Dairy support price gets second bump of year

Facing depressed world prices for milk, Canada’s dairy farmers can expect a boost of about 2.76 per cent in their overall revenue from industrial milk sales starting Sept. 1.

The Canadian Dairy Commission on Friday announced an unusual second increase this year in the support prices it sets for butter ($8.0062 per kilogram, up from $7.7815 currently) and skim milk powder ($4.5302 per kilogram, up from $4.4176).

The adjustments are expected to push up dairy producers’ revenue for the industrial milk they supply to make products such as yogurt, cheese, ice cream, butter and skim milk powder.

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The butter support price was previously boosted effective Feb. 1, more than offsetting a substantial cut in the skim milk powder support price at that time.

The increases, according to commission chairman Alistair Johnston, are meant to offset a “significant reduction in producer revenues in the last year.”

That reduction, the commission said, was due in part to increased sales of surplus milk protein into low-priced markets, during a period of decreases in world milk prices.

However, Johnston added, the lower revenue for producers is partly offset by “a declining cost of production, which allowed us to limit the price adjustment.”

The 2.76 per cent boost in expected revenues follows the 2.2 per cent hike that took effect Feb. 1, a decrease of about 1.8 per cent announced in January last year, and increases of 1.5 per cent in 2011 and 2012, 0.9 per cent in 2013 and one per cent in 2014.

The support prices for skim milk powder and butter are the prices at which the commission buys and sells those products through its domestic seasonality programs, to balance seasonal changes in demand in Canada’s domestic market.

Provincial marketing boards also use those prices as reference points in pricing industrial milk. The prices producers get for fluid milk are worked out in a separate process.

The margin received by processors for butter and skim milk powder the commission buys under the seasonality programs remains unchanged, as will the carrying charges the commission collects to pay for storage of normal butter stocks, the commission said Friday.

Restaurants Canada, a longtime critic of Canada’s supply management system and dairy pricing frameworks, warned in a separate release Friday the new support price hikes will cost its members through higher prices for cheese, yogurt, ice cream and butter.

“Cheese is being priced off the menu and another price increase is only going to further drive down demand,” said Pierre Cadieux, the industry group’s vice-president.

“We understand concerns around producer margins, but we need solutions that will increase volumes rather than always increasing prices,” he said. “Today’s announcement is yet another indicator that the current system is not working for producers or end users.”

Canada’s total milk production for the 12 months up to the end of May this year rose 4.46 per cent from the year-earlier period, the dairy commission said in its latest market bulletin last week.

Industrial milk production during that time rose 7.13 per cent, while fluid milk production was down 0.35 per cent, the commission said.

“Production is expected to lessen in the coming months due to the summer heat, but should resume its upward trend once the fall months roll around,” the commission wrote.

Citing data from retail market tracking firms, the commission noted a 3.5 per cent increase in retail cheese sales by kilogram over the 12 months ending May 28 compared to the year-earlier period.

Cream, ice cream and yogurt retail sales rose 4.2, 2.7 and 3.2 per cent respectively during that time, while butter sales rose just 0.5 per cent. — AGCanada.com Network

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