A Justified Increase by: Daniel Gobeil

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For Les Producteurs de lait du Québec, it was clear in the first few months of 2021 that skyrocketing production costs on farms was a problem that required the CDC’s urgent attention. That is why in May 2021, we sent a letter to Dairy Farmers of Canada (DFC) that explained the difficult situation and the importance of taking the higher costs into consideration in the next indexation. We also explained that the consultation process needed to be triggered due to the exceptional circumstances and showed leadership by rallying the other provinces behind this request. When it comes to national issues, it is essential for producers in all provinces to speak with one and the same voice.

The indexation formula yielded a result of 6.4%. Given the much higher costs, DFC and the provinces asked the CDC to trigger the consultation process for exceptional circumstances, which enabled producers to cite the effects of the higher costs as a justification for requesting more than the formula. The CDC held consultations with producers, processors, retailers, restaurant owners and consumers to help guide its decision. After these consultations, it announced an 8.4% increase for Classes 1 to 4, excluding ingredients, which will have an estimated effect of around 6₵ per litre for producers across Canada starting on February 1, 2022. 75% of the increase will be applied to butterfat and 25% to solids non-fat.

The higher price will partially compensate for the considerable increase in the cost of producing milk, which was 13% last year. It must be said that the last few years have not exactly been an easy in terms of our revenue. Our financial stability has often been undermined, especially due to the COVID-19 crisis, the instability of the price of milk in connection with lower world prices, the recent trade agreements concluded by the Canadian government and, of course, the higher production costs on farms.

 

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There is definitely still a gap between the production costs and the market price. The 8.4% adjustment is nevertheless a considerable increase. Historically speaking, it is even the largest we have ever obtained.

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In the last year alone, dairy cattle feed costs rose by 24%, fertilizers and herbicides by 16%, and fuel by 45%. This is putting tremendous pressure on our finances! The 2% price increase in February 2021 has not covered the higher production costs. The deterioration of our sales structure also has a significant impact on our revenue. Your Board of Directors is taking the situation seriously and searching for potential solutions to improve it. The adjustments that are currently made just once per year are also being discussed at the national level so that we can have a more reactive system that responds better to producers’ needs when we are in a situation of heavily fluctuating production costs or inflation.

There is definitely still a gap between the production costs and the market price. The 8.4% adjustment is nevertheless a considerable increase. Historically speaking, it is even the largest we have ever obtained.

Remember that this adjustment concerns the farm gate price of milk and not the retail price of fluid milk, which is set by the Régie des marchés agricoles et alimentaires du Québec at the request of processors and retailers. The price of other dairy products is not regulated and is set directly by retailers. Processors have been asking for a code of conduct for retailers for a number of years to ensure sound business rules between processors and retailers. If this type of code existed, it would ensure that price increases would be transferred from processors to retailers, among other things. Governments must establish codes of conduct that are subject to legislation and have force of law. If these relations were more transparent, equitable and predictable, it would benefit  the entire dairy industry, but also consumers, thanks to an even more dynamic and innovative industry.

In the current inflationary environment, it is true that consumers have seen their grocery bills rise considerably in recent years. Still, it is worth noting that the Consumer Price Index (CPI) for dairy products has increased less rapidly than the CPIs of all other foods in Quebec in the last five years, with the CPI for dairy products posting 2.8% growth versus 8.4% for the other foods.

To ensure better revenue, as producers, we must continue our efforts to improve our production costs. As a marketing board, we will keep working to develop the more financially rewarding markets and find every potential opportunity for surplus SNF while continuing to meet consumer expectations.

As producers, we are constantly exposed to a range of different stressors, such as unpredictable changes in the weather, isolation, fluctuations in revenue, paperwork, uncertainty linked to trade agreements, but also criticisms and comments from the outside that are often difficult to hear. But rest assured that your elected officers and organization are staying on track with the mission and not sparing any effort to obtain the best milk marketing conditions that will ensure the survival, profitability, and sustainable development of dairy farms.

In closing, I encourage you to participate in large numbers in your district tours and regional meetings this winter. They will give you an opportunity to share your views and suggest inspiring solutions and ideas on how to develop our production. We look forward to seeing and talking to you!