Canadian dairy farmers take steps to recapture specialty markets

Wednesday, May 11, 2016

by SUSAN MANN

The Canadian dairy industry’s efforts to recapture markets for specialized milk ingredients that are increasingly being supplied by American imports appear to be paying off.

This month, Quebec-based dairy processor Agropur Cooperative announced it is switching to Canadian milk ingredients instead of using an imported concentrated protein, called diafiltered milk, for cheese making now that the cost of those ingredients is based on world prices.

Senior vice president Dominique Benoit says in a telephone interview “we have been very clear for many months now that Agropur was importing diafiltered milk in response to the competitive nature of the market. For competitive reasons, we decided that we had no choice but to use it.”

The co-operative has 3,367 farmer members, including three to five in Ontario, and 8,000 employees. It processes more than 5.7 billion litres of milk annually and had sales of $5.9 billion in 2015.

Benoit says Agropur was “also very clear that as soon as conditions were put in place in Canada to produce and buy those ingredients at a competitive price, we would use Canadian milk instead of using the diafiltered milk.”

Agropur’s decision comes after the supply-managed dairy industry’s national body for policy development and discussions, the Canadian Milk Supply Management Committee, modified its existing Class 4 (m) to add liquid milk protein concentrates and liquid skim milk as ingredients in cheese. The change went into effect May 1 and continues until July 31.

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).

Canadian Dairy Commission spokesperson Chantal Paul says by email that Class 4 (m) gives companies access to dry and liquid milk protein concentrates and liquid skim milk at prices based on the world price. The commission administers the class.

Only solids-non-fat are sold in the class and the equivalent of about 250 million litres of skim milk is sold annually, she says. There aren’t any projections for how much will be sold now due to the temporary addition of milk protein concentrates and liquid skim milk.

The supply management system’s primary goal is to meet the domestic demand for butterfat. Solids-non-fat is one of the two broad categories of components that are produced as the system aims to meet that demand.

While an extensive effort to lobby the federal government is underway to deal with diafiltered milk imports, the industry is also taking practical measures, such as the modification of classes to make its product more appealing to processors. But these measures are creating tensions within the industry too. The national change to Class 4 (m), for example, was in reaction to Ontario's decision earlier this year to add a class, Class 6, so processors in its province can buy ingredients at world-based prices.

Paul says the intent behind the change was “to level the playing field among Canadian cheese makers.” The concern was Dairy Farmers of Ontario’s new Class 6 gave a competitive advantage “to Ontario cheese makers compared to cheese makers in other provinces.”

The modifications to Class 4 (m) are “until the national negotiations between producers and processors reach an agreement” on the ingredients strategy for all of Canada, she says. The milk supply management committee has been told, “that these talks were close to reaching an agreement.”

Dairy Farmers of Ontario general manager and CEO Peter Gould says negotiators are very close on many issues within the strategy talks. The next negotiation session “will take place next week and the hope is that will be the last day that is needed for negotiations,” he explains.

Gould says he couldn’t say which issues are outstanding and which ones negotiators have almost resolved.  

Price in Ontario’s Class 6 category, in effect since April 1, is “based on published world prices,” he notes.

In Ontario, there has been “positive feedback from many processors” that like the new Class 6 pricing. “What we did in Ontario is part of a plan to create an environment where we’ll get new investment (by processors) in ingredients’ (infrastructure), particularly new (skim milk) drying facilities and new technology to make liquid protein, which is desperately needed by the Canadian industry.”

The industry’s struggle with how best to counter growing market share losses in the category of ingredients supplied to processors making products, such as cheese, has become more high profile during the past several months.

Dairy Farmers of Canada president Wally Smith said in blog posted on the organization’s website earlier this month the government’s failure to enforce the national cheese compositional standards, established in 2008, is costing dairy farmers $231 million a year in lost revenue.

The standards stipulate the minimum percentage of protein used in cheese making that has to be sourced from milk. The percentage varies for the different cheeses.

Some processors use imported diafiltered milk, coming into Canada mainly from the United States, as part of their required minimum percentage of milk when making cheese instead of using it as part of their allowable percentage of ingredients, Smith said. Dairy farmer leaders assert diafiltered milk is an ingredient and not milk.

Agropur says in a May 10 news release it’s the first major processor to announce its discontinuance of the diafiltered milk protein in favour of Canadian-produced milk ingredients.

Benoit says during the interview he didn’t know if other processors will follow Agropur’s lead. “For us, it makes sense and is in support of our producers, who asked us to use Canadian milk.” Now that the coop can buy Canadian-produced ingredients at a competitive price, “we can remain competitive on the Canadian market.”

Benoit says he couldn’t say how much Agropur was able to save by using the imported diafiltered milk versus Canadian-produced milk ingredients or the specific volume the co-op was importing.

“We estimate Agropur was importing about 12 per cent of the total protein imports across Canada annually,” he says, noting the co-op processes 30 per cent of the milk in Canada.

Dairy Farmers of Ontario board chair Ralph Dietrich couldn’t be reached for comment. BF