Bangladeshi milk industry could benefit from a bit of foreign competition
Bangladeshi milk producers are demanding protection against imports. A recent investigation shows that Bangladesh-produced milk suffers from a number of quality problems which imported milk products don’t.
There is something of a conflict between these two sets of information. Or, if we think about trade properly, there is no conflict when we come to discussing a solution -- remove any and all protections against imports for the Bangladeshi milk producers, and watch as quality rises.
The demand from the domestic industry is that the duty on milk powder should be raised from the current 25% to 50%. They are saying -- and we’ve no reason at all to doubt them -- that foreigners have lower production costs and that therefore they cannot compete. It is thus necessary to increase the price of those imports. That will mean that the price local producers can charge will also rise, making profits for farmers.
That is, of course, to entirely miss the point of trade in the first place, which is to allow us, us consumers, to get our hands on those things which foreigners can make better or cheaper than our own local producers.
Increasing the price of milk doesn’t make us consumers better off, therefore, it’s not a policy we should be following anyway. If making milk inside Bangladesh isn’t profitable then that’s the universe’s way of telling farmers to go do something else. Maybe chickens, maybe rice or jute, maybe stop farming altogether and go work in a factory. Stop doing things which aren’t profitable and do more of things which are.
For profit is simply proof of value being added. And it is value that we desire to be produced, for it is value that is consumed by everyone. That’s even what GDP is, the value added in an economy.
However, we’ve also another report into the milk industry detailing the level of adulteration of the nation’s milk supply. Of the various things we don’t want to have in milk, they found too much in 17 out of 21 tested local milks, only 1 in 10 imported. The other results were much the same -- the quality of imported milk was higher, or at least less adulterated.
So, we seem to have useful evidence that the foreign milk is both cheaper -- otherwise why would the farmers be demanding protection -- and also better, or at least less bad in terms of adulteration. This would seem to be a solid case for removing all discrimination against imports, not raising further barriers.
The reason for this higher quality should be well known, but sadly isn’t. It’s that we find, worldwide, that only the top 10% or so of producers in anything go to the trouble of trying to export. It is more productive firms, the very thing that allows them to be better and cheaper, which try to sell abroad.
This means that our imports -- obviously those things exported by others -- are coming from those top 10% of producers elsewhere. This is logically obvious, for as we know, mediocrity is available just around any corner. It’s being good at something, excellent, which is difficult. Only those who are can overcome the costs of transport and of breaking into a foreign market.
It is usually true that imports are going to be of a higher quality than a domestic production. Simply because it’s only those better at production that even try to export.
Now, we can add these two things together. Start with our basic aim in anything and everything economic. We wish to make the general population of the place as well off as we can. This is derived from Adam Smith -- the sole purpose of all production is consumption.
Everything thus needs to be looked at through that lens of the consumer interest. Who is producing, how, creating how many jobs at what profit, these are all irrelevant. It is consumers who are our focus and interest.
So, what do we know about milk imports? They are better, in the sense of being less adulterated, and they are cheaper. Both are in the interest of consumers. Thus, we should not be raising tariff barriers against milk imports, we should be removing the ones we’ve already got.
As to those Bangladeshi milk farmers who cannot thrive if we do that, well, they should go and do something else, shouldn’t they? The people who do stay in the business will be those who can match the imports on price and quality. Which is exactly what we want, isn’t it? We want to bring the domestic milk industry up to global standards by exposing it to global competition.
Tim Worstall is a Senior Fellow at the Adam Smith Institute in London.