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Overview of the Canadian Dairy Industry

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Title: Overview of the Canadian Dairy Industry


1
Overview of the Canadian Dairy Industry
  • Gilles Froment, M.Sc., P.Ag.
  • COO
  • Canadian Dairy Commission, Ottawa
  • February 21, 2014

DM272659
2
Outline
  • The Canadian marketing system and its component
  • 3 pillars of supply management
  • Seasonality programs
  • Milk pools
  • Marketing and innovation initiatives
  • Current issues

3
The Canadian Milk Marketing System and its
Components
4
Snapshot of the Canadian Dairy Industry
  • 12,234 farms producing approximately 8 billion
    litres of milk (315 million kg BF)
  • 480 processing plants
  • Farm receipts 5.9 billion
  • Adds a net 10 billion to the GDP
  • Processed products sales 14.7 billion
  • Supports 15 billion of economic activity
  • Sustains more than 215,000 jobs

Source EcoRessources
5
World Milk Production 2005-2012 (all species)
6
World Cow Milk Production (2012)
6
Source IDF World Dairy Situation 2013
7
Canadas Milk Marketing System
Regulated market
Unregulated market
8
CMSMC
  • Canadian Milk Supply Management Committee
  • Permanent body of signatories of the National
    Milk Marketing Plan - NMMP (voting members)
  • One vote per province
  • Dairy Farmers of Canada, Dairy Processors
    Association of Canada and Consumers Association
    of Canada (non-voting members)
  • Responsible for policy determination and
    supervision of the NMMP provisions
  • Meets 4 times a year
  • Virtually all decisions require unanimity

9
The CMSMC directs the implementation of the
National Milk Marketing Plan (NMMP) to coordinate
actions of provincial marketing boards and
governments
SK (3)
Non-voting members
Quebec (4)
DFC
DPAC
P.E.I. (3)

CAC
CDC chair
Ontario (4)
N.S. (3)
Alberta (3)
Newfoundland (3)
B.C. (3)
N.B. (3)
Manitoba (3)
10
NMMP
  • National Milk Marketing Plan
  • Federal-provincial agreement
  • Regulates marketing of industrial milk
  • Balances supply and demand
  • Sets out the establishment, distribution and
    adjustment of industrial milk quota

11
The Canadian Dairy Commission
  • Crown corporation created in 1966
  • Reports to Parliament through Minister of
    Agriculture
  • 3 commissioners, 60 employees
  • Generally deals with industrial milk
  • Total budget for 2013-2014 7.75 million
  • Funded by government, dairy producers, commercial
    operations, and the marketplace

12
Legislated Mandate
  • Provide efficient producers of milk and cream
    with the opportunity to obtain a fair return for
    their labour and investment.
  • Provide consumers of dairy products with a
    continuous and adequate supply of dairy products
    of high quality.

13
Overview of Key Activities
  • Chair the CMSMC
  • Calculate Estimated Requirements (demand)
  • Recommend Market Sharing Quota
  • Establish Support Prices
  • Administer Revenue and Market Sharing Agreements
    (pools)
  • Administer Special Milk Class Permit Program
  • Carry out external audits
  • Create and administer marketing programs
  • Remove surplus production
  • Administer Seasonality Programs

14
Milk Classes
  • Industrial (Classes 2-4)
  • used in the manufacture of butter, cheese, ice
    cream, yogurt, milk powders
  • longer shelf life
  • federal responsibility interprovincial trade of
    product
  • Fluid (Class 1)
  • used in 1, 2, skim milk, etc. and creams
  • short shelf life
  • provincial responsibility historically made and
    consumed in province of origin

15
3 Pillars of Supply Management
  • controlled prices
  • controlled imports
  • controlled production

16
Pillar 1 Controlled Prices
  • Industrial milk prices
  • Are determined by provinces based on CDC support
    prices and vary depending on the end use of the
    milk
  • Support prices are the prices at which the CDC
    buys and sells butter and skim milk powder under
    its various programs.
  • Support prices are usually announced in November
    or December by the CDC to be effective February 1.

17
Support prices 1997-2014 (/kg)
18
Producer Milk Prices (2012)
19
Evolution of Farm Prices Canada and the US 1998
- 2013
20
Pillar 1 Controlled Prices
  • Fluid milk prices
  • are determined by provinces according to a
    formula
  • 50 indexed COP
  • 50 CPI
  • Valid until February 1, 2016
  • Applied once per year (in February)

21
Milk Prices in last 12 months Ending December 2013
  • Average in-quota revenues 77.99/hl
  • Average price for fluid 94.78/hl
  • Average price for industrial 66.63/hl

22
Example - Prices per Component for February 2014
Class /kg BF /kg protein /kg other solids /hl standard _at_3.6 kg
Fluid milk 1(a) 7.15 74.39 /hl for SNF 74.39 /hl for SNF 100.13
Cheddar 3(b) 8.02 13.98 0.90 79.16
Butter 4(a) 8.02 5.55 5.55 78.31
Cheese as ingredient 5(a) 4.14 7.84 0.93 45.53
23
Pillar 2 Controlled Imports
  • Most dairy products are protected by Tariff Rate
    Quota (TRQs).
  • Above TRQs, dairy products have a tariff of
    almost 300.

24
Pillar 2 Controlled Imports
  • Examples of TRQ and over-quota tariffs

Product TRQ (000 t) Tariff ()
Skim Milk Powder 0 201.5
Whey Powder 3.2 208.0
Butter 3.3 298.5
Cheese 20.4 245.5
Ice cream 0.484 277.0
25
Pillar 3 Controlled Production
  • Provincial milk marketing boards allocate
    production quota to their respective dairy
    farmers.
  • This quota combines both fluid milk quota and
    industrial milk quota.
  • Fluid milk quota is established by provincial
    marketing boards and equals demand.
  • Industrial milk quota is established nationally
    by the CMSMC and is called Market Sharing Quota
    (MSQ).
  • Quota is calculated and expressed in kg of BF.

