PRODUCT QUALITY IN THE CANADIAN DAIRY INDUSTRY

Supply management has been shown to increase the price of milk. Technological change has induced (and allowed) processors to substitute alternative inputs, many of which can be imported tariff-free, for the traditional ingredients to lower costs and maximize profit. Meanwhile, there has been a great deal of consolidation in the dairy processing industry. We analyse the effect of these trends on cheese quality by measuring the increase in casein imports. Results suggest that supply management is negatively affecting cheese quality, by increasing casein imports due to the higher milk price. Furthermore, we were able to calculate that approximately 9.8% of specialty cheese is produced used casein. A 22% ad valorem tariff is needed to drive casein imports down to zero