How dairy farmers milk Canada's taxpayers

Dr. David E. Bond is the retired chief economist of HSBC Bank of Canada

Imagine that you and 13,600 friends have the ability to tax each and every Canadian $70 a year. Your group's members share the revenue and, while the number of members may decline it will never grow. Moreover, there is every prospect that the tax will, for the foreseeable future, rise faster than inflation.

Canada's government sanctioned National Dairy Policy offers just such a deal, and results in a wealth transfer of more than $2.4-billion annually from consumers and food processors to diary farmers. That's more than $175,000 for each dairy farmer.

Because of this policy, consumers pay 60 cents more in Canada than in the United States for a one-litre carton of whole milk and 94 cents more for a pound of butter.

The National Dairy Policy, in conjunction with provincial dairy policies, not only sets the minimum prices for virtually all-dairy products but also limits the amount produced (it's called supply management). The policy limits the amount of dairy products produced in Canada -- and it also shuts out lower-priced imports.

The federal government imposes tariffs that run between 200 per cent and 300 per cent on virtually all dairy imports, even from those nations with which we have free-trade agreements. There are nominal amounts that can be imported at very low tariffs, (for example, about 1 teaspoon per Canadian of yogurt) and processors competing with imported products using dairy products (e.g., frozen pizza) can import dairy products (in this case cheese) at the lower world prices. But not you and me.

What is especially troubling about this dairy policy is its impact upon our trade relations. For many years, Canada played an important role in shaping international trade treaties that consistently reduced tariff levels, but this is no longer the case. The dairy farmers have persuaded the government to defend supply management to the death, so the high tariffs on dairy products must remain in place. It is virtually impossible for Canadian negotiators to argue for tariff reductions on our non-dairy agricultural or other exports while demanding that our dairy industry remain untouchable. This contradictory position makes us a laughing stock among the major trading nations.

Maybe Canadians will wake up and demand this rip-off stop -- but don't bet on them being heard. It is the largest agricultural subsidy given to Quebec, and therefore politically untouchable.