I Can’t Believe There’s No Butter! Bad Trade Policy Burns Christmas Bakers

I love to cook. From my great grandmother’s recipe for fried chicken (fried in lard, of course) to my mom’s recipe for Kentucky burgoo (think stew), there are a few kitchen staples this cook can’t do without. The star of many southern recipes is butter. Perhaps famous southern cook Paula Deen put it best:

“I’d rather die with a stick of butter in my hand than a celery stalk.”

Truer words were never spoken.

In my local grocery store I have my choice of a LOT of butter. Salted butter, unsalted butter, organic butter, sticks of butter, tubs of butter, and butter made with olive oil are all available for a few dollars (so is that thing next to it called margarine…but we don’t have to talk about that stuff).

As the holidays draw closer, I’m doing a lot of cooking and baking. This means, of course, more butter. And I’m certainly not the only one. In fact, even people in Japan are making buttery baked goods for the holidays. Sponge cake, a traditional Japanese Christmas dish, uses so much butter I’m pretty sure my arteries are clogging just writing about it.

For bakers in Japan, whether professional or amateur, getting butter from the local grocery store may not be easy. In fact, the spike in the demand for butter in Japan is exacerbating a pre-existing shortage.

According to the agricultural ministry out of Tokyo, “climate change” and an “aging farming industry” have led to this crisis.

The weather up in Hokkaido, which is the main dairy region in Japan, is getting very hot in the summer and extremely cold in the winter, so the cows are stressed, and they don’t produce enough milk. And on top of that, the average age of farmers is about 70 now, and not many young people want to do the work.

While climate change and an increase in the average age of dairy farmers may impact the industry, this does not actually explain the rampant shortages of butter and other dairy products in Japan.  To explain the real problem, we have to look at Japan’s agricultural policy. More specifically, we need to look at the tariffs and quotas placed on imported dairy products.

While Japan imports about 13 percent of its dairy products, things like cheese, butter, and other milk products face highly restrictive regulations. The Japanese government places high tariffs on dairy products, as well as an import quota.

These policies are intended to “protect” the dairy industry in Japan. In effect, these policies allow domestic dairy producers to reap a higher price and work to prop up the industry that would likely be eliminated by foreign competition.

The overall impact of these trade restrictions comes down to simple economics. When a country engages in free trade internationally, consumers enjoy more of a particular good at a lower price than if the country produced a product on its own (for a more detailed explanation, this video is particularly helpful). The implementation of a tariff effectively raises the price of the good. While domestic producers may see some gains, consumers lose—big time. They pay higher prices for the goods and have a smaller selection of items to choose from. In addition, taxpayers must now foot the bill for the costs associated with implementing, monitoring, and enforcing the trade policy.

In the case of Japan, these policies have led not only to higher prices and the incursion of enforcement costs, but also to a shortage of dairy products.

A butter shortage may not seem like a high price to pay for a policy that is supposed to “protect” domestic industry, but the true costs of these policies are significant. In fact, the National Center for Policy Analysis estimated that Japanese consumers lost $600,000 per job saved through tariffs.

These issues are not unique to Japan. The U.S., for example, has a hardy crop of trade restrictions on agriculture (no pun intended) and other products.

For example, President Bush increased U.S. steel tariffs between 8 percent and 30 percent in 2000. Studies found that this policy increased the cost of steel products between six and eight percent. They decreased national income between $500 million and $1.4 billion dollars. The 10,000 jobs propped up by the policy cost about $400,000 each to maintain. In addition, for every job the tariff “saved,” the U.S. lost eight. Ironically, the states set to lose the most were those in the “steel belt,” like Michigan and Pennsylvania.

Similar stories can be told for U.S. products like corn, sugar, wool, auto parts, canned tuna, leather, and ship parts. (That anchor is subject to a 50 percent tariff.) Like European meats of truffles? How about French jam or chocolate? Be prepared to pay a 100 percent tariff. Like unshelled peanuts at the ball game? How does a 163.8 percent tariff sound? Want to import tobacco? Try a 350 percent tariff! Want to import a live fox? Yup, there’s a tariff on that too.

The dairy tariffs in Japan are clearly preventing many people from having their Christmas goodies. But it’s important to remember that this tariff is just one example of how trade restrictions harm consumers, workers, and the economy as a whole. Trade restrictions are often pitched as a way to protect a particular group. But these policies are not costless. They often harm much more than they help. Just as the U.S. government frequently calls for other nations to engage in trade, we should encourage similar policies in the United States.

Abigail R. Hall is a Research Fellow at the Independent Institute and an Assistant Professor of Economics at the University of Tampa.
Beacon Posts by Abigail R. Hall | Full Biography and Publications
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