The internationally recognized measurement of farm subsidy levels is an
inappropriate and inaccurate way to judge how much support Canadian
dairy farmers receive, according to a study prepared for Dairy Farmers
of Canada.
Three Université Laval economists argue that the producer subsidy
equivalent, or PSE, developed by the Paris-based Organization for
Economic Co-operation and Development overestimates how much Canadian
consumers are overcharged for their dairy products by world standards.
The PSE calculation regularly show Canada’s supply management-protected
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dairy farmers to be among the world’s most subsidized by their
consumers. The OECD says Canada’s dairy farmers received 58 percent of
their revenue from government and consumer subsidies in 1999, compared
to 0.4 percent in New Zealand and 1.2 percent in Australia.
Canadian grain and livestock exporters typically complain that Canada
should not waste energy defending highly subsidized dairy farmers when
it may erode their arguments for better foreign access.
In their 70-page report, economists Maurice Doyon, Nicolas Paillat and
Daniel-M. Gouin argued that the PSE used by supply management’s critics
is flawed in two major ways:
n* It uses low and unsubsidized New Zealand dairy prices as the
benchmark against which Canadian farmgate prices are judged. It also
assumes New Zealand prices are at levels that would exist in an
unsubsidized market.
The economists argue that New Zealand is not a true reflection of
unsubsidized prices. It is a small player and must sell its
unsubsidized milk at low prices set by the heavily subsidized European
Union dairy industry.
n* It assumes that a higher farmgate price for milk means higher
consumer prices for dairy products.
In fact, the Laval economists suggest the PSE does not recognize that
some domestic dairy pricing systems gain more of a share of the
consumer dollar for farmers at the expense of processors and retailers,
without hurting consumers.
“The method of calculating PSE from the price of milk in New Zealand
implies that the gap between the reference and domestic prices is a
transfer from taxpayers and consumers to the producer,” the study said.
“However, such is not the case.”
The DFC consistently produces studies that indicate dairy products cost
Canadian consumers less than American consumers.
D’Arce McMillan’s Market Watch column is unavailable this week.
