Source: Canadian Dairy Commission
In October 2019, the Canadian Dairy Commission conducted a review of Canadian farm gate milk prices and various other costs used in administering the supply management system. The changes made following this review will take effect on February 1, 2020.
First, the farm gate milk price will increase by 1.93%. This increase is the result of a formula that takes into account dairy farmers’ costs of production as well as the consumer price index. This increase in producers’ revenues will partially offset production costs, which have risen by 2.8% since last year despite productivity gains. The increase in the cost of production is mainly related to livestock feed costs and other variable costs.
The Canadian Dairy Commission’s butter storage fees will also be increased because of the need for higher levels of butter stocks to satisfy demand. The Commission stores a certain quantity of butter in order to guarantee an adequate supply throughout the year, and to prevent shortages. In the case of butter sold at retail, for example, these fees will now represent one cent per pound of butter (454 grams). This increase, combined with the rise in the price of raw milk, results in an average increase of 1.97% in the price charged to processors.
The CDC has also recognized a 4.0% increase in milk processing costs. It will take this into account in its transactions with butter manufacturers in the context of its storage programs.
The impact of these adjustments on retail prices will depend on many factors such as manufacturing, transportation, distribution and packaging costs throughout the supply chain. However, it should be noted that the consumer price index for dairy products has risen by only 1.6% since 2014, whereas the index for food in general has risen by 11.2%.
In order to reflect these changes, the support price for butter used by the CDC in its storage programs will increase from $8.3901 per kg to $8.6034 per kg on February 1, 2020.