Question Period Note: MILK DUMPING

Q1 – What is the government doing concretely to support industry in avoiding surplus milk from being dumped by farmers? Q2 - What is the Government’s perspective on the findings of the milk disposal study published in the Journal of Ecological Economics? Q3 - Why is this discarded milk not being donated? Q4 - Why do milk prices continue to increase even though inflation is cooling down?

R.1 - Last year, we launched the Dairy Innovation Investment Fund, a $333 million program to help the sector increase processing capacity and minimize non-marketed skim milk.

In May 2020, the Government permanently increased the Canadian Dairy Commission’s borrowing limit by $200 million to allow for purchases of dairy products to be temporarily stored to help prevent milk dumping. R.2 - The Government is not in a position to comment on the methodology and conclusions pertaining to this specific study.

The Canadian dairy industry is taking active steps to minimize surplus milk. R.3 - Most marketing boards across the country have mechanisms in place for donations to food banks when it is possible.

In 2023, Canadian producers delivered 2.8 million liters of milk to food banks. R.4 - In the last year, inflation on dairy products (and butter in particular) has been slightly less than inflation on overall food.

Retail prices are based on a range of factors beyond the cost of raw milk, such as labour, transportation, distribution, marketing, and other operating costs. 

Supply-Management and Milk Production Control

The Canadian dairy sector operates under a supply management system based on domestic quota production, administered pricing and dairy product import controls. The quota system helps prevent surpluses and shortages of milk produced at the farm and aims to match demand as closely as possible.

Supply management is a shared jurisdiction between the Federal and Provincial governments. Production levels are set by the Canadian Milk Supply Management Committee (CMSMC) - a decision-making body, chaired by the Canadian Dairy Commission, with membership from all provincial milk marketing boards and provincial governments. The total quota is subsequently divided between three regional milk pools (the Eastern Canadian Milk Pooling Agreement, the Western Milk Pooling Agreement and the Dairy Farmers of Newfoundland and Labrador).

Each regional pool and province allocate their share of the total quota among producers based on their own policies and pooling arrangements. Provincial milk marketing boards are responsible for reviewing or changing quota administration rules as needed.

It is the responsibility of each dairy farmer to respect their quota and dairy farmers are only paid for milk they produce within their quota. Provincial boards allow a certain flexibility to producers to take account variations in milk production caused by regular herd management practices (different feed, number of cows in production, animal health, etc.) and uncontrolled external factors (e.g. extreme weather conditions, unforeseen events such as Covid-19, and plant closures). A penalty occurs over the flexibility range (e.g. zero pay for excess milk, penalty per extra hectoliter).

Milk dumping is exceptional in Canada. With its production quotas, the supply management system helps to prevent surpluses and shortages of milk produced at the farm In fact, according to the Canadian Dairy Commission, 99.1% of raw milk from Canadian farms was processed in 2023. Non-marketed production includes food bank donations, contaminated milk, milk sold at fairs or exhibitions and milk disposals.

The goal of the dairy industry is to process every drop of milk the cows produce but fresh milk cannot be sold or stored without being first processed into a dairy product. Every effort is made to find processing capacity for all the milk produced. The industry is actively working on various measures to manage any surplus by maximizing the processing and use of all milk.

Government’s action to avoid milk dumping

The Dairy Innovation and Investment Fund

