In a year of high inflation, the price of dairy has been among the fastest rising at the supermarket. Milk prices rose by around 20% in six months. Although many families don’t drink enough dairy for this to significantly impact budgets, restaurants have been feeling the pinch at a time when labour shortages already have many owners reeling.
Canadians already pay among the highest prices in the world for dairy. On average, a litre of milk costs twice the price as in the U.S., and over 50% more than in the U.K., France and Australia. The reason for high prices in Canada is a system called supply management, where the number of producers is tightly controlled and Canadian farmers have much more influence in setting prices compared to those in competitive markets elsewhere in the world. In return, dairy farmers receive fewer subsidies and grants from the government than in other countries.
While Canadian consumers frequently grumble about the prices of milk and cheese, even farmers complain that supply management isn’t working. Many dairy farms are small and haven’t been able to innovate to reduce costs, meaning profits for many farm owners are low and the work is hard. Licences to milk a cow, which were granted for free in the 1970s, now fetch upwards of $24,000 per cow, making many farmers well off on paper, but only able to cash in when they exit the industry. This also makes it very hard for younger generations to get a start in dairy farming, as well as current dairy farmers looking to take advantage of economies of scale by increasing the size of their operations.
Prices are set in a very opaque way by the Canadian Dairy Commission. They use a survey of roughly 200 farmers in which they give information on their costs, much of which is considered confidential and not shared with the public. At a time when dairy price hikes far exceed inflation elsewhere, transparency should be of the utmost importance.
Farmers are also required to make mandatory contributions to marketing funds which are used to advertise dairy products, but again there is little transparency. The Toronto Maple Leafs will sport a “milk” patch on their jerseys for the next couple of years, but the costs of this deal have not been shared even with dairy farmers. We do know that tens of millions of dollars are spent on marketing dairy products each year.
Also unclear is how grocery stores set price increases on their end. Over the last year, supermarkets have increased dairy prices by twice the amount mandated by the Canadian Dairy Commission.
With so few happy with the status quo, changes would certainly be welcome. Helping more dairy farmers to innovate and invest in robotics to milk cows instead of using manual labour would help reduce costs over the long term, along with justification for raising prices. The question is why dairy can’t exist in a similar system as the rest of agriculture, with subsidies instead of high prices.