Ideas@TheCentre – The CIS newsletter (Sydney), 23 December 2011

According to the United Nations’ ‘Human Development Index,’ Norway is the most developed country in the world. The Scandinavians put even Australia in second place. But what is all that development worth when ordinary Norwegians can’t afford to bake Christmas cookies anymore?

In Norway, it is now cheaper to fill your car than to buy a kilo of butter. That’s not because Norway is so oil rich but because it is so butter short. A national butter scarcity has catapulted the price of smør to more than 1,600 Norwegian Kroners (approximately $270) a kilo on the black market.

Norway’s butter crisis is not the result of greedy speculation, short-selling of butter derivatives, or hedge funds’ stockpiling butter supplies. The explanation is far simpler: Old-fashioned protectionism and central planning have created a staple food shortage in the world’s richest country.

For decades, Norway has been protecting its butter market by high tariffs on imports of $4.20 a kilo. This effectively cut off Norway from the world butter market, so the heavily subsidised over-production from neighbouring EU countries was successfully blocked from competing with Norwegian milk farmers. Domestically Norway enforced strict milk quotas for its own farmers, while monopolist dairy cooperative Tine kept the market under tight control.

This year, a variation of Murphy’s Law struck Norway – except that the toast couldn’t land the buttered-side down as there was no butter. The last Norwegian summer was unusually wet, the hay harvest was poor, and cows gave lesser milk than usual. This would not have been catastrophic if Norwegians also had not changed their diet. Their new ‘low carb, high fat’ diet unbuttered Tine’s best-laid milk plans.

So as the Christmas baking season arrived, the unthinkable happened: Norway was running out of butter. Despite an emergency tariff cut, supply chains could not be redirected towards Norway in time, and supermarket shelves emptied within days.

Desperate Norwegians flocked to Internet portals to order butter rations from other countries at extortionate prices. Others resorted to illegal ways to satisfy their demand. A Norwegian newspaper reported that two men had been arrested at the Swedish border attempting to smuggle 550 lbs of butter divided into 18-ounce packets. Of course, such threats to national security cannot be tolerated, and Norwegian customs have issued strong warnings to would-be smugglers of the new yellow gold.

Milton Friedman once quipped that if you put the government in charge of the Sahara Desert, there would be a shortage of sand within five years. In the very same way, an interventionist and protectionist government can create a staple food shortage even in the most highly developed nation on the planet.

Having said that, how highly developed can a country be that resorts to such primitive economic policies?