The wisdom of supply side management of Canadian dairy

It is a myth that American dairy is really cheaper.

From the BC Dairy Industry...

"All too often, cross-border milk prices are used to justify the argument that Canadian milk is way more expensive than milk from the States. The truth is, cross-border milk prices are typically known as loss-leaders, meaning their price is intentionally deflated in order to get you, the Canadian customer, in the door. But, these prices are not representative of the overall cost of milk sold in the US.

In reality, the average price for 2% milk across the US, according to the Retail Milk Price Report, was $3.21 USD per gallon. After converting to Canadian dollars, this gallon of milk would cost a Canadian consumer $4.22 CAD.*  By comparison, a 4-litre pack of 2% milk in Western Canada costs $4.89 CAD.** When converted into Canadian currency, the prices between US and Canadian milk are comparable. ***"

Edit to add...

Today, the Canadian dollar is valued at $0.75 US dollars.

The average US price of a US gallon of 2% milk divided by the 75 cent Canadian dollar = $4.28 Canadian.

1 US gallon = 3.8 litres.

$4.28 Canadian/x = 3.8/4 litres.

4.28* 4 litres = 17.12

17.12/ 3.81 litres per US gallon = $4.51 Canadian for the average price of 4 litres of milk in the United States.

Canadians in B.C. pay $4.89 for 4 litres, or 38 cents more than the American average. Therefore, the BC dairy industry is correct in saying that Canadian dairy prices are comparable to American prices for milk.

The $4.51 per 4 litres is just the US average price. This means that some Americans pay more while other Americans pay less than this average.

These American prices are taken directly  from the US Department of Agriculture which is linked to in the quote from the BC Dairy industry included above.

This quote also discusses the cheaper milk prices  in areas that are close to the Canadian border. This quote says...

"The truth is, cross-border milk prices are typically known as loss-leaders, meaning their price is intentionally deflated in order to get you, the Canadian customer, in the door."

This means that if you click on that link and look up say, Detroit which is right on the American border with Canada, you will see that the 2018 average price for a US gallon is $2.48 US per gallon. This works out to being $3.44 Canadian for  4 litres of 2% milk. That works out to being $1.07 Canadian less than the American average for 4 litres of milk. This means that stores in Detroit knock the price down 26.73% from the national average and sustain a loss on milk in order to get Canadians to buy their milk state side and spend more money in the store on other things. It is like a door crasher prize.

i personally frequently go to the grocery store to pick up milk and a few other items and then walk out with over $75.00 worth of groceries, much of it being stuff that I did not need.

One time I went into a department store on Boxing Day morning right at opening to pick up some scotch tape and some string for my mother. I walked out of the store with over $200.00 worth of stuff that I did not need like CDs and a printer that was on sale and on display right inside the door. The department store knew that they were not making any money on the printer. They relied on me to be silly and spend money on things that I did not need.

Canadians generally don't cross the border to just to pick up milk. American retail outlets know that. This is what a loss leader means. A grocery store can afford to take a loss of $1.06 on 4 litres of milk. They will get that money back and more with the other purchases that Canadians make in their store when they cross over to shop.

Phoenix Arizona Milk

USDA shows that Phoenix does not have expensive milk either, and it is not close to the Canadian border skeptics would say.

The USDA on the chart that is linked to in the first quote shows that one gallon of milk there is $2.60 on average for the whole year in 2018. That is $3.47 Canadian for 1 US gallon or  $3.65 Canadian for 4 litres of milk. This is $1.24 Canadian less than someone in BC would pay locally. 
 

Bruce Muirhead, a professor of Economic History at the University of Waterloo explains this quite well in an article from the Huffington Post...

"By comparison, U.S. subsidies to dairy producers represent about 40% of American dairy farmer incomes, when it reaches them. These subsidies come directly from taxpayers' pockets. Without that hidden support American dairy products would be much more costly for consumers, and much more expensive than the equivalent Canadian product.

Further, a 2009 report, "The Economic Impacts of Immigration on US Dairy Farms," written by Economics professors from Texas A & M University, suggests that US dairy is further subsidized by foreign workers, primarily Mexican, through lower wages paid to them than would be the case in Canada. In fact, they hypothesize that if all immigrant dairy labourers were barred from entry into the US, retail prices of milk would rise by 61%!"

So, $3.65 Canadian for 4 litres of milk in Phoenix times 61% markup if Dairy producers paid their labour decent living wages rather than virtual slave labour = $5.88 Canadian. Canadians from BC only pay $4.89 for the same product.

This means that for every 4 litres of milk that Canadians purchase who winter in and around Phoenix are benefitting themselves $2.32/4 litres on the backs of migrant workers who are being exploited.
 

I personally would rather pay $2.32 more for a 4 litre jug of milk and know that the workers who allowed me to enjoy that milk were making enough money to put food on their table and give their families a decent living wage.

The quote also mentions that 40% of dairy farmers income comes from US subsidies because they are selling their dairy at a price that is well below the cost of production. The United States spends $22.5 billion dollars annually to subsidize their dairy producers. This is a cost that does not reflect the true total cost of dairy in the United States.

And let us argue that Canadians would get dairy cheaper by importing it from the United States because of the false uneducated assumption that American dairy is cheaper, those alleged cost savings which in reality are not there would cost way more because Canadians would have to pay the higher shipping costs to bring the dairy to market over much longer distances.

The Kentucky example

The average price of 2% milk in Kentucky for 2018 was $1.85 per US gallon according to the USDA chart. This calculates out to be $2.60 Canadian for 4 litres.

When you google search Kentucky and low dairy prices, what comes up is alarming.

https://www.google.ca/amp/s/amp.kentucky.com/news/state/article223197185.html

Dairy farmers in Kentucky are going bankrupt at alarming rates. They are being forced to sell their milk at a price that is below the cost of production. This, despite the government subsidies, many dairy farmers are losing their livelihoods due to a dairy industry that is out of control and unsustainable.

So yes, there are places in the United States that Dairy is cheaper. Along the Canadian border, dairy prices are deliberately deflated in order to attract Canadians to cross border shop. In areas in the far south, dairy producers rely on migrant workers to provide cheap labour in order to keep costs of production artificially low. Other areas in the States, and not just in Kentucky where dairy prices are low, Dairy farmers are going bankrupt and living in severely stressful situations because they cannot sustain selling their product at a price that is well below the cost of production. Many more farmers are going to fold under these market conditions. They are being replaced with super mega farms owned by large corporations who are driving these farmers out of business by flooding the market with cheap milk and sustaining losses themselves so that eventually they will have control over the entire US market themselves. In time, when all the smaller family run farms are gone, and the larger corporations are an oligopoly, they will set whatever prices they want and collect the billions in subsidies for themselves as an added bonus.

In Canada, consumers pay a price for milk which is adjusted at slightly above the cost of production. Canadian regulatory boards control the supply to guarantee the right amount of dairy products that Canadians need and nothing more. This keeps our prices stable and fair for everyone.