There’s nothing like a foreign scapegoat to distract the public from problems at home. But who would have thought that scapegoat would be Canada? The president and the dairy industry at large are blaming our friendly neighbors to the north for an ongoing surplus that is causing millions of gallons of excess milk to be wasted and destroyed.
What did Canada do to deserve this? Well, in fairness, the country has enacted a series of protectionist laws that limit American farmers’ ability to sell across the border. That’s a bad policy, make no mistake, and I’ve pointed out before that Canada is only harming its own interested by embracing the rhetoric of economic nationalism and rejecting the benefits of free trade. But to attribute the surplus to Canadian policy is to ignore basic facts about the dairy industry.
First of all, relative to the size of the industry as a whole, trade with Canada is virtually nonexistent. In 2016, Canada only sold $112.6 million worth of milk to the U.S., whereas we sold roughly five times that to them. Meanwhile, domestic milk sales in 2016 exceeded $10 billion. In light of this, it’s absurd to say that Canadian producers are flooding the U.S. market. Donald Trump has indicated that he wants to restrict imports from Canada by abolishing NAFTA, a move that would have virtually no impact on reducing the surplus.
It’s important to remember that this surplus is not new. It’s been going on for a few years now. In response, the government has been buying up surplus milk and cheese at inflated prices to support American farmers. This is not only a tremendous waste of taxpayer money, but creates incentives that are totally backward for a capitalist economy.
In a free market, excess production can be combatted in two ways. Producers can lower prices, or they can simply produce less. As the price of milk falls, production becomes less profitable, and therefore decreases, evening out supply and demand until the surplus is eliminated. But what incentive is there to lower prices or curtail production when the government has signaled a willingness to pick up the slack? If you are a dairy farmer, there’s no reason to adjust to changing market conditions as long as there is a government ready to bail you out.
The purchasing of excess supply is far from the only thing the U.S. does to exacerbate the surplus. Price supports have been in place for many years, keeping the price of milk artificially high in spite of declining demand, as people turn to milk substitutes over personal health concerns. These high prices encourage farmers to continue producing even when people stop wanting to buy their products.
Instead of responding to a changing market by trying to better satisfy customers, the dairy industry lobbies the government to protect its interests at the expense of others. Just in the last few weeks, I have highlighted efforts to ban a popular Irish butter brand from selling its products in Wisconsin and to bar the producers of soy and almond milk from using the term “milk” on their packaging. Now the Trump administration is expected to intervene against Canada to correct so-called “unfair” practices.
Don’t get me wrong, Canada’s protectionism is foolish and illiberal, and I condemn it just as I condemn the protectionism of our own government. But to blame that country for the failings of an American industry that trades in cronyism and rent-seeking is not only dishonest, but prevents us from examining and correct the errors in our own economic policies.