Gross margins, however, should increase as the effects of falling commodity prices work their way through the supply chain, the farm lender said in an April 9 news release.

In its Food and Beverage Report 2024, FCC said that Canadians spent less than average on food and beverages in 2023. People shifted shopping habits to purchase more sale items and cheaper brands, and even cut back on the volume of food purchased.

“While changing shopping habits may pose challenges, they also present opportunities for food and beverage manufacturers,” said FCC chief economist J.P. Gervais in the news release.

“Taste remains the top consideration for consumers, but price sensitivity has increased, leading processors to innovate and meet evolving consumer demands.”

A growing, diverse population also provides opportunities for food manufacturers, the report said. More than one million people came to Canada in the first nine months of 2023.

“That’s a lot more mouths to feed,” FCC said.

FCC projects food and beverage sales to slip 1.4 per cent in 2024, while gross margins improve 1.5 per cent on average—varying widely across the sector.

Much of sales growth in the last three years has been influenced by inflation, “as manufacturers aimed to pass on increases in input costs to the best of their ability to protect margins,” the report said.

In 2023, input costs like commodities, fuel and transport began to stabilize or decline. Wage growth is still hot, but falling job vacancy rates suggest that could soon moderate.

FCC projects grain and oilseed milling sales to decrease by 11.3 per cent while volumes increase by 1.1 per cent.

Dairy products should see sales grow by 6.5 per cent, while volumes grow 7.5 per cent. The sector can also expect improving margins—though still below 2022 levels.

Sales of meat products are expected to grow by 2.7 per cent, with volumes bumping up 0.7 per cent year over year. Pork margins are expected to improve compared to a difficult 2023. Beef processing margins should stay in the black, but competition for live cattle will be fierce. Poultry processors will deal with plateauing demand and high frozen inventory.

The U.S. economy is a wildcard, FCC said.

“Should the U.S. economy continue outperforming expectations, export growth could surprise to the upside and turn the projected small sales contraction forecast into small growth,” the report said.

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“We have shovels in the ground as of now, pilings in and we’re getting ready as winter approaches,” CEO Nolan Berg said at a December dairy conference in Winnipeg. “We’re getting that all set up so that we are in a great position to move forward in spring.”

Once built, Dairy Innovation West will be the first facility of its kind in Canada. It will also be the first major capital project built by the Western Milk Pool.

Construction is expected to be completed by the end of 2024 and, after a window to test the equipment, the facility should be up and running by mid-2025.

Project roots

The project was first announced in 2019 as part of a commitment for pool members to work more closely together and expand processing capacity. At the time, it was estimated the facility would be complete by March 2021.

Some delays can be chalked up to the pandemic, but WMP chair Henry Holtmann said the biggest challenges were regulatory.

The WMP is not a legal entity and therefore cannot own the facility. Instead, Dairy Innovation West is co-owned by the provincial organizations that make up the pool. That opens the door to a patchwork of provincial rules.

“The biggest hurdle was finding a way that would respect the provincial regulations of the four provinces,” Holtmann said. Those nuances were tougher to navigate than the board initially expected.

“It’s been an interesting path because, as soon as we thought we had something that would work, we would test the waters, and then a provincial lawyer says, ‘no, you can’t do it that way,’ so we would have to adjust and change,” said Holtmann. “So, it takes time to do that.”

One regulatory challenge stemmed from B.C. Milk Marketing Board regulations, which don’t permit it to be involved. The WMP comprises five dairy groups across four western Canadian provinces: the B.C. Milk Marketing Board, the B.C. Dairy Association, Alberta Milk, SaskMilk, and Dairy Farmers of Manitoba.

“They have a different structure in British Columbia; they have two organizations,” Holtmann said. “One is their marketing board, the other is their producer association. We found that we could work through their producer association, and that worked just fine.”

The central-Alberta location near Blackfalds was chosen to address the need for more dairy processing in Alberta. There is not enough capacity to accommodate the volumes of milk produced in the province, and milk sometimes goes to Abbotsford, B.C., or even as far as Manitoba to be processed.

Dairy farmers cover the transportation costs to get milk to the door of the processor, so longer journeys can reduce farm profitability.

