April 13, 2010
By David Seymour
Senior Policy Analyst
Frontier Centre for Public Policy
REGINA, SK, Apr. 13, 2010/ — “If you were to fully liberalize dairy between Canada and New Zealand, it would devastate the whole Canadian dairy industry,” said Yves Leduc, a director with the Dairy Farmers of Canada. Leduc’s comments, quoted in a Toronto newspaper, came on the heels of a visit to Canada by New Zealand Prime Minister John Key. The comment and the visit highlight the contrast between Canada’s agricultural policy which limits dairy production and restricts dairy imports, and that of open markets.
Full disclosure: I am a Kiwi. For that, some would dismiss me as an untrustworthy critic of Canada’s agricultural policy. Aren’t I the enemy? After all, if Canada removed its tariffs of several hundred per cent from dairy imports, everyone from dairy-rich New Zealand would gain at the expense of everyone in Canada, wouldn’t they?
Kiwi consumers should prefer a closed Canadian market
Except they wouldn’t. Not all people in a country have the same economic interests. Despite my nationality, I have no interest in the Kiwi dairy industry selling to Canadians, although I did visit a dairy farm when I was ten.
In fact, Kiwi consumers should prefer the Canadian market stayed closed. Ninety-six per cent of Kiwi dairy products are exported, and Kiwi farmers sell to local and international customers at the same world price. The last thing New Zealand dairy consumers want is almost 34-million Canadians entering the world market to bid that price up with their at-par Loonies, thank you very much.
Worse, Kiwi farmers like to be paid in Kiwi dollars. So, in the process of buying their milk, Canadian dairy customers (or at least their importers and retailers) would have to trade in Canadian dollars and buy Kiwi dollars. That would drive up the value of the latter. My family happens to have a company which exports electrical switchboards; the last thing they and the rest of New Zealand’s non-dairy exporters want is a stronger Kiwi dollar.
Opposing Canadian liberalization should be the rational position of most New Zealanders, yet I know that most Kiwis would be instinctively pleased about more of ‘their’ milk being drunk here. I suspect most Canadians would mirror that view with anxiety about more foreign imports, but after three years living in Canada I find both views irrational.
As a Canadian consumer I want Canadian markets opened up as much as New Zealand consumers would prefer they stay closed. If Leduc is correct and Canadian consumers really would abandon local dairy to the point of destroying it then they must be missing out on something really good.
I’m not a Canadian exporter, but if I was then I would welcome dairy exports from New Zealand to Canada as much as non-dairy exporters down there would rather avoid them. If exports from New Zealand raise the value of the Kiwi dollar to the disadvantage of other exporters there, then selling Canadian dollars to import those same products reduces the value of the Loonie -to the benefit of exporters here. Other things being equal, blocked dairy imports mean a lost export opportunity for other Canadian exporters.
The most telling contrast in all this is the attitudes of the dairy industry in each country. In both countries, the local dairy industry has interests diametrically opposed to those of their compatriot consumers and exporters. New Zealand exporters are naturally keen to see their customer base expanded and want markets opened. Canadian dairy farmers are predictably keen to retain their system of privileged production (you must own a quota valued at almost $30,000 per cow in order to produce milk in Canada). There would be no point in restricting production within Canada if there was infinite competition from without though, hence the need for trade barriers.
Canadian consumers always lose
Neither all Kiwis nor all Canadians have the same short-term economic interests as their compatriots; trade barriers cannot be a matter of national interest, but rather a matter of protecting some interests within a nation at the expense of others in the same nation. In Canada, it’s always consumers who lose out when agricultural interests get to lock up the market courtesy of government “help” by keeping all those foreign competitors out, be they Kiwi or Columbian.
The one universal long-term interest people in any country do have with respect to trade is to produce the most valuable products they can and buy the cheapest ones they can’t. With that in mind, opening up dairy wouldn’t be a case of capitulating to New Zealand or any other country; it would be doing the right thing for the average Canadian.
Channels: The Calgary Beacon, April 15, the Montreal Gazette, the New Zealand Centre for Policy Research, April 24, 2010