Even though world dairy prices are at historic lows, Canadian dairy farmers will be getting a boost of 2.76 per cent for industrial milk — used to make butter, ice cream, yogurt, and cheese — starting Sept. 1.
It comes on the heels of a 2.2 per cent price hike in February.
“The industrial price index has gone up twice this year, which is an anomaly,” said Albert Kamps, a Lacombe dairy farmer and chair of Alberta Milk. “It usually goes up once a year, but farmers were able to demonstrate that their returns were actually shrinking due to an increase of cheap, subsidized production. The goal of supply management is for half of our milk to be produced above the cost of production.”
The increase comes as dairy markets in Europe, which ended its quota system 16 months ago, are crashing — down more than 14 per cent in a year. That prompted the European Union to up dairy subsidies last month by 150 million euros (C$218 million).
While many of Canada’s milk class prices are based on the world milk price, which does put downward pressure on farmers’ returns, industrial milk prices are determined separately from fluid milk prices, said Kamps.
“On all milk, it’s less than a two per cent price increase. We shouldn’t see huge swings in milk prices,” he said.
But Pierre Cadieux, the vice-president of Restaurants Canada, calls the increase a “short-term gain for long-term pain.”
“It does not help to expand the market,” said Cadieux, whose organization has 30,000 members. “We’re in the business of expanding the customer base. We have the same goals; the dairy farmers and us. But for us, supply management is an economic straitjacket. We have no negotiating power.”
Passing a price increase on to the consumer is not a good idea, he said.
“There’s a tipping point there, where the consumer will shift from certain menu items at the retail level and decide not to buy or reduce their consumption of cheese or yogurt,” said Cadieux. “That’s the bottom line. No one likes price increases and we’re all price sensitive. If we had access to a freer market based on more international prices, that would be mitigated. The irony is that these prices come in the context of low international prices, so we’re against the international trend here.”
The latest price hike will hurt his organization’s members, he said.
“Our operators work on thin margins. A franchisee operator of a pizza place — he or she works hard for their money. You have to sell a lot of pizza to make a living, and a two per cent increase when your margins are small just adds to that.”
But Kamps argues the increase is not going to have a huge effect.
“I know the restaurant association is arguing that the price of pizza is going to go up, but if you do the math, a farmer’s share of a medium pizza is 70 cents,” he said. “If we get a two per cent increase, it might be another penny. That’s the farmer’s share.
“If it becomes more than that, that’s on retailers and the middleman. If the price of pizza is going to go up, I don’t see them changing menus for one cent. The farmer’s share has very little to do with what happens at the retail level.”