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Pricier U.S. milk looms if farm subsidies end

B.C. shoppers scramble to buy milk at a Bellingham Costco in a Facebook video posted in 2012. Some Bellingham residents at that time wanted Canadians banned from stores during certain hours. - facebook.com
B.C. shoppers scramble to buy milk at a Bellingham Costco in a Facebook video posted in 2012. Some Bellingham residents at that time wanted Canadians banned from stores during certain hours.
— image credit: facebook.com

The days of cheap milk and cheese luring cross-border shoppers into Washington State may soon end if the U.S. government ends its long-standing practice of deeply subsidizing American farms.

The U.S. Senate has so farm blocked the renewal of subsidies, although wrangling continues toward a deal that would continue them at a reduced level.

B.C. Dairy Association CEO Dave Eto said American farm subsidies are so "astounding" the price of milk south of the border would more than double if they were eliminated altogether.

Eto isn't expecting a complete end to subsidies, but thinks the debt-laden U.S. government will insist they be ratcheted down over time, pulling perhaps $4 billion out of the U.S. dairy industry over the next decade.

"I definitely think the prices will go up," he said.

Any drop in the Canadian dollar against the U.S. greenback would also make U.S. dairy products less attractive to cross-border shoppers, and rising international demand may also help push up U.S. milk prices.

Eto said it's conceivable Bellingham residents could one day be heading north into B.C. to buy cheaper Canadian milk, although he estimated it would take a return to a 75-cent loonie and a complete end to U.S. subsidies.

Eto used the issue to draw contrasts between the two countries' systems and combat consumer perceptions of being gouged by retailers at home.

B.C.'s supply management system means more stable prices and long-term certainty for investment by the industry, he said, in contrast to the more volatile U.S. dairy industry, where overproduction can cause farm bankruptcies and wild price swings for consumers.

Most U.S. residents don't enjoy the cheap prices B.C. residents get when they nip across the border to Blaine or Bellingham.

Eto said aggressive pricing by retailers close to the border to pull in Canadian shoppers means U.S. milk is sold below cost in those areas.

He said an October price survey showed average supermarket prices of a gallon of milk was $4.05 in San Francisco and $4.89 in Portland, but dropped to $2.79 in Seattle and $2.50 in Bellingham.

Eto also noted Canadians pay only once for their unsubsidized milk – the retail price – while U.S. residents pay another hidden price through their taxes to fund farm subsidies.

Eto isn't demanding B.C. residents buy Canadian, but he noted dollars spent at home support dairy farmers, processors, distributors and ultimately contribute to taxes that support health, education and other services in B.C.

"For every dollar we spend in our communities, it has a five times rebound effect," he said. "We don't give that enough credence."

Other observers doubt even more expensive U.S. milk will do much to dent the flow of shoppers heading south.

"Milk is just a small sliver of the savings waiting down south," said Jordan Bateman of the Canadian Taxpayers Federation. "Cheaper gas, consumer goods and flights make it highly unlikely that this will curb cross-border shopping."

Other free-market advocates say Ottawa should rip up the current supply management system in Canada and let milk prices float rather than be propped up.

That would mean more price volatility but a better deal for consumers who now pay more than necessary, said Mark Milke, a senior fellow at the Fraser Institute.

"Canadian dairy farmers are grasping at straws for any excuse to keep consumers captive to a government-engineered and government-regulated cartel," Milke said.

"The current system cuts into the income of the poorest Canadian consumers because you can't avoid buying milk."

He said New Zealand's system is a much better model and has resulted in a huge export-oriented dairy industry that now accounts for 40 per cent of world trade in dairy products.

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