Exporting milk is complicated and controversial, but for long-term survival, the Canadian dairy industry must develop world markets, according to two major processors.
“Our competitors are already out there, carving their niches in those marketplaces,” said Bill McLeod, general manager of export development for Dairyworld Foods.
McLeod was part of a panel on the industry’s optional export program at the recent annual meeting of Manitoba Milk Producers.
He said Canada is 40 to 50 years behind dairy exporting countries like the United States, New Zealand, Australia and Denmark.
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Those countries can approach customers with prices for the next six months, but Canada’s export program is not as straightforward.
“It’s an extremely difficult way to do business,” said McLeod.
First, Dairyworld has to have a commitment from a customer to buy a product. Then, the company has to get a licence to buy the milk, produced outside the regular quota system.
Then, it must survey producers to see whether it can get the supplies it needs at the offered price.
Only then can Dairyworld finalize a contract with its buyer, said McLeod.
Canada has traditionally exported milk that is surplus to agreed-upon national supplies.
These exports have been sporadic, giving Canada the reputation as a “fairweather, in and out supplier,” said McLeod. But the optional export program helps processors with longer-term contracts, he said.
The program has been around since 1995. Dairyworld has been in the world markets longer, exporting cheese and ice cream for about 10 years.
Dairyworld is owned by milk producers. They do not all agree that developing exports is a good idea, said McLeod.
“To say that it’s been a tumultuous experience is probably an understatement.”
It’s easy to focus on lower returns and the vagaries of emerging markets like Asia, said McLeod, but his company has decided to prepare itself for a future where high tariffs no longer protect the domestic market from imports.
A recent Alberta study showed the incremental cost of producing an extra litre of milk is $21.62 per hectolitre, said McLeod, meaning farmers can get some return from export contracts based on current low world prices of $23 to $25 per hL.
Camille Genese, vice-president of Parmalat Canada, said less than 10 percent of total Canadian dairy exports last year were done under the optional export program.
Even if exports of surplus butter powder were changed into exports of cheese, producers’ returns would be $6 per hL higher.
The industry also needs to stop trying to squeeze more than what is required onto the domestic market, said Genese.
Right now, there’s 8.5 percent extra dairy products in Canada than what consumers will buy, said Genese, and that erodes processors’ profits.
“That’s not supply management,” he said.
In a decade of many changes for the dairy industry, the optional export program has been the most controversial change, said Louis Balcaen, a Manitoba farmer who is vice-chair of the Canadian Dairy Commission.
“I think it’s fair to say OEP (the program) has been driven by many, many agendas,” he said.
Provinces in Eastern Canada have been managing the program very differently from provinces in Western Canada, said Balcaen.
But he predicted pressures from trading partners will force provincial governments, producers and processors to agree on a national approach.
