Canadian dairy exports decline in face of sharp decline in world prices UPDATED

Wednesday, February 3, 2016

by SUSAN MANN

The Canadian Dairy Commission’s export sales revenue nosedived last year compared to the previous dairy year due to a sharp decline in world dairy product prices, delegates at last month’s commission annual meeting were told.

Plunging world prices for skim milk powder starting in 2014 also lowered the boom on the quantity of powder the Canadian supply-managed sector can export. The World Trade Organization has tied the amount of powder the Canadian industry can export into world prices.

The commission exports the powder on the sector’s behalf. The powder is considered to be a solids non fat product. In the milk industry, solids non fats production exceeds domestic demand in order to generate enough of milk’s other primary product, butter fat, for the domestic market.

For the 2014/15 dairy year (Aug. 1, 2014 to July 31, 2015), the commission sold about 12,000 tonnes of skim milk powder, a 43 per cent decrease from the 21,000 tonnes of powder it sold in the 2013/14 dairy year.

In 2014/15, the commission had total export sales of $33.8 million, which is 64 per cent less than in 2013/14 when export sales were at $92.8 million.

The commission had a loss of $590,000 in its export activities for 2014/15, according to a written presentation provided by the commission. The commission buys products destined for export at “prices that reflect prevailing world market conditions, hoping to break even over the course of the dairy year. Because these markets are unpredictable, we sometimes finish the year with minimal gains or losses, which was the case in 2014/15.”

In 2013/14, the commission’s loss in export activities was $220,000 on the total export sales of $33.8 million.

The commission buys surplus solids non fat and exports what it can. The balance goes into the animal feed market, which typically generates much lower returns for the product.

"If we export less that means there's more going into the animal feed market and that has a reduction impact on the blend" price producers across Canada get, says Chantal Paul, commission spokesperson.

UPDATE Thurs. Feb. 4, 2016 — Paul says export losses are added to the commission’s profit from domestic operations. In 2014-2015 the loss dropped the domestic operations gross profit to $23.3 million from $23.9 million.

“Dairy farmers fund these operations,” she adds in a Feb. 4 email. “This means that they are responsible for any loss and that any profit is reimbursed to them through the pools.” END OF UPDATE

The world price for skim milk powder is low now because China over-purchased skim milk powder and has a lot of the product in stock. “They used to buy a lot,” Paul says. “They don’t buy as much as they used to. They were buying mostly from New Zealand.”

The Russian embargo on European products means fewer sales of European skim milk powder to Russia “so that’s glutting the market, as well,” she notes.

The commission’s annual report hasn’t been tabled in the House of Commons yet because of the federal election in the fall. But all of the financial information presented at the meeting was audited and accepted by the Office of the Auditor General, delegates were told.

The commission was established in 1966 to coordinate federal and provincial dairy policies and the organization is also a key facilitator in the Canadian dairy sector. BF