DFO acknowledges new class a key factor in Ontario dairy blend price drop

Friday, May 20, 2016

by SUSAN MANN

About half of the decrease in April for the dairy blend price that farmers received was due to the new Dairy Ingredients program, according to a posting on Dairy Farmers of Ontario’s website.

In April, Ontario introduced the ingredients program for processors to buy dairy ingredients, such as skim milk solids, at world prices through a new class, called Class 6. Ontario also continues to participate in national discussions to introduce a similar program across Canada.

The April blend price for milk based on average Ontario composition was $72.49 a hectolitre, which is down $4.44 a hectolitre from the March blend price.

The net impact of the “new Dairy Ingredients program on the blend price was $2.27 a hectolitre,” the posting says. The other portion of the decrease, $2.17 a hectolitre, was due to normal fluctuations in the blend price.

Dairy Farmers of Ontario board chair Ralph Dietrich says the ingredients program’s impact on the producers’ blend price is “short term pain for long term gain.”

One reason for the short-term pain is processors “will now be getting some cheaper product,” he explains. That impacts farmers’ blend prices as their returns are based on a mix of fluid and industrial milk class prices.

In Canada, raw milk sold to processors is classified and priced based on end use. The classes range from fluid milks and creams (Class 1) to milk used for further processing (Class 5, also known as the special classes). The industrial classes are for milk used to make products, such as cheese, butter, yogurt and skim milk powder.

As for the gain portion of the equation, Dietrich says, “We’ll start to see some gain as Canadian product is being used as an ingredient. I expect that will increase on a month-over-month basis.” However, “it’s going to be small at first.”

Processors have been using imported dairy ingredients, such as diafiltered milk, to make products, such as cheese. One processor, Agropur Cooperative, announced earlier this month it was switching to Canadian ingredients from imported diafiltered milk because the domestic product, based on world prices, was now competitively-priced.

Class 6 was introduced “to modernize the industry by creating opportunities for processors to invest in new plants and equipment and to put Canadian dairy ingredients in a more competitive position,” an online factsheet on Dairy Farmers website says. BF