Dairy Innovation West is meant to form a bridge between the farm and those distant plants. Milk coming into the facility from member farms will be concentrated, making it easier to ship to end-use processors. The milk concentrates from the facility are not owned by the WMP.

Depending on the process, the facility could take milk from as many as four trucks and concentrate it to one truckload.

“It really supports processor expansion and reduces transportation costs for the farmers to get the milk to the door of that processor,” said Holtmann.

The facility will use reverse osmosis (RO) and ultrafiltration (UF) to make concentrated RO whole milk, concentrated RO skim milk, UF whole and skim milk, milk protein isolate concentrates, milk permeate concentrate and cream.

“RO is really dewatering the milk. Ultrafiltration actually can concentrate the protein fractions, which is important for cheesemaking,” Holtmann said, adding that the facility will be able to “concentrate about 300 million litres of raw product into its various components per year.”

Dairy producer Gerrit Haarman, owner of Coulee View Farms north of Lethbridge, said the project is a win-win from both a cost and environmental perspective.

“Any time there’s less trucks on the road, that should translate into a saving,” he said. “From my point of view, the environmental advantage is something that I really think will benefit us just by having less trucks transporting milk.”

It also portrays the western Canadian dairy industry in a positive light.

“I just think it’s a fantastic project that shows producers in Western Canada being able to come together and find a solution for a problem that affects all of us dairy producers in Western Canada. I think that just shows great potential.”

— With files from Jeff Melchior

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But despite the panel’s findings in New Zealand’s favour, Canada is also framing the panel’s ruling as a win — as it also generally upholds Canada’s ability to set criteria for dairy quota allocations.

In a ruling dated Tuesday, a three-member CPTPP panel found Canada’s policy of reserving priority access to its 16 dairy tariff rate quotas (TRQs) is “inconsistent” with its obligations under the 2018 trade pact — and that the pooling system Canada has set up in its allocation mechanism “operates to limit the opportunity for otherwise eligible applicants to use the TRQs fully.”

Canada in 2020 and 2021 issued 16 “notices to importers” that carve up its overall available TRQs for 16 separate dairy product categories, by reserving 80-85 per cent of them for processors, zero to 20 per cent for further-processors, and zero to 15 per cent for distributors.

Arguing that a system reserving the “vast majority” of available TRQ allocations for processors fell short of Canada’s CPTPP commitments, New Zealand had called for consultations with Canada under the CPTPP in May last year, then asked for a dispute settlement panel in November. A dispute hearing was then held in June in Ottawa.

New Zealand, which contended Canada was “impermissibly limiting access to TRQ quota to its domestic dairy processors,” notes its case marks the first dispute to be taken by any party under the CPTPP.

In its ruling, the panel emphasized it’s not requiring Canada or other CPTPP parties make sure each available TRQ quantity be fully filled each year — but “the opportunity to fill them must not be undermined by an overly compartmentalized and complicated system as is the case with Canada’s current allocation mechanism.”

On the other hand, the panel’s 60-page ruling found Canada did not introduce “new limits or eligibility requirements” on its dairy TRQs, and that its notices to importers, by setting up “additional criteria for eligible applicants” for a quota allocation, are within the discretion allowed to countries that use an allocation mechanism.

But the panel also emphasized “it is not suggesting that Canada, or any party using a TRQ allocation mechanism, has unfettered discretion to adopt any manner of eligibility criteria that it wants.”

‘Have to change’

CPTPP rules now give Canada “a reasonable period of time to change its TRQ administration to comply with the panel decision,” New Zealand officials said Tuesday.

“Canada was not living up to its commitments under CPTPP, by effectively blocking access for our dairy industry to upscale its exports. That will now have to change,” New Zealand Trade Minister Damien O’Connor said in a separate statement.

The panel ruling, he said, will give New Zealand’s exporters the “confidence and certainty that the mechanisms in place will ensure they receive the market access that all members agreed to.”

New Zealand, he said, “look(s) forward to our dairy exporters being able to properly utilize the hard-won market access we negotiated through CPTPP and we hope Canadian customers will welcome more consumer choice.”