26
Establishing MSQ
  • The CDC calculates the Estimated Canadian
    Requirements or ECR (demand) on a monthly basis.
  • ECR Production Opening stocks Imports -
    Closing stocks - Exports - DIP- Class 4(m)
  • MSQ is adjusted every two months when ECR
    increase or decrease.

27
The 7 steps in sharing quota adjustments among
provinces
1 Skim-off
2 The 1090 rule
3 PEIs share
4 DDPIP DIP
5 Growth allowance
6 Exports
7 Fluid quota
28
Evolution of MSQ
1 and 2 milk more popular lower butter
consumption
Quota cut of 1976
Low butter stocks
29
Respecting Production Targets
  • Provincial production targets
  • Upper limit 0.5
  • Lower limit 1.5
  • Provinces are free to have their own policies to
    adjust their farm quota or not, however,
    provinces will be penalized if they over or under
    produce their share of quota.
  • Over production no payment for the milk
    penalty
  • Under production lost opportunity to produce

30
Evolution of Milk Supply and Demand
Forecast includes a 1 growth allowance
31
CDC Seasonality Programs
  • While milk production is quite stable year round,
    people consume more dairy products in the
    fall/winter and less in the spring.
  • To offset this, the CDC buys and stores butter
    and skim milk powder in the spring and puts those
    products back in the market in the fall/winter.
  • These transactions are done at support prices.

32
Seasonality Programs - Butter
  • Plan A
  • Becomes the property of the CDC
  • 25 kg blocks
  • Plan B
  • Processors must buy back within one year of
    production of the product
  • One-pound prints ready for retail sales.

33
Managing Surpluses
  • Production is managed on a butterfat basis.
  • Surpluses of milk solids non fat (SNF) arise
    because consumers want the fat portion of the
    milk more than the SNF portion.
  • The CDC buys the surplus SNF and disposes of it
    by exporting it or selling it for animal feed.
  • Both these markets yield a lower return to
    producers than regular sales.

34
CDC Import / Export
  • IMPORTS
  • According to WTO (3,274 t)
  • Butter sold to further processors
  • Cheese private sector imports (20,412 t)
  • EXPORTS
  • Subsidized exports according to WTO limits (none
    to USA)
  • SMP (CDC exports to Cuba and Mexico)
  • Permits for private exporters including
    non-contingent classes

35
The Milk Pools
36
Pools were established in the mid-1990s in
response to
  • Increased concentration at the retail and
    processing levels
  • New trade rules (FTA, NAFTA, WTO)
  • Differing provincial policies (for ex. milk
    allocation to plants)
  • Fluid milk moving between provinces
  • Inequities in producer returns

37
The CDC administers 3 milk pools
  • The P10 (all 10 provinces)
  • The P5 (in the East)
  • The WMP (in the West)
  • These pools allow dairy farmers to share and
    balance revenues, markets and in some cases,
    transportation costs.

38
What is Pooled?
Pool Milk Revenue Market Promotion Transport
P10 Special Class x x
East All x x x x
West All x x x
39
How Pools are Administered
  • Provinces report production and sales data (by
    milk class) monthly to the CDC.
  • The CDC calculates money transfers between
    members to equalize returns.
  • The CDC calculates quota allocation when demand
    changes.
  • The CDC keeps a bank account for pool operations.

40
Resulting in harmonization of
  • Multiple component pricing
  • Producer prices
  • Milk classification
  • Quota policies
  • POOL RISK MANAGEMENT TOOL

41
Current Issues
42
Current Issues
  • Increased imports and cross-border shopping
  • Harmonization issues within regional pools
  • Quota management
  • Audit rules
  • National all milk pool
  • Milk allocation to plants
  • Marketing/Innovation
  • Special Classes, Dairy Marketing Program and CDC
    Dairy Innovation Program
  • Trade negotiations
  • Focus market growth

43
Some observations on Trade
  • Several countries still have high budget
    expenditure for the milk sector
  • EU - 3,5 billion on average 2008-2011
  • US approx. 4 billion per year (40 billion in
    the last decade) New Farm Bill?
  • These subsidies contribute to depressed Pw
  • Trade agreements
  • WTO
  • CETA (additional cheese imports)
  • TPP ?
  • Producing milk in Northern hemisphere is more
    costly than in the Southern hemisphere

44
Increased focus on additional flexibility to grow
the market
  • 1 permanent growth allowance for added
    flexibility in supply
  • Dairy Innovation Program
  • Skim Milk Redirection Program
  • Mozzarella market and fresh pizza - Class 3(d)
  • More flexible allocation policies (yogurt and
    fine cheeses)
  • On-going development of market of SNF
  • Reduce structural surplus
  • Opportunity to add value and increase returns to
    producers without increasing price to consumers

45
A note of interest for students
46
CDC Graduate Scholarships
  • To ensure that Canada has enough specialists in
    the areas of
  • Food and dairy sciences
  • Economics and policy (supply mgt.)
  • Animal science
  • CDC commitment 3 million over 5 years
  • 70 M.Sc.s and 25 Ph.D.s
  • Renewed for the last time 2011-2016

47
QUESTIONS
  • www.cdc-ccl.gc.ca
  • www.dairyinfo.gc.ca
  • www.milkingredients.ca

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