As I enjoyed my Greek yogurt this morning, I pondered one of Adam Smith’s less famous quotes: “People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices.”
Greek yogurt has turned into a major growth story in the food business, attracting health-conscious eaters with less sugar and more protein than regular yogurt. Chobani, a yogurt startup founded by a Turkish immigrant to New York, has succeeded in popularizing the product beyond almost anyone’s expectation. According to Bloomberg, the company captured 17 per cent of the U.S. yogurt market in 2012 with sales of over US$700 million. Not bad for a company that was started with a small business loan in 2005 and only shipped its first case of yogurt in 2007.
People in the Canadian milk trade have been having lots of meetings about Chobani and, as Adam Smith would have predicted, they are doing their best to keep Chobani off Canadian grocery shelves.
Those wholesome milk ads you see on TV don’t mention some important facts about the Canadian dairy industry. The Canadian yogurt cartel is protected by tariffs of 240 per cent slapped on foreign yogurt. According to media reports, Chobani even tried to build a $76 million yogurt plant in Ontario, worth 1,300 jobs, but ran into the Canadian milk bureaucracy. Chobani has now put its Canadian plans on hold, since it was unable to get sufficient access to Canadian milk quotas.
Absurdly, in Canada, if you want to buy a lot of milk you are not allowed to just go buy it from farmers. There is a complex inter-provincial quota system dating back to the 1960s, allocating 44 per cent of Canada’s industrial milk production to Quebec and 32 per cent to Ontario. Even more silly, Ontario has a 200-million-litre skim-milk surplus that producers now convert to animal feed. Chobani was unable to get the milk police to give it a multi-year milk supply commitment.
The Canadian yogurt establishment also sued brazenly in open court to block competition, claiming that competition from Chobani would cost it revenue. Any Yukon small business owners reading this should ask themselves if they are allowed to sue if a competitor eats into their business.
According to FreeYourMilk.ca, the rival lobbying group run by Canadian pizza companies and cheese users, the Canadian milk police cause prices for cheese, milk and yogurt to be as much as double that of international levels. This, indeed, is why a shockingly high tariff of 240 per cent is required to keep them off Canadian breakfast tables.
It is hard to find an economist who is not in the pay of the milk industry who thinks this is good for Canadians. Ian Lee, a business professor at Carleton University who specializes in the topic, told the National Post that “it is protectionism - rank, outrageous protectionism.” He went on to echo Adam Smith by saying that the system is “classic exploitation of consumers by a very small minority.”
Lower-income Canadians who spend a higher percentage of their incomes on food are particularly hard hit. While the newspapers are often filled with stories about the challenges of reducing poverty, hardly anyone ever asks why it is a good idea that Canadian poor people should pay extra for their milk and pizza.
The system is very good for dairy farmers and established dairy processing companies. The industry would have you think these are all traditional family farms. In practice, many of these farmers have assets far in excess of your own. And the yogurt is made by multinational food companies who just happen to have been in Canada already when the system got set up.
More cynical lobbyists for the industry also raise health concerns. They really hope to scare Canadians into not eating Australian, New Zealand or American cheese. We are not talking about North Korean imports here. And if health was really an issue, the Canadian government would not permit foreign yogurt at all. As it is, the government admits foreign yogurt is safe to eat. It just charges that 240 per cent tariff to help well-established insiders in the dairy industry.
Dairy is not the only Canadian industry that seems to have turned a bit too cozy for producers at the expense of regular folk. Think about cellphones, air travel, beer, banking, cable television and more. In every industry, the producers have the time and money to lobby the government for special treatment. The rest of us don’t bother to resist. The 240 per cent tariff means millions in profits for established Canadian agri-businesses. For each Canadian, it is just a few more bucks at the till. Hardly worth complaining about.
One would hope that our politicians would stand up for regular Canadians. But they are often in the pocket of vested interests. Both Liberal and Conservative governments have built and protected the dairy system in Canada.
Martha Hall Findlay, a former Liberal MP, campaigned against the dairy cartel when she ran (unsuccessfully) for the Liberal leadership. James Moore, the current Conservative industry minister, has been engaged in a very public spat with the Canadian cellphone cartel about whether or not to let a big American cell phone company into Canada.
Hopefully more politicians will pick up this theme. Until they do, you’ll just have to swallow the fact that every bite of dairy you enjoy makes some Canadian fat cat just a little bit fatter.
Keith Halliday is a Yukon economist and author of the MacBride Museum’s Aurore of the Yukon series of historical children’s adventure novels. You can follow him on
Twitter @hallidaykeith