Dairy: Dairy farmers get a $1.45 price increase for industrial milk

Sunday, August 10, 2008

It's about half what Dairy Farmers of Ontario wanted, but restaurant owners say even that is too much

by SUSAN MANN

Dairy Farmers of Canada (DFC) got about half of the milk price increase it wanted to cover skyrocketing costs.

In June, DFC made a special request to the Canadian Dairy Commission (CDC) for an immediate $3.50 a hectolitre increase for industrial milk to help cover farmers' costs for fuel, feed and other inputs.

Instead, starting Sept. 1, farmers will get an additional $1.45 per hectolitre for the milk they ship that is used to make processed products such as butter, cheese and yogurt. This amounts to a blend price increase for farmers in eastern Canada of an additional
93 cents per hectolitre for all milk they ship.

"The dairy industry is pricing itself out of the grocery cart and off the restaurant menu," notes Ron Reaman, spokesman for the Canadian Restaurant and Foodservices Association, which opposed the price increase. "We pay some of the highest prices for dairy products in the world here in this country and there's no need for it."

DFC cost of production data from October 2007 and indexed to July 2008, show prices for feed up 19 per cent, fuel and oil up 42 per cent and fertilizer and herbicides up 46 per cent. These are just three of the 13 components DFC uses to calculate the cost of production.

Although DFC wanted the increase for Aug. 1, the earliest it can be implemented is Sept. 1. That's because an agreement within the industry requires the CDC to give processors and other milk users 45 days notice. The CDC received DFC's request on June 18. There was no way to perform the analysis and respect this 45-day notice period, says Commission communications chief Chantal Paul.

Ensuring that adequate notice is given to processors is one of the major concerns of the Dairy Processors' Association of Canada. In addition, association officials told the CDC in July that they have reservations about the effects of a price increase on processors and their customers.

"We really just have to leave it up to the Canadian Dairy Commission to determine if the changes in the cost of production warrant a price increase at this time," says president Don Jarvis.

Bruce Saunders, DFC vice-president and Dairy Farmers of Ontario chair, says: "To delay recognition in covering those costs puts the producer in an economic bind." DFC also felt that it would be better to have two smaller increases in a year rather than wait until February, when there could be a huge increase. Usually, the CDC makes its pricing announcement in December for implementation on Feb. 1 of each year.

Saunders says that he's not surprised by the restaurateurs' opposition, but it's up to the CDC to weigh the views of all stakeholders.

"We're always concerned that a large increase will cause the consumers to re-evaluate what they buy," Saunders says, adding that in the last six months dairy product prices held steady while the costs of most other foods in grocery stores have risen dramatically. "For dairy to say we're also experiencing higher costs shouldn't be a surprise to anyone."
In making its decision, the CDC takes into account the preliminary cost of production numbers, the views of dairy processors, consumers and restaurateurs, plus the state of the market.

How much weight does the CDC give to the groups opposing the increase? Paul says that the commission looks at the quality of the arguments presented rather than just whether an association is opposed or not. BF