Milk price decrease unlikely to reach consumers
Tuesday, January 20, 2015
by SUSAN MANN
Grocery retailers and dairy processors are unlikely to pass on the decreases in farmers’ milk prices effective later this winter to Ontario consumers, says Al Mussell, an industry analyst.
Effective Feb. 1, the 0.446 cent or 0.454 per cent decrease in the fluid price will reduce the producer blend price by about 15 cents a hectolitre, Phil Cairns, Dairy Farmers senior policy adviser said in an earlier interview with a Better Farming reporter. The current average farmer blend price before deductions is $82.34 a hectolitre for milk of average provincial composition.
The decrease in the farmer blend price applies to all farmers in the P5, which includes Ontario, Quebec, Nova Scotia, Prince Edward Island and New Brunswick.
Another decrease in the producer blend price kicks in March 1 with the skim milk powder support price reduction announced by the Canadian Dairy Commission Jan. 15. That will further reduce the producer blend price by 68 cents a hectolitre. The two together will reduce the producer blend price by 83 cents, or about one per cent this year.
Mussell says on the fluid milk side, Ontario consumers won’t likely see a break in milk prices after Feb. 1 as many grocery retailers are already selling four-litre bagged milk “at a fairly significant loss leader.” He adds selling as a loss leader is a practice grocery retailers use to intentionally discount products, such as milk, eggs or bread, to attract shoppers to their stores. The products sold as a loss leader are generally staple products.
The four-litre milk category is known to be a loss leader, he says.
In Guelph at various outlets, such as Shopper’s Drug Mart, No Frills “really any of them,” a four-litre bag of milk is $3.99, he says. “Essentially the price of the two-litre (container) and the four-litre (bag) are the same so that tells you something right there.”
With the fluid milk price cut “is that four-litre bag going to go from $3.99 to $3.89, I doubt it,” he says. “I doubt if it changes much.”
But people will still have to wait and see what grocery retailers will actually do, he notes. Retailers set the prices of milk in stores and “they can do whatever they want.”
As for products made with industrial milk, such as marble or cheddar cheese, the regular price is about $7.99 or $8.99 per 500-gram block, he says. But some cheese is very frequently featured at $3.99 or $4.99 per 500-gram block. “They’re not so much a loss leader, it’s just that they’re chronically on sale,” he notes. “They (retailers) do promote them (500-gram cheese blocks) quite frequently.”
Mussell says he doubts if those cheese promotions would be influenced by the industrial milk price decrease.
Still, Mussell called the Commission’s decision to reduce the skim milk powder support price this year a “gutsy” move. “It indicates the dairy industry is in a tough spot particularly around imports of dairy proteins.” Some processors are using imported milk protein concentrates and isolates to make products like cheese rather than using the protein in Canadian-produced milk.
Mussell says the Commission’s decision is gutsy because the dairy industry is accustomed to increases in support prices. “In the past, there are plenty of cases where the cost of feed and other inputs went down, but the support price didn’t.”
He also predicts there will be future skim milk powder support price cuts. “I’m not sure you’re going to find that support price going up again anytime soon. We’re under siege from protein imports in one form or another.”
Christina Lewis, president of the Ontario Dairy Council, which represents processors, and a spokesperson for the Retail Council of Canada, couldn’t be reached for comment.
Mussell is a former George Morris Centre senior researcher now with his own consulting company, Agri-Food Economic Systems. The centre closed at the end of 2014. BF