Question Period Note: MILK PRICE INCREASE FOR PRODUCERS

1. I am well aware that the price of groceries has increased a lot, as for the cost of inputs for agricultural producers.
2. Our supply management system is important to ensure quality supply and the vitality of our family farms.
3. As my colleague knows very well, the price of milk at the farm gate is set by the Canadian Dairy Commission - an agency which is independent from the government - , following a well-defined process that includes consultations with stakeholders.

BACKGROUND:

In October 2021, the Canadian Dairy Commission (CDC) conducted a review of Canadian farm gate milk prices and various other costs used in administering the dairy system in consultation with the Dairy Farmers of Canada, Dairy Processors Association of Canada, Consumers Association of Canada, Retail Council of Canada, and Restaurants Canada. Because of various factors such as the COVID-19 pandemic which particularly impacted feed, energy, and fertilizer costs, the usual formula used to determine the farm gate milk price was not applied. Instead, the CDC held consultations with stakeholders and rendered the following decisions that were implemented on February 1, 2022.
1. The price of raw milk sold to processors increased by an average of 8.4% ($6.31 per hectoliter). Since the current pricing system was implemented in 2017, price adjustments have varied from -0.42% to 4.52%. It should be noted that raw milk prices fall under the responsibility of the provincial milk marketing boards. The new farm milk prices became official after they were approved by provincial authorities in early December 2021.
2. The support price for butter increased by 12.4% from $8.7149 to $9.7923 per kg. The support price for butter is the price at which the CDC buys and sells butter to balance seasonal supply and demand changes on the domestic market. The decision by the CDC to adjust its support price for butter also recognizes a 5.0% increase in butter processing costs that applies to butter sold by manufacturers to the CDC in the context of its storage programs. This increase does not have an additional impact on the raw milk price adjustment.

Launch of consultation for a second price increase in 2022
On May 27, 2022, the Canadian Dairy Commission (CDC) received a request from Dairy Farmers of Canada (DFC) for a 3.5% mid-year increase in the farm gate price of milk due to the current inflationary environment. In response to this request, the CDC Board will consult stakeholders between June 13 and 15, 2022. Its decision on the new CDC support price for butter and corresponding changes to milk component prices will be announced in the days following these consultations.
Once the CDC’s decision is announced, the joint P5 Supervisory Body (P5 SB) and Western Milk Pool Coordinating Committee (WMP CC) will adopt new milk component prices followed by provinces. The price increase would come into effect on September 1, 2022, and would be deducted from any price increase that may result from the routine price review in the fall of 2022 (effective in 2023).
Certain price changes may be subject to additional transparency requirements as per CUSMA, including the need for the proposed measure to be published/notified one month in advance. This request will likely require the need to satisfy the relevant CUSMA obligations.

Consumer Price Increases
Consumer prices for dairy products depend on the fat and solids non-fat (protein and other solids) content of finished products. Dairy products rich in milk fat, such as butter and cream, are expected to be the most affected compared to products high in solids non-fat such as milk.
Raw milk pricing is one of many factors influencing the wholesale and retail price for dairy products paid by consumers. Other factors include the balance between supply and demand, seasonality and costs throughout the supply chain related to processing, transportation, distribution and packaging. Since 2017, the consumer price index for cheese and dairy products increased by 6.3% and 7.7% respectively, compared to 9.3% for food. This gap was even more pronounced over the last ten years (+ 2.9% for cheese and +5.6% for overall dairy products versus + 17.6% for food).

Canadian cheese industry
Canada’s cheese industry is well developed and over the last decade, consumption of cheese has been increasing. Between 2010 and 2021, cheese production has grown on average by 11,550 tonnes annually. More than 1/3 of Canadian milk production was directed to cheese making in 2021. There are about 280 cheese-making facilities in the country producing over a thousand different varieties of cheeses with most being made with cow’s milk. Canadian cheesemakers have developed a wide range of new products in response to this shift in consumer preferences and to stimulate further growth.
Approximately 50.0 percent of all cheeses are manufactured in Quebec, 30.2 percent in Ontario. The three largest cheese manufacturers (Lactalis, Saputo, Agropur) together hold a large share of the cheese market.

Government financial support

The Government of Canada continues to offer programs designed to support Canadian dairy processors. The Dairy Processing Investment Fund (DPIF), a $100 million program was launched in August 2017. A total of 105 projects were approved and the program budget was fully committed.

The new Supply Management Processing Investment Fund, a $292.5 million program was launched in March 2022 to help dairy, poultry, and egg processors improve productivity and competitiveness and help them adjust to the market changes resulting from CETA and the CPTPP.

Through Budget 2022, the Government committed to work with supply-managed sectors and announce full and fair compensation for the Canada-United States-Mexico Agreement in the 2022 fall economic and fiscal update.

The dairy sector has also been able to benefit from the suite of programs offered under the Canadian Agricultural Partnership, which is a $3 billion five-year (2018-2023), investment by federal, provincial and territorial (FPT) governments to strengthen and grow Canada's agriculture and agri-food sector.

Canada’s Trade Obligations
Under the Canada-United States-Mexico Agreement (CUSMA), both Canada and the United States agreed to certain transparency obligations related to milk pricing. The CDC’s announcement and resulting milk price change are fully consistent with Canada’s trade obligations, including those under CUSMA.

Industry Reaction
• Dairy producers reacted positively to this announcement. Pierre Lampron, president of Dairy Farmers of Canada, declared to media that the increase will partially offset a significant rise in production costs incurred by farmers since the start of the COVID-19 pandemic. He also added that the price of cattle feed has risen dramatically, along with costs of fuel, machinery, fertilizer, seeds for crops, and more. Similar comments were made in the media by other producers.

• In a statement to media, Mathieu Frigon, president and CEO of the Dairy Processors Association of Canada, stated that they were relieved to see that, within the 12.4% increase in butter support price, the CDC has recognized a 5% increase in milk processing costs.

• Retailers and restaurants reacted negatively to this announcement. In a statement to media, Olivier Bourbeau, vice-president of Restaurants Canada declared that restaurants will close because of this decision. They are concerned that this increase will be extremely difficult to absorb as they try not to transfer too much of it to their clients. Michelle Wasylyshen, spokesperson for the Retail Council of Canada, declared that grocers are seeing price increases from many of their vendors but this one on dairy is particularly difficult given that it is an essential product for Canadian families and children in particular.

None