Land of milk and money

By January 7, 2011March 18th, 2020No Comments

Today’s Financial Post reveals the startling news that brewers in Quebec don’t think they’re allowed to charge enough for beer. If they were selling TVs, or cars or jeans, of course, they’d either put up their prices —and risk the wrath of consumers— or realise that cheap imports from Vietnam, China and Brazil meant that they had no pricing power and simply had to live with the price the market was dictating.

But in Quebec (and possible other provinces as well – I’ve not checked), the minimum price of beer is controlled by the government. Mustn’t have any beer sales!

But apparently the floor hasn’t been rising fast enough for the brewers, who are upset that the price is linked to the Consumer Price Index (CPI). The CPI, though, doesn’t rise as fast as if you were looking only at food, because food prices are notoriously volatile, and tend to rise faster overall than other prices.

But don’t make the mistake of thinking that they are looking for higher prices. Oh, no! According to their spokesman in Quebec: “We’re not saying the prices are too low. We just think it should follow same rate of increase as the grocery basket.” Hmmm. Let’s see if I get this. Heaven forfend that they might want to charge more. They’d just like the prices to rise in line with a different index…that would result in higher prices.

So what justifies this if they’re not looking for higher prices? Why social reasons, of course. If food prices continue to rise faster than the CPI, we would soon be in the (allegedly) scandalous position where beer would be cheaper than milk in the grocery store. According to the FP: “The current minimum price for typical beer with 5% alcohol is $2.85 per litre. The average retail price for one litre of partly skimmed milk in Canada was $2.14 in November, according to Statistics Canada.”

There are two problems with this logic:

First, if the government sees a social problem with the price of beer, they can simply put up taxes, which is in any case the right solution, for a host of reasons. Why should brewers capture for themselves any increase in the price of their product designed to respond to a social problem not of their creation and that has nothing to do with their market or their costs of production?

Second, the price of milk is itself a scandal caused by poor government policy. Under our milk marketing board scheme in Canada, milk prices are essentially determined, not by the interplay of supply and demand in the market, but by representatives of the dairy industry who set the prices and control the supply of milk. In almost any other field this kind of collusion would attract the ire of the Competition Bureau, but they have no jurisdiction here.

As a result, according to the Cost Of Living Comparison website, an average litre of regular milk costs US$1.27 in the US, but US$1.90 in Canada (a number slightly lower than the StatsCan price cited by the FP).

In other words, if the brewers of Quebec think it would be truly scandalous for milk to be more expensive than beer, they know what they have to do, and it isn’t to lobby for their prices to follow those of a commodity whose government-dictated price is already a national scandal.