Friday, July 15, 2016

Consumers to pay more because of imports

Canadian consumers of butter and skim milk powder will be paying more after Sept. 1 to compensate dairy farmers for sales losses to imports.

The Canadian Dairy Commission (CDC) announced that it will buy any unsold butter for $8.0062 per kilogram, up from $7.7815. The support price of skim milk powder will increase from $4.4176 to $4.5302 per kilogram.

“These adjustments in support prices are meant to offset the significant reduction in producer revenues in the last year,” the commission says. 

The revenue losses are due to imports of diafiltered milk from the U.S., used by Canadian processors to make cheese and some other dairy products.

The diafiltered milk comes in with no tariff whereas milk and processed dairy products face tariffs that increase prices by almost four times.

The prices for butter and skim milk powder should have  come down, not gone up, if the commission had followed previous practice of pricing according to the cost of production, which has gone down.

Alistair Johnston, chairman of the Canadian Dairy Commission, said another reason for declining revenues is lower prices for the small volume of Canadian dairy products that are exported. World prices have declined.

Another reason for the revenue decline is a larger supply of unsold skim milk which is then dumped at distress prices, such as calf feed.

The commission estimates that the increased support prices will yield a revenue increase of about 2.76 per cent for dairy farmers selling industrial milk – the category used to make products such as yogurt, cheeses, ice cream and butter.

Fluid milk prices are under provincial jurisdiction.

The commission is telling the public to not simply blame it for higher prices in September.

“The impact of these adjustments at the retail level will be influenced by many factors such as manufacturing, transportation, distribution and packaging costs throughout the supply chain,” it says.

The margin received by processors for butter and skim milk powder purchased by the CDC under the Domestic Seasonality Programs will remain unchanged. Carrying charges collected by the CDC to pay for the storage of normal butter stocks will also remain unchanged.

“Continually jacking up prices for restaurant owners and consumers is not a long-term solution when Canadians are already paying among the highest prices in the world for dairy products,” says Pierre Cadieux, Restaurants Canada’s Vice President Federal/Quebec. 

“Cheese is being priced off the menu and another price increase is only going to further drive down demand.

“We understand concerns around producer margins, but we need solutions that will increase volumes rather than always increasing prices,” says Cadieux. “Today’s announcement is yet another indicator that the current system is not working for producers or end users.”