Class 6 milk is pegged at world prices to encourage Canadian processors to choose domestic ingredients
Rather than plunging off a precipice, dairy farmers might find stepping out into the space created by Class 6 milk might actually provide more solid ground, says an agricultural economist.
“It probably wouldn’t change prices that much,” Al Mussell of Agri Food Economic Systems said about the development of a world-priced milk class within Canada’s supply management system.
“We’re not falling off a cliff here.”
Ontario has already launched a class of skim milk that is priced at world prices. It is a response to an inflow of diafiltered milk and dried skim milk components from the United States.
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Laws protect the Canadian dairy industry from imports of fresh milk, butterfat and some other milk components, but diafiltered milk and milk protein isolates aren’t covered by regulations.
Canadian ingredients are more expensive than the U.S. equivalents, which has prompted Canadian processors to buy imports to reduce production costs. This has led to a growing surplus of skim milk, which has occasionally had to be dumped.
At the same time, healthy demand for butterfat has led to butter shortages in Canada when domestic supplies have fallen short.
The basis of Canada’s dairy pricing regime values milk mostly for its fat, with non-fat components discounted. However, the overall “blend” price falls and farmer profitability shrinks if the price of the components drops too much
Ontario farmers supported the creation of Class 6 milk as a response to the imports. It is priced at a world price so processors have no reason to avoid it.
As well, Mussell said milk in that category should be able to be exported if there is a surplus in Canada. This is difficult now and will become impossible for subsidized milk products when trade deals such as the Canada-European Union agreement and the Trans-Pacific Partnership come fully into force.
Manitoba dairy farmers intend to introduce a similar world-priced category this summer, and there are Canada-wide discussions to create a national version.
Mussell said there will likely be some cost to making this change. He thinks blend prices will probably drop $2 to $4 per hectolitre. Last year’s national average price was about $81.
However, doing nothing will create bigger problems with imported milk components, blend prices will continue to fall and situations such as butter shortages and skim milk dumping will continue.
“The butterfat market in Canada is growing at almost two million kilograms per year,” said researcher Douglas Hedley. “In order for domestic milk production to supply this growth, it will create just under four million kilograms of skim, but finding a home for this skim will be increasingly difficult.”
Mussell said farmers will be challenged by weaker prices, but most should be able to adapt over time.
“It doesn’t look like anything really dramatic.”
