Canadian Cheese Smuggling Ring Busted

NPR reported recently that a “large scale Canada-U.S. cheese smuggling operation” has been busted. More than $200,000 worth of cheese and other products were purchased in the U.S. and distributed in Canada. Profits from the scheme were estimated at $165,000. The smuggling ring was composed of one current and one former police officer, along with one “civilian”.

So what gives? What makes cheese a profitably-smugglable commodity across the world’s longest non-militarized border?

Not surprisingly, it all comes down to economics. Canada has quotas – essentially price supports – for dairy products. The U.S. doesn’t.

When the Canadian dollar was low relative to the U.S. dollar, Canada used to ship truckloads of chees to the U.S. Now that the Canadian dollar is worth more than the U.S. dollar, there’s money to be made smuggling in cheese from the U.S.

The dairy price supports in Canada are designed to protect farmers there from fluctuating market conditions, much as corn, wheat, and other agricultural price supports in the U.S. are designed to help farmers here.

Dairy price in the U.S. also are reportedly lower because U.S. farmers get subsidies, and U.S. farms are large and thus benefit from economies of scale.

While better for Canadian farmers, Canadian consumers have to pay higher prices for cheese, milk, and pizza.

Economists love to hate price supports of any kind in otherwise efficient markets, because of the unintended consequences and market distortions they cause. You can add cheese smuggling to that list of unintended consequences.

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