More bad public policy for the north

Premier Greg Selinger recently spoke out about high food prices in remote northern communities (Manitoba government looks for ways to reduce food prices in remote areas, The Canadian Press, June 10).

Selinger advocates a (yet-to-be-determined) subsidy program that would reduce the prices of milk and other food products for consumers in northern Manitoba.

Manitoba Liberal Leader Jon Gerrard has responded by suggesting the provincial government mandate a single price for milk across the province. The comments from both politicians are troublesome and badly misguided. They seem to believe adding new bad public policies on top of existing bad public policies will be a quick fix for a difficult problem.

The article highlighted Selinger's concern milk prices in northern Manitoba are high relative to urban centres.

It is worth noting dairy prices are high across Canada (including urban areas) because of supply-management policies that restrict domestic production and keep out imports.

These policies amount to hidden taxes on dairy products (paid from consumers to producers instead of from taxpayers to governments).

But the issue of high food (including dairy) prices in remote areas would not be solved even if the federal government were to dismantle supply management. There are several reasons for this.

First, food prices are high in remote areas because of real transportation and storage costs. These costs have to be borne by somebody -- consumers in the case of a free market, taxpayers in the case of transportation subsidies. A transportation subsidy would pass the burden onto taxpayers, most of whom do not live in remote areas.

Second, policies that subsidize healthy foods (or tax unhealthy foods) have not been shown to improve health outcomes. Worse, these policies are often regressive because people with high incomes tend to consume healthier foods and people with low incomes tend to consume less-healthy foods regardless of their relative costs. Such policies can end up taxing the poor and subsidizing the rich. The richest people who eat healthier diets would be the largest beneficiaries of a program that subsidized healthy food in remote areas.

A policy that subsidizes food shipments may be a feather in a politician's cap but is unlikely to improve health outcomes.

Third, we need to question whether the high cost of food in remote areas is really the problem on which governments should focus. The cost of living will always be higher in remote areas -- public policy cannot change that; it can only change who pays for it.

Wages, and therefore incomes, are expected to be correspondingly higher in remote areas, thereby offsetting high living costs.

The problem in northern Manitoba is that incomes do not appear to be sufficiently high to offset food prices.

There are several complex reasons incomes in some remote areas are not higher; these include difficult and sensitive social obstacles. Also, the federal and provincial governments already provide a number of programs to increase the incentives for people to live in remote northern areas through tax allowances and other benefits. Adding new or higher food subsidies is an ineffective way to address poverty in these locations. The only solution is higher incomes, which will lead to healthier diets and make high-priced food more affordable.

Gerrard's proposal for a unified provincial milk price is even more troublesome.

Gerrard believes if the provincial government can enforce a single price for liquor across the province, then such a policy could be extended to milk. This, he argues, would reduce future health-care expenditures by generating a healthier population.

Manitoba, however, has a single price for liquor (note the single price does not apply to private resellers) because of a government-enforced monopoly on liquor sales, not because of progressive social policy. Enforcing a single price for food when market forces dictate different prices in different locations would mean some consumers would pay too much (likely in urban centres where there are also many poor people) and others would pay too little (likely in remote areas).

The costs don't disappear, they just get shifted around.

Even if an administrative structure to implement a single milk price (the Manitoba Milk Control Commission?) were feasible, the benefits of such a program would be doubtful. It is not clear increasing the consumption of milk beyond infancy would generate improved health outcomes, and subsidies on healthy foods have not been shown to be effective.

It's unfortunate elected officials feel the need to be viewed as taking action, even when their actions will not solve the underlying problem and may even make it worse.

The problem is poverty in some remote northern areas, not high food prices. Poverty is a complex and difficult problem and cannot be solved through ad hoc subsidies in markets that are already heavily distorted. We need to better understand, and confront, why enclaves of poverty persist in a country as rich as Canada.

That would warrant a lot of feathers for a politician's cap.

Ryan Cardwell is an associate professor in the department of agribusiness and agricultural economics at the University of Manitoba.

Republished from the Winnipeg Free Press print edition June 14, 2012 A14