Stephen Gordon in the Globe and Mail‘s Economy Lab on the economically indefensible Canadian anomaly known as “supply management”:
The best way to get a rise out of Canadian economists is to ask us about our dairy supply management system. It’s simply indefensible: a government-enforced cartel whose only purpose is to generate high prices for what most would view as essential goods. This sort of arrangement wouldn’t be — and isn’t — tolerated in another sector of the economy. Nor is it tolerated anywhere else in the world. So the news that the federal government is considering putting supply management on the table in order to join the Trans-Pacific Partnership trade deal is guaranteed to generate a certain amount of excitement among my colleagues.
It’s hard to believe that the interests of 13,000 Canadian dairy farmers could consistently trump the interests of 34 million Canadian dairy consumers, but yet the system is still with us. Why can’t we simply end supply management and let consumers benefit from lower dairy prices?
The problem is that current dairy farmers are — for the most part — not earning monopoly rents from what they produce. In order to sell their output, dairy farmers must first obtain a permit to do so, and dairy quotas are not cheap: more than $25,000 per cow. To a very great extent, the higher prices that they receive simply cover this initial investment.
