Monday, March 10, 2014

Milk boards ponder radical reforms

Canada’s milk marketing boards are pondering radical reforms to stem the rising tide of imports.

In a nutshell, what’s being considered is a lowering of milk prices so Canadian processors can take back the markets imports have captured.

The focus of the price reductions is a broad category known as solids, not fat (SNF). The other category is butterfat.

Canada’s primary policy goal is to balance supply and demand on a butterfat basis, and when that’s achieved, there is more SNF than Canadians will buy.

Some is exported at $2 to $4 per kilogram, significantly lower than the Canadian market price of $5.446 per kilogram. Export volumes are capped by trade agreements, so what’s left is sold as animal feed at $1 to $3 per kilogram.

By lowering the price of $5.446 per kilogram to Canadian processors, a discussion paper prepared by the Dairy Farmers of Ontario milk marketing board figures about 22,000 tonnes of imported protein milk powders could be displaced.

That would reduce the current Canadian surplus of skim mllk powder to between 46 and 60,000 tonnes per year.

Another part of the proposal is to encourage Canadian processors to incorporate high-protein powders into their production of cheeses and Greek yogourt.

The goal is to end up with no skim milk powder that needs to be sold at steep price discounts.

The Ontario milk board’s discussion paper is for meetings with processors and other stakeholders in the dairy industry.

The discussion paper notes that under international trade agreements, imports threaten to continue increasing.

For example, under an agreement with Mexico and the United States, imports of milk component concentrates (40 to 60 per cent protein) and milk component isolates (85 per cent protein) are increasing.

European exporters will gain improved access under a different trade agreement.

Canadian processors have limited capacity to produce about 10,000 tonnes of milk component concentrates per year and hardly any capacity to produce milk component isolates, says the discussion paper.

Both would likely increase if and when the milk board lowers the prices it charges for the milk that goes into production of these products.

The milk board already has lowered prices for the production of selected products facing stiff import competition. This policy proposal would reduce the price of milk to the international market level for the entire Class 4(c) category