Fresh Takes

Supply management and economics 101

The law of supply and demand is a fundamental economic principle that explains the market price for a given product—in short, price is dependent on the interaction of supply and demand. When demand exceeds supply, prices tend to rise, causing quantity demanded to fall and quantity supplied to rise until they reach a new equilibrium point. Think about the market for used vehicles as of late: The supply of new and used vehicles has dwindled, causing the price of used vehicles to skyrocket across Canada. Conversely, when demand is lower than the quantity supplied, prices tend to fall to reach a new equilibrium price where supply and demand align.

Seems straightforward enough: The market regulates prices based on supply and demand.

Now let’s look at the current Canadian dairy supply management system, which runs counter to this basic economic principle. Supply management is an artificial control of the dairy supply through quotas and controlling imports “as a means of setting stable prices for both farmers and consumers.” While the price of dairy milk has increased by 25% since January (and will increase again by 2.5% on September 1st), demand has fallen in recent years, even as population has grown. This has resulted in reports of billions of litres of milk being dumped across the country since 2020, with claims that this will balance supply and allow prices to remain stable.

Instead of greater supply leading to lower prices if the dairy market was unhampered, which would benefit consumers who already suffer from high inflation, the current supply management system generates waste and high prices for households. Here’s the kicker: By removing the artificial control of supply management, supply and demand would align and, spoiler alert, regulate prices. It’s time to follow the lead of countries that have abolished their supply management of dairy, like Australia and New Zealand, and let economic principles, not governments, regulate markets for the benefit of all.

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