New dairy class stirs controversy at meeting

Thursday, January 14, 2016

by SUSAN MANN

The Ontario Farm Products Marketing Commission is poised to approve a new dairy ingredient class for the province next week despite widespread opposition from other provinces and Dairy Farmers of Canada.

Ontario’s efforts overlap endeavours by dairy leaders across Canada, including Dairy Farmers of Ontario officials, to create a national ingredient strategy for the entire country that will have many similar elements to Ontario’s proposal. Meetings on the national strategy are also planned for next week.

Commission chair Geri Kamenz said during a break at the Dairy Farmers of Ontario annual meeting in Toronto Wednesday the commission will likely approve regulations at its meeting next week “to create that ingredient class” for Ontario. It is proposed to be called Class 6 and be in place for Feb. 1.

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 price of milk in the special classes is based on world prices.

The new class will be applied to ingredients such as like milk protein concentrates and isolates and possibly skim milk powder. Like Class 5 milk, Class 6 pricing will match world market prices for the same products.

Kamenz said the commission has already approved in principle creation of the new class. At next week’s meeting, the commission will be ensuring “we’ve got the correct regulatory wording to underpin what was being asked for.”

During a hard-hitting speech that garnered applause at several points and a standing ovation at the end, Peter Gould, Dairy Farmers of Ontario general manager and CEO, told conference attendees at the provincial dairy meeting that eight provinces and Dairy Farmers of Canada (DFC) filed letters with the commission opposing creation of the new class.

He declined to name the provinces when asked by a delegate during a question period. It was the only question raised by delegates about the issue.

Dairy Farmers of Canada president Wally Smith couldn’t be reached for comment.

Kamenz said he didn’t have a total for the number of submissions received on the new class proposal. In addition to other provinces and DFC, the submissions came mainly from dairy processors and producer organizations across Canada.

Kamenz said he appreciates input from other provinces “but at the end of the day I have a provincial mandate that is given to me by the government of Ontario. It is to ensure the integrity of the system within Ontario.”

He added he’s aware Ontario operates within a national dairy system. However, his provincial mandate compels him to act to ensure “we meet the challenges we are facing here in Ontario and I think that’s what we’re doing.”

Dairy Farmers along with Ontario’s two main butter, skim milk powder processors, Gay Lea Foods and Parmalat, worked with Dairy Farmers on creating the class in Ontario and request that it be implemented. Gould said in an interview in October that the proposed new class would work the same way as the special classes. “If world prices are going down, obviously that has a negative impact on producers income, and if they go up that helps.”

For the 12 months ending October 2015, the average within quota gross blend price was $78.24 per hectolitre for milk at average provincial composition, the Dairy Farmers 2015 annual report said. That was down 4.7 per cent compared to the previous fiscal year, and the decline was mainly due to weak world prices, which are not anticipated to recover this year, the report said.

In their speeches to meeting delegates and during interviews both Gould and Ralph Dietrich, Dairy Farmers board chair, touched on the national ingredient strategy discussions with processors and others now underway. More meetings are scheduled for next week and there’s an opportunity for some final decisions to be made, Dietrich noted.

If a national ingredient strategy is approved, the Ontario proposal isn’t needed, he added.

Dietrich said Ontario is fully committed to participating in the national discussions. Dairy Farmers support for a national approach and solution is as strong as ever. However, in introducing a new Ontario class “we felt we needed to go to where the industry needed to be.”

The national discussions have reached the stage “where we’re actually working in break-out groups that have been charged with the responsibility of finalizing some of the general concepts that we have reached mutual agreement on,” he explained.

Gould said it’s critical for the industry nationally to make some decisions. “With the challenges the industry is facing, if we don’t get it right, we’ll frankly I don’t like to think about the consequences.”

In an interview, Gould said, “I can see an initiative in sight that is workable but I know that there are other people who go to the same meetings who don’t see it the same way.”

Christina Lewis, Ontario Dairy Council president, declined to comment on the Ontario proposal when asked about it during a break in the Dairy Farmers meeting. About the national discussions, she said “we see there is definitely a critical need to move the industry forward and modernize the system.” The Council represents Ontario dairy processors.

Lewis added the Council is “at the table (for the national discussions) and we’re committed to reaching a solution that works for producers and processors.”

It’s isn’t known yet if the Class 6 Ontario-produced ingredients will stem the influx of imported duty-free ingredients, such as milk protein isolates and concentrates, coming in mainly from the United States. Those imports are slated to grow once the Canada-European Union trade agreement goes into effect since ingredients from Europe will also be duty free under that agreement.

Processors use imported ingredients to make a range of products, such as cheese, yogurt, protein bars, meal replacement powders and sports nutrition items, and it’s likely Class 6 milk will be employed for the same types of uses.

Gould said in October that by the proposal may help companies that process skim milk into skim milk powder to replace their old, outdated plants. Canada’s growing demand for butterfat is making it hard for processors to deal with the skim milk portion of milk that’s separated from the butterfat.

Ontario had firsthand experience with this situation during the spring and summer of 2015. From the end of May to Labour Day, Ontario had to skim 7.2 million litres of whole milk in June, 9.9 million litres in July and 7.3 million litres in August, the annual report said. The volume that needed to be skimmed represented 3.2 per cent to 4.3 per cent of the milk produced from June to August. Dairy Farmers had to dump 800,000 litres of skim milk in lagoons during that time period when the skim milk powder drying plants in Ontario didn’t have the capacity to handle any more milk.

Gould told meeting delegates the problem of outdated drying plants affects the entire country, not just Ontario. “The loss of any one dryer will be a huge issue for the whole country, regardless of where it’s located,” he said. BF