[By Nobuhiro Suzuki, Professor of the University of Tokyo’s Graduate School of Arts and Sciences]
Nobuhiro Suzuki
Recently, Japan is repeatedly hit by butter shortages. The Regulatory Reform Council has attributed the shortage to dwindling income of dairy farmers who are unable to market their products freely because of the government’s system of designating organizations which control collection and sales of raw milk. But is this really true?
My friend who teaches at University of Florida told me that the United States government treats the dairy industry almost like public utility companies such as electricity and gas, as it is necessary to maintain an orderly marketing of raw milk. In Western countries, protecting milk means protecting the people’s lives.
It is extremely inefficient to collect and sell highly perishable raw milk in small units. Such a system would cause confusion among dairy farmers, distributors, dairy products manufacturers and retailers, and it would become difficult to provide consumers with safe milk and dairy products only in the needed amount when needed. This is why a system or an organization to collectively manage shipping and sales of large amounts of milk is indispensable. Many countries worldwide implement policy measures to support and secure such distribution of raw milk.
For example, the Federal Milk Marketing Order of the United States assures dairy farmers a reasonable minimum price for raw milk sold to processors, depending on the end use of the milk, based on market conditions. It also imposes minimum regional purchase prices for processors of drinking milk every month by adding premium prices set for each of the 2,600 counties nationwide. In addition, starting in 2014, the government launched a safety net system in which dairy farmers select a margin – defined as the all-milk price minus the average feed cost – and receive indemnity payments when margins go below the coverage levels.
In Canada, raw milk cannot be marketed without going through provincial milk marketing boards (MMBs). Attempts to market milk through other channels would be subject to prosecution for violations of law. There are no price negotiations between dairy organizations and dairy products manufacturers, as it has been a custom for them to automatically raise the transaction prices of milk according to category of use along with changes in the government-supported prices of milk used in production of butter and skim milk powder.
Japan is one of the countries with the least government benefits for dairy farmers. Even then, there are voices calling for deregulation in the dairy industry, claiming that would lead to an increase in dairy farmers’ income, enabling them to provide stable supply of milk and butter. I believe this is totally the opposite. Such an idea runs counter to the global trend, and if Japan continues to stick to this idea, dairy farmers’ income would drop further, and not only butter but even milk could disappear from store shelves.
The dismantling of the Milk Marketing Board in Great Britain is a good example of the failure of deregulation. The move forced dairy farmers to fall apart and suffer from plummeting milk prices as big supermarkets and multinational dairy companies drove hard bargains, eventually leading to protests by the farmers.
Deregulation can be effective only when market players do not control the market. In markets where retailers have a strong market power, deregulation increases market distortion, encourages hard bargaining and pressures farmers even more. And this is exactly what buyers are aiming at. How dare they call for abolition of designated dairy organizations “to increase the income of dairy farmers?” The points at issue here are dumping and abuse of superior bargaining positions by major retailers.