a steady supply of safe, good-quality milk that comes from humanely treated cows, prevents overproduction that can lead to spoilage and eliminates price volatility.

But as a recent study by Mr. Charlebois and others says, its downsides are high retail prices, as well as “low levels of innovation in the industry, and an unfavourable starting point for trade negotiations.”

Former U.S. president Donald Trump wielded dairy supply management like a cudgel during the renegotiation of the North American free-trade agreement that he foisted on Canada and Mexico in 2018.

It was also a sticking point in Canada’s free-trade negotiations with the European Union, and with countries in the Asia-Pacific. Ottawa had to concede some market to its trading partners in both cases in order to secure deals, moves that led to $1.75-billion in compensation for dairy farmers.

Supply management once again came back to haunt Canadians in 2020, when lockdowns closed schools and restaurants across the country, and the demand for milk and dairy products plummeted. Dairy farmers in Ontario and elsewhere were asked to dump millions of litres of milk per week that had nowhere to go, but for which they were still paid.

And now, in a period of uncertainty and rising prices, Canadians are being told the cost of a litre of milk will rise dramatically next year, so that dairy farmers can be kept whole while everyone else just has to make do.

Canadians have largely supported supply management and dairy farmers in the past; there is no widespread call to open up the dairy market to foreign producers, and there isn’t a viable political party that would dare propose doing so.

At least, not yet. Choosing this particular moment to jack the price of milk could change a lot of people’s minds.

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