A Guelph, Ont.-based agricultural economist and researcher is warning Canada’s dairy industry to deal with production of too much skim milk powder or else the supply management system and dairy farmer incomes will be undermined.
A representative of the dairy industry dismisses the warning as last year’s news.
“I think he’s about a year behind the times,” Dairy Farmers of Canada economist Rick Phillips said. “I think the solutions are in place and will work over the next few years. The problem is not getting worse.”
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Al Mussell, senior research associate at the George Morris Centre, sounded the warning in a late July report that called on dairy industry leaders to “get serious about the structural surplus of skim milk powder.”
Skim milk powder, produced as a byproduct from butter making, is deemed a solids non-fat product, or SNF, like whey from cheese production. While used in many food products, SNF has little market value.
And because the dairy quota system is based on butterfat content and the quota to produce it is expensive, some farmers have been producing milk with lower butterfat content and higher SNF content so they can fill more of the milk quota they buy.
Mussell said it is one of the factors that have led to a dramatic increase in surplus skim milk powder in Canada since 2000. From stocks of 17,000 tonnes at the end of 2000, inventories rose to more than 41,000 tonnes at the end of 2004, according to Mussell’s report.
Phillips said the surplus has not grown since then.
It once was disposed of through food aid shipments but that is less common now.
Milk board attempts to export it have been curtailed by World Trade Organization rulings that decided because of domestically supported prices within supply management, dairy exports from Canada are subsidized and therefore limited.
It means surpluses grow while the means of disposing of them shrink.
“The seriousness of the structural surplus issue needs to be addressed,” wrote Mussell.
“It threatens to drown the supply management system in mounds of (skim milk powder) which will continue to cost producer revenue to dispose of and the prospects for disposing of it through existing channels appear to be dimming.”
He said one start is the recent move by Ontario and other provinces to discourage excess SNF on-farm production by refusing to compensate when the SNF-butterfat ratio becomes too high.
He suggested further changes in the pricing system and greater efforts to find uses for the low-value dairy byproduct in high value products that could compete with imports.
But Phillips said Mussell has missed the point that the dairy industry already has reacted.
The Canadian milk supply management committee has suggested that ratios of SNF to butterfat should not exceed 2.35:1. If they do, support price penalties will be imposed.
Many provinces are moving to adopt it. Ontario’s compliance took effect Aug. 1.
“The system is reacting and the surplus has been stabilized,” said Phillips. “I think we’ll see in the next few years that this problem is in hand.”
