A request from Canada’s dairy farmer organization for an unscheduled increase in the current farm gate price for milk, to help farmers catch up with steep rises in their costs of production, has been granted.
The Canadian Dairy Commission said Tuesday it will recommend that the farm gate price for milk be increased effective Sept. 1 by $1.92 per hectolitre.
That increase, which works out to 1.92 cents per litre, “will partially offset increased production costs due to inflation,” the CDC said in a release, noting the costs of cattle feed, energy and fertilizer costs have risen 22, 55 and 45 per cent respectively since last August.
The CDC on Tuesday separately announced an increase to its support price for butter, also effective Sept. 1, boosting that rate from to $10.0206/kg, up from $9.7923.
The new farm gate milk prices are to become official on approval from provincial dairy authorities, which is expected in mid-July, the CDC said.
The Sept. 1 milk price adjustment translates to a 2.5 per cent increase on average for the price for milk used in the manufacture of retail and foodservice dairy products such as milk, cream, yogurt, cheese and butter, the commission added.
The farm gate price for milk is typically raised or lowered just once a year at the CDC to reflect changes in costs of production — a schedule Dairy Farmers of Canada said “creates a gap between the true costs of producing milk today and the next annual adjustment.”
DFC had said June 2 that the current “exceptional circumstances” call for a mid-year adjustment to help bridge that gap. The last such mid-year adjustment was made in 2018, the CDC said.
The CDC said Tuesday it “considered possible impacts of a price increase on consumers and demand” in its decision.
Dairy products “must remain affordable” for Canadians, the commission said, also noting dairy farmer revenue had improved in recent months on last February’s farm gate price increase as well as rising world dairy prices.
Factors such as transportation, distribution and packaging costs elsewhere along the supply chain will also play parts in the “net impact” on consumers, the commission said.
Make allowance
According to the Dairy Processors Association of Canada (DPAC), the CDC’s separate increase in the support price for butter works out to 2.3 per cent, reflecting both the mid-year farm gate milk price increase and an increase in the regulated “make allowance” of butter of 2.5 per cent.
The support price for butter is used by the CDC when buying and selling butter under its domestic seasonality program, which kicks in when regulated Canadian milk production exceeds domestic market requirements, at which point the CDC buys butter from processors at the established support price.
The make allowance, or processor margin, refers to the costs incurred to process milk into butter, including labour, packaging and other inputs.
DPAC said Tuesday it had asked the CDC, during its consultations last week, to consider making an upward adjustment in the make allowance. It cited estimates which suggest processor costs have risen more than 12 per cent since last August, mainly on prices for energy, packaging and materials as well as milk.
As for the farm gate milk price increase, DPAC said it doesn’t traditionally take a position for or against an adjustment the CDC recommends.
However, DPAC said, making a mid-year adjustment “will allow for dairy prices to increase more incrementally, and may mitigate the impact on consumers.”
The CDC said Tuesday that while the consumer price index for dairy has increased by 7.7 per cent over the last five years, it rose 14 per cent for meat, 21 per cent for eggs and 32 per cent for fish over the same period.
Over the last 12 months, it noted, farm gate milk prices in the European Union have risen by about 23 per cent. Class I (fluid milk) and class IV (butter and skim milk powder) prices in the U.S. have risen by 49 per cent and 55 per cent in the same period, compared to 6.6 and 38.3 per cent in Canada.
Source: Alberta Farmer Express