Monday, 25 December 2017

Price vs Value.. An example of the difference

 The Toronto Star, a generally progressive newspaper, has jumped on the anti supply management bandwagon.  Here's their take and a recent column I wrote for the Island farmer. This is one fight I won't give up, and gives me another chance to take a swipe at Walmart.

Angry about bread prices? Save some for supply management

This costs the average Canadian consumer a lot. In 2014 the Conference Board of Canada estimated that higher prices for dairy products (milk, cheese, yogurt and so on) alone cost the average family $276 a year.
Another study in the journal Canadian Public Policy put the cost of all supply management policies at an average of $444 per family per year. That adds up to an awful lot. The OECD at one point estimated that supply management cost Canadian consumers a staggering $2.6 billion a year.
All these figures, of course, are sharply contested by the dairy and poultry industries, which profit hugely from existing policies. And it’s perfectly reasonable to defend supply management if you value keeping dairy and poultry farmers prosperous and stable and don’t mind putting the cost of that onto consumers.
Others argue that Canada should value “food security” over having the lowest possible consumer prices. And, even with supply management in place, food is cheaper in this country relative to average earnings than almost anywhere else in the world.
What’s harder to argue is that collusion on the price of some bread products on a scale that can be compensated for by a $25 gift card merits special public outrage while official policy dictates that Canadian consumers must pay far, far more than they need to for other basic foodstuffs.
To be clear, price-fixing on bread is illegal and wrong. But anyone angered by those revelations should bottle that feeling and direct it where it would count a lot more: against Canada’s consumer-unfriendly policies that hike the prices families must pay for milk, cheese, chicken and eggs.

From the Island Farmer

Unintended Consequences

We live in a time when most of us have easy access to endless amounts of information. We have to be smart about what to believe, but anyone with an even remote interest in economics and trade must remember the role our pals at Walmart played to shift production of consumer products from the United States to China during the 1980’s.  I haven’t read one word in the media about this drive to ensure low prices for consumers being at the heart of the huge trade imbalance  between the two countries, close to $350 Billion last year.  President Trump says China outsmarted the U.S., and he’s going to change that.  I’d argue the U.S. went into this relationship with its eyes wide open.

Walmart has done a lot of good work recently to upgrade its own environmental standards and those of its suppliers including companies in China.  However that doesn’t take away from Walmart’s direct involvement in U.S. job losses over the last twenty years, jobs President Trump says he’s going to get back. Good luck with that. 

This started with Sam Walton’s insistence on the lowest possible price for consumers, always.   Even when the company went on a well publicized “Buy American” campaign in the 1990’s (and set-up a wholly owned buying agent to continue overseas purchases)  it wanted U.S. producers to match Chinese prices, forcing even more out of business.  Sam Walton himself wrote in 1992 "We're not interested in charity here, we don't believe in subsidizing substandard work or inefficiency…"   Of course other big retailers followed suit, and the results are predictable.   A recent report  ( )  pegs job losses caused by Walmart on its own at 400,000 between 2001-2013.   Throw in other retailers and the numbers climb.  According to the article: “The growing goods trade deficit with China displaced 3.2 million U.S. jobs in the United States between 2001 and 2013, and it has been a prime contributor to the crisis in manufacturing employment over the past 15 years.”    These displaced workers  were a big reason Trump was elected a year ago with his promise to “Make America Great Again.” 

I’m not on an anti-globalization rant here.  I accept that trade between countries with structural or climate differences can benefit buyers and sellers, and lift people out of poverty.  I’m trying to get back to the origins of the unintended consequences of this particular trade mis-match: Sam Walton’s determination that nothing else matters but delivering the cheapest goods to consumers. 

You can see where this is going.   Did you see these recent headlines:  “Supply Management is literally driving tens of thousands of Canadians into poverty” in the Financial Post, or “You’re Paying Too Much for Milk” in the Walrus, and there were many more.   After calling for an end to supply management what follows is advice like this from the usually very smart journalist David Akin  “… done right it would make dairy farmers even more prosperous because they could sell their wonderful product to the world.”

Well yes they could if there were markets in a world awash with surplus milk and dairy products, and more importantly willing to sell at the “world” price.  What Akin and others refuse to understand, much like Sam Walton, are the unintended consequences of always chasing cheaper.  When it comes to farming it goes beyond lost jobs to its severe  impact on the environment.  Just last week the Economist, hardly a radical publication, had this headline “Dairy Farming Polluting New Zealand Water.”   It outlines what happens as dairy farmers there try to produce milk at the low price needed to keep New Zealand an export powerhouse, the competition Canada would run into at every turn.  Intensive dairy farming has led to groundwater polluted with nitrates, and waterways full of algae and dangerous bacteria. From the article  “In Canterbury, one of the most polluted areas, expectant mothers are told to test tap water to avoid “blue baby syndrome”, a potentially fatal ailment thought to be caused by nitrates. The poisonous blooms have killed dogs.”

I can remember doing a  story on a dairy farm next to the Hillsborough River. The farmer worked with Ducks Unlimited to build a pond full of cattails to capture run-off from fields and the milk house before they get to the river. The farmer said the steady income he had from supply management allowed him to do this.  It reminds me now of the importance of the old Oscar Wilde quote:  “What is a cynic. Someone who knows the price of everything, and the value of nothing.”  Let’s stop being cynical about supply management, and recognize its value.

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