The Bank of Canada reiterated last week that the inflation rate, which could reach 5% by the end of this year, is likely the temporary result of global supply chain problems and increased spending. postpandemic consumption. But the central bank has also hinted that, if the inflation rate does not stabilize as expected, it will start raising interest rates in spring 2022.
This page is on the side of those who argue that inflation will slow as the global economy recovers. But it’s also easy to see why people might be worried about how far their money will go next year.
Cue Canada’s mysterious dairy supply management system.
The Canadian Dairy Commission announced last Friday that it plans to an increase of 8.4% in the “farm gate” price that dairy farmers get for the milk they produce.
The CDC is also increasing the price of butter by 12.4 percent. Both increases are effective February 1.
The rise in the price of milk on the farm is unprecedented. In previous years, the increase recommended by the CDC – which is always approved by the provincial marketing boards – was in the range of 1 to 2%. An exception was in 2018, when it jumped 4.52%. This new increase is almost double.
Sylvain Charlebois, senior director of the Dalhousie University Agri-Food Analysis Laboratory, expects the retail price of dairy products to increase by an average of 8 to 10% next year Consequently.
The CDC insists the increases are needed to “partially offset the increase in production costs due to the COVID-19 pandemic.” But the only supporting evidence he offers is a unaudited production cost report which does not include any raw data and is based on a random survey of 224 farms.
The insensitivity of announcing such a steep and rapid increase during the pandemic is staggering, but not surprising. Real-world indifference is ingrained in Canadian supply management, a completely opaque system of production quotas, pricing and protectionist import tariffs that has driven some of the retail costs of dairy products. the highest in the world.
It’s a system that allows dairy farmers – as well as chicken, egg and turkey producers, who also benefit from supply management – to thrive in a bubble, free from the economic heartbeat. global feelings everyone feels.
Its advantages are that it ensures a constant supply of safe and good quality milk from cows treated humanely, prevents overproduction which can lead to spoilage and eliminates price volatility.
But as a recent study by M. Charlebois and others, its drawbacks are high retail prices, as well as “low levels of innovation in the industry and an unfavorable starting point for trade negotiations“.
Former US President Donald Trump wielded dairy supply management like a club during the renegotiation of the North American Free Trade Agreement he imposed on Canada and Mexico in 2018.
It was also a sticking point in Canada’s free trade negotiations with the European Union and with Asia-Pacific countries. Ottawa had to concede market to its business partners in both cases in order to conclude agreements, steps that have led to $ 1.75 billion in compensation for dairy farmers.
Supply management came back to haunt Canadians again in 2020, when closures closed schools and restaurants across the country and demand for milk and dairy products plummeted. Dairy farmers in Ontario and beyond have been asked to get rid of million liters of milk per week who had nowhere to go, but were still paid for.
And now, in a time of uncertainty and rising prices, Canadians are told that the cost of a liter of milk will rise dramatically next year, so dairy farmers can stay whole while everyone else needs to be. manage.
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 is no viable political party that would dare to propose to do so.
At least not yet. Choosing this particular time to drive up the price of milk could change your mind a lot.
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