The Norwegian Butter Crisis

December 17, 2011 in Daily Bulletin

How can the third richest country in the world (as measured by GDP per Capita) have a butter shortage? That’s the question that the Norwegian people are asking their government upon hearing that their butter supplies are to be rationed. The answer is simple: The Norwegian Dairy Cooperative has a monopoly on the domestic market, and bad weather this year hurt their dairy supplies. The Norwegian government has opted to relax tariffs on butter so that the rationing can be lifted. On the surface this is an important lesson on the value of Free Trade, but, as Slate
notes, there are some valid reasons for Norway to have trade restrictions on goods such as butter.

  • Norway is rich due to the discovery of off-shore oil reserves. This is a capital intensive industry that doesn’t employ many people.
  • The high value of the exports pushes up the value of the Norwegian currency making imports from abroad extremely cheap.
  • These two factors combine to create a problem where no industry aside from the oil industry can survive in Norway. While the Norwegian makes enough revenue from oil to guarantee a high income for the Norwegian people, even if they are unable to find jobs in the oil industry, there is a general deterioration in human capital as Norwegians do not gain any meaningful skills.
  • So that the country still has human resources and a future when the oil runs out, Norway protects several of its own industries.

To read more about how the Norwegian government invests its funds to ensure that its currency doesn’t appreciate too much as well as the government’s investments in its future click here.

Source: Slate