Dairy Farmers of Canada president David Wiens, in a separate statement Wednesday, said the organization is “disappointed” with the dispute panel’s findings. Out of the six challenged elements of Canada’s system, two were ruled to be inconsistent with the CPTPP while New Zealand’s other four claims were ruled as “unfounded,” he said.

DFC, he said, now calls on Ottawa to run a “thorough review of the measures the government of New Zealand has put in place to support its dairy sector to ensure that they are consistent with its international trade obligations.”

In a separate statement Tuesday, Canada’s Trade Minister Mary Ng and Agriculture Minister Lawrence MacAulay said the panel “has made a significant finding by recognizing Canada’s discretion to set TRQ allocation policies, including determining who is eligible to obtain an allocation.”

Canada, the ministers said, “will not negotiate these allocations with countries who seek to weaken Canada’s supply management system.”

The panel’s findings on Canada’s use of pools also “will not undermine Canada’s supply management system,” they added.

Canada’s system of reserving TRQs for imports by domestic dairy processors has been a target of two separate disputes launched by the United States under the Canada-U.S.-Mexico Agreement (CUSMA). The U.S. is not a party to the CPTPP.

Canada’s supply management systems on dairy, poultry and eggs are meant to ensure regulated supplies of those perishable goods, by regulating the levels of domestic production; regulating pricing according to end-use; and managing imports through the use of TRQs and an otherwise high tariff wall.

Martin Harvey, New Zealand’s High Commissioner to Canada, said in a separate statement the outcome of this dispute “would not take away from the excellent relationship” between the two countries.

“It is a good example of how dispute settlement chapters in free trade agreements are meant to work. It’s an outcome that supports our shared commitment to a rules-based international trading system, and a good day for CPTPP.” — Glacier FarmMedia Network

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David Wiens, who farms with his brother at Grunthal, Man., about 50 km southeast of Winnipeg, replaces Pierre Lampron, an organic dairy farmer in Quebec’s Mauricie region and DFC president since 2017.

Wiens, a director with Dairy Farmers of Manitoba since 1995 and its president since 2006, was named a director on DFC’s board in 2009 and became its vice-president in 2011.

At the time of his election as DFC president, Wiens was also chair of DFC’s proAction committee, the Canadian Dairy Research Council and the DFC committee reviewing and updating Canada’s code of practice for the care and handling of dairy cattle.

“Our industry is at a crossroads, we face numerous challenges, but there are also opportunities which we must seize,” Wiens said in a release Wednesday.

“Dairy farmers are the first link with milk production in bringing highly nutritious dairy products to consumers. Yet, we rely on our dairy processors as key partners in the supply chain. It is in the overall sector’s interest to adopt collaborative approaches to meet the expectations of Canadians.”

DFC’s board of directors for 2023 also includes Sarah Sache (B.C.), Wim Van De Brake (Alberta), Matthew Flaman (Saskatchewan), Stefan Singer (Manitoba), Gilbert Matheson (New Brunswick), Greg Archibald (Nova Scotia) and Steve Reeves (Prince Edward Island).

Ontario is represented on the DFC board by Vicky Morrison, Mark Hamel and Don Gordon, and Quebec by Daniel Gobeil, Peter Strebel and Marcel Blais. A director representing Newfoundland and Labrador was not named Wednesday.

Lampron, who’d been on the board of Producteurs de lait du Quebec since 2000, remains present at the national ag policy level, having been named in Feburary as second vice-president of the Canadian Federation of Agriculture. — Glacier FarmMedia Network

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Freeland’s 2023 federal budget, released Tuesday, includes $13 million in 2023-24 for Agriculture and Agri-Food Canada to temporarily increase the interest-free limit for loans under its Advance Payments Program (APP) to $350,000 for the 2023 program year.

The interest-free portion of an APP loan was previously capped at $100,000 but that level was temporarily raised last summer to $250,000 for the 2022 and 2023 program years.

The APP provides farmers with cash advances of up to $1 million, based on up to 50 per cent of the anticipated market value of a farm’s eligible production, whether it’s still to be produced or is already stored.

