New Ontario dairy class could solve a lot of problems says DFO's general manager

Tuesday, October 20, 2015

by SUSAN MANN

The Ontario Farm Products Marketing Commission is reviewing a Dairy Farmers of Ontario request this week to create a new class for skim milk solids and other dairy ingredients.

The new class could potentially be called Class 6, and the marketing board’s aim is to have it in place by Feb. 1, 2016, says Peter Gould, Dairy Farmers of Ontario general manger and CEO. The prices for the products in the new class, such as skim milk, other solids and milk protein concentrates, would be based on world 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 price of milk in the special classes is based on world prices. Currently world prices are down and that’s lowering the blend price Ontario farmers get.

Gould says the proposed new class would work the same way. “If world prices are going down, obviously that has a negative impact on producers income and if they go up that helps.”  

It’s isn’t clear if the Ontario-produced ingredients sold at world prices will stem the influx of imported duty-free ingredients coming in mainly from the United States. Processors are using the imported ingredients to make a range of products, such as cheese, yogurt, protein bars, meal replacement powders and sports nutrition items.

Gould says processors will remain free to import their ingredients once the new class is put in place. “There are no restrictions on imports associated with the new class.”

Asked if there was a sense of urgency to do something to address the ingredient imports, Gould says, “at the end of day, modernization is the key outcome that we’re looking for.” He added that “we did it (request the new class be put in place) because it’s the right thing to do.”

One observer, Al Mussell, owner of research firm Agri-Food Economic Systems, has said in a recently-released independent policy note that the ingredient imports may increase above current levels as the trade agreement Canada is signing with Europe calls for no duties on milk protein isolates and concentrates coming from the European Union.

Gould says he doesn’t have any numbers on how much Ontario milk would be used in the new class.

Only the Farm Products Marketing Commission can “make the change” to create a new class, he notes. “Pricing is up to Dairy Farmers of Ontario. We would establish a price that is competitive with ingredients that are available on the world market.”

One result of the change could be that skim milk powder currently used in animal feed is moved “out of animal feed” and put in the new class, he says. “We don’t produce milk to make animal feed so skim milk is really intended to make dairy products.”

Having skim milk priced in the proposed new class could also potentially boost dairy farmers’ incomes, he explains. “Every kilogram you sell in Class 6 will improve returns compared to (the returns obtained from selling the skim milk powder for) animal feed.”

The proposal may also help processors that process skim milk to replace their old, outdated plants. “Part of the strategy with the new ingredient class is to meet the need to modernize the dairy industry and specifically the plants that currently make skim milk powder,” he explains.

“There are two problems with the skim milk drying plants in Ontario, which is, one, they are old and need to be replaced, and, two, they have limited capacity,” Gould notes. Earlier this year, Ontario had to dump 800,000 litres of skim milk because the province didn’t have the capacity to handle any more skim milk for drying into powder.

Gould says the need to dump skim milk was resolved in August with production decreasing and an increase in the demand for milk in fluid and cheese plants.

The Canadian dairy industry has been trying for almost two years to negotiate a national ingredients strategy with processors to deal with the increasing duty-free imports of milk protein isolates and concentrates. The growth in dairy ingredient imports is eroding Canada’s domestic market.

Gould says Dairy Farmers of Ontario is still fully committed to participating in the national discussions. “We always have been and continue to be totally supportive of a national approach, a national solution. Our hope is the DFO, in effect creating a template, will be a catalyst for moving forward in the national discussions.”

The Dairy Farmers board decided at its September meeting to proceed with requesting the new class be put in place for Ontario because it isn’t known when the discussions at the national level will conclude, he notes.

Ontario’s two main butter, skim milk powder processors, Gay Lea Foods and Parmalat, worked with Dairy Farmers on creating the class and requesting to the commission that it be implemented, Gould says. BF