12 June 2018

Canadian milk and American tariffs

Various spins on the recent confrontation between Trump and Trudeau are being presented in the media.  Here are excerpts from an article in The Atlantic:
[Trump] was pretty explicit about the source of his beef: It’s dairy. Referring to steel and aluminum tariffs he has imposed on Canada, he wrote: “Our Tariffs are in response to his of 270% on dairy!” He has a point...

At issue is the Canadian supply-management system, which covers dairy, eggs, and poultry products. The system sets domestic production quotas and keeps prices stable, thereby guaranteeing farmers a steady income. And, in order to keep the supply stable, Canada blocks imports from other countries, including the U.S., by imposing tariffs—up to 270 percent on dairy products...

“In a multilateral context, there was more to trade off. Now the problem is that Trump is dealing with this in a bilateral context where trade barriers are generally very low,” Christopher Sands, the director of the Center for Canadian Studies at Johns Hopkins University’s School for Advanced International Studies, told me. “Most tariffs are down to zero anyway. So, there’s not much for the U.S. to give in return for the change.”

It doesn’t help that the U.S. subsidizes its own dairy industry heavily—up to $22 billion in 2015, according to one study. “The Canadians say, ‘Hey, wait a minute. You subsidize milk, too,’” Kelly, who is now a research scholar at the Sanford School of Public Policy at Duke University, said. “You’ve got all sorts of support programs for milk.”

In other words, Canada props up its dairy industry through quotas that cap the amount produced, and imposes heavy tariffs on imports. The U.S. subsidizes its dairy industry, resulting in lower costs for U.S. consumers, but a supply glut...

Those subsidies exist in the U.S. for the same reason Canada has a supply-management system: domestic politics.
Lots more on Trump/Trudeau at the link.   And here's one excerpt from The Guardian:
As a recent visitor to Wisconsin, “America’s Dairyland”, where low prices are forcing the closure of hundreds of dairy farms a year, Muirhead said he encountered no resentment against Canada among local farmers. “The president of the Wisconsin Farmers Union told me that what they really wanted was a supply-managed system like ours,” he said.

Dairy deregulation has spread hardship wherever it has been implemented, Muirhead added. “Every single objective indicator says that in the case of dairy you cannot have a system that operates without production controls,” he said. “If you try, you’re basically consigning your farmers to a life of penury – or worse.”
To summarize:  In Canada, you can't produce milk, eggs, etc without some kind of permit specifying how much you can produce.  The government limits the amount so that prices are maintained at a level that produces a decent income for the farmers.  In the United States, anyone can produce all the milk and eggs they want.  In a good production year, product floods the market and drives down prices (good for consumers) which makes farming only profitable for immense corporate farms with the lowest per-unit costs.

Are production controls evil?  Communist?  Anticapitalist? Un-American?  Let me offer a counterpart from my personal experience.  I lived in Kentucky in the 1980s, and for part of that time I owned a small A-frame house in a rural area in Jessamine County, which I bought for the view of the river and the ownership of some adjacent woods and ex-pasture.  My property came with a "tobacco allotment" which allowed the owner to produce X pounds of tobacco per year.  I had a job and no time for hobby farming, so each spring I went to the courthouse and posted my name and allotment poundage on a bulletin board (dedicated to that purpose).  The next day I got a call from a proper farmer offering to buy my allotment.  I did this each year, receiving a small income that varied from year to year.

I found a New York Times article from 1993 that summarized tobacco allotments:
Ever since the Depression, the Government has lent tobacco farmers a hand by bolstering the prices paid to them on the market. But the farmers like to point out that unlike the growers of other crops whose prices are supported by the Government, they receive help that entails no net cost to the taxpayers -- that is, no "subsidies" in the usual sense.

The tobacco growers' boast, although accurate today, has been strictly true only in the last 11 of the 60 years since the Federal price-support program for tobacco was adopted. And even during this latter period, the Government has had to step in to bail the growers out once, in 1986. The cost was $1.1 billion.

The tobacco support program shores up the farmers' prices by limiting production of their crop, setting a minimum price for it at market and providing for loans from a Government agency to farmers' cooperatives.
More at the link.  I don't know what the system entails today, but it's obvious there's nothing "unAmerican" about production controls.

1 comment:

  1. Production controls are very normal. The EU has milk quote, fishing quota all kinds of quota. They are property that can be traded, like your tobacco allotment. The US tends to subsidize more than work with quota. In the end, it doens't really matter. The objective is to maintain an agricultural sector large enough to feed the people. Once that is achieved, trade can happen, so that consumers can choose delicious Dutch cheese instead of that filthy Wisconsin yellow gum.

    As a side note: have you noticed that cheese has been on sale a lot these days? https://www.vox.com/2016/10/13/13268980/cheese-glut-united-states I wonder why that is?


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