“Farm production costs have increased in Canada and around the world, including as a result Russia’s illegal invasion of Ukraine and global supply chain disruptions,” Tuesday’s budget documents said. “It is important that Canada’s agricultural producers have access to the cash flow they need to cover these costs until they sell their products.”

On that note, the budget also committed the feds to “consult with provincial and territorial counterparts to explore ways to extend help to small agricultural producers who demonstrate urgent financial need.”

Fertilizer funding

On the matter of input costs, the budget also notes Russia’s invasion of Ukraine “has resulted in higher prices for nitrogen fertilizers, which has had a notable impact on eastern Canadian farmers who rely heavily on imported fertilizer.”

To that end, the budget proposes a $34.1 million addition to the federal On-Farm Climate Action Fund over three years, specifically “to support adoption of nitrogen management practices by eastern Canadian farmers, that will help optimize the use and reduce the need for fertilizer.”

That $34.1 million figure roughly coincides with a recent estimate of the tariffs collected so far on imports of Russian fertilizer into Eastern Canada. Several grower groups in that region have called for an end to that tariff and for farmers to be directly reimbursed for tariffs already paid.

Dairy development

Among other longer-term investments, the budget proposes $333 million over 10 years to set up what it calls the Dairy Innovation and Investment Fund, starting in 2023-24, to back development of new dairy products based on solids non-fat (SNF), a dairy processing byproduct.

The dairy sector is up against “a growing surplus” of SNF, for which the limited processing capacity in Canada “results in lost opportunities for dairy processors and farmers,” the budget said.

The new fund would support “investments in research and development of new products based on SNF, market development for these products, and processing capacity for SNF-based products more broadly.”

Inoculation inventory

The budget also pledges $57.5 million over five years starting in 2023-24, and $5.6 million ongoing, for the Canadian Food Inspection Agency to set up a foot-and-mouth disease (FMD) vaccine bank for Canada and develop FMD response plans.

Recent outbreaks of FMD in livestock in Asia and Africa “have increased the risk of global spread,” the budget said, and if an FMD outbreak were to occur in Canada it “would cut off exports for all livestock sectors, with major economic implications.”

The impact of a potential FMD outbreak “would be significantly reduced with the early vaccination of livestock,” the budget said. For the vaccine bank, the feds plan to “seek a cost-sharing arrangement with provinces and territories.”

The Canadian Cattle Association on Tuesday hailed the vaccine bank announcement, describing a vaccine bank as a “critical” investment which “helps provide necessary insurance to protect Canada’s export markets.” Several livestock groups have called for such an investment in recent years.

“While we hope this vaccine bank is never needed, we are grateful for today’s investment and its establishment,” CCA president Nathan Phinney said in a separate release. “We appreciate the government listening to our concerns and understanding the critical need to put in place emergency preparedness plans to control the spread of the disease and protect our export markets for Canadian beef.”

Risk management

CCA also hailed a separate budget line item pledging $184 million over three years to boost the Species At Risk Act. That funding goes to the federal environment, parks, fisheries and natural resources departments “to continue monitoring, protecting and promoting the recovery of species at risk to help restore their populations.”

“We will be engaging with the government of Canada to ensure beef producers are at the table as key stewards of lands where species at risk live,” the CCA said.

On that matter, noting cattle producers’ stewardship work on endangered native grasslands, Phinney said the CCA calls on Ottawa “to include support for protecting Canada’s grasslands in the future.”

Liquor and cannabis

Among federal sin taxes, the feds propose to temporarily cap the inflation adjustment for excise duties on beer, spirits and wine at two per cent, for one year only, as of April 1. Alcohol excise duties are usually automatically indexed to total Consumer Price Index (CPI) inflation at the beginning of each fiscal year.

The feds also announced plans to allow all licensed Canadian cannabis producers to remit excise duties on a quarterly basis rather than a monthly basis, also starting April 1. That move expands on a measure put in place for “certain smaller” cannabis producers in the 2022 budget.

On that note, the budget said, “while significant progress has been made in eliminating criminal activity in the cannabis market, licensed cannabis producers are currently experiencing financial difficulties as they help to build a stable, legal cannabis industry in Canada.” — Glacier FarmMedia Network

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