Got (deregulated and cheap) milk?

When I woke up today, I found the most interesting piece of news that an economist could find. It seems that Quebec’s main regulatory agency for milk prices has decided to deregulate milk prices. I must admit that this is fun news and it reminds me of Alfred Khan’s appointment to the Civil Aeronautics Board of the United States which opened up the road to airline deregulation!  In Canada, the province of Quebec stands as the odd man out with regards to milk price regulations.

On top of the supply management scheme imposed by the federal government which reduces potential entry into the market from both domestic and foreign producers, the provincial government imposes price controls for the entire milk industry in the province of Quebec which results in a prohibition of competition between the few milk producers. Some call it a price support plan for farmers, I call it a legally enforced cartels on production.  Hence, if deregulation was to become reality (if only we could get rid of supply management as well), prices would likely decline as retailers would seek lower prices from producers and producers would compete to increase quality and lower prices for retailers. Moreover, retailers would be able to wage price wars over milk (imagine Wal-Mart coming him and slashing milk prices like a lawn mower cuts your front lawn!) .

I am making my weekly radio column on CHOI radio X tonight on this topic and will argue (evidently) for deregulation. So, in order to buff up my column and because I don’t believe in saying something without any reliable data, I decided to collect data. Well, I didn’t collect them myself, I just used the data collected by for cities in all of the provinces of Canada (except PEI and Newfoundland), a few American cities and some British cities. As you can see, Quebec consumers do pay quite  more for a liter of milk on average and the lowest prices found are also quite higher than elsewhere (these prices exclude taxes and are expressed in Canadian dollars for December 27th 2011). One should also consider than Quebec city and Montreal are amongst the cheapest cities in Canada, which tells us something about milk prices at purchasing power parities!


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