Business and Operations
Canadian farm gate milk and butter support prices to increase effective Sept. 1
June 21, 2022 By Bakers Journal
Ottawa – The Canadian Dairy Commission will increase the farmgate price of milk and the support price for butter for the second time in 2022 in response to a request from the Dairy Farmers of Canada for an increase due to inflation.
On May 27, 2022, Dairy Farmers of Canada asked the Canadian Dairy Commission (CDC) to review the price that farmers get for their milk due to the current inflation.
An important part of the CDC’s mandate is to provide efficient dairy farmers with the opportunity to obtain a fair return for their labour and investment. The CDC therefore agreed to review the request to determine if a price increase was warranted before next year.
After reviewing the points of view expressed during the consultations as well as economic data, the CDC recommends that on Sept. 1, 2022, the farm gate milk price increase by $1.92/hl (less than 2 cents per litre). The increase in producers’ revenues will partially offset increased production costs due to inflation. Feed, energy, and fertilizer costs have been particularly impacted, with increases of 22%, 55% and 45% respectively since August 2021. Next fall, during the regular price review, the Sept. 1 adjustment will be deducted from any adjustment for Feb. 1, 2023.
In making its decision, the CDC said it considered possible impacts of a price increase on consumers and demand. Nutritious dairy products must remain affordable for Canadian families. Furthermore, dairy farmer revenue has improved in recent months, partly due to last February’s price increase and partly due to the rise in world prices, which affects a significant part of the milk that farmers sell on the domestic market.
The adjustment will increase by 2.5% on average the price for milk used in the manufacture of dairy products such as milk, cream, yogurt, cheese and butter intended for the retail sector and the foodservice industry. This increase will be reflected in the milk class prices according to a ratio of 60% on butterfat and 40% on other milk components. The net impact on consumers will also be influenced by factors such as transportation, distribution and packaging costs throughout the supply chain. The price paid to farmers is only part of the price paid by consumers.
In the last five years, the consumer price index for dairy increased by 7.7%. This compares to 14% for meat, 21% for eggs, and 32% for fish.
Several stakeholders presented their views on a potential increase and the impacts a price adjustment would have on their sector: Dairy Farmers of Canada, Dairy Processors Association of Canada, Consumers’ Association of Canada, Retail Council of Canada, Canadian Federation of Independent Grocers and Restaurants Canada.
The new farm milk prices will become official once they are approved by provincial authorities in mid-July 2022.
Increase in support price for butter
The CDC also announced an increase to the support price for butter that will be effective Sept. 1, 2022. The support price for butter will increase from $9.7923 per kg to $10.0206 per kg.
The support price for butter is used by the CDC when buying and selling butter under its Domestic Seasonality Program. Under this program, the CDC balances seasonal changes in supply and demand on the domestic market by buying butter from manufacturers and storing it when milk production is high and demand for dairy products low – usually in the spring and selling this butter back to manufacturers when the situation reverses itself, usually in the fall. These transactions occur at the support price. This support price contains three elements: the processors’ make allowance (or margin), the carrying charges and the price of milk components,
The CDC recognizes an increase in processors’ costs of 2.5% to offset the increasing costs of energy, packaging, labour and transportation. This adjustment is included in the support price for butter. Carrying charges collected by the CDC to pay for the storage of normal butter stocks, which also form part of the support price, will remain unchanged.
The rest of the increase in the support price is due to an increase in the farmgate price of milk.
The Canadian Dairy Commission, a Crown corporation created in 1966, is a key facilitator within the Canadian dairy sector. It is mandated to provide efficient milk producers with the opportunity to get a fair return on their labour and investment, and to ensure that Canadian consumers are provided with adequate supplies of quality dairy products. The CDC helps design, implement, and administer policies and programs to support the dairy supply chain.
The CDC provided answers to frequently asked questions relating to this latest decision on its website.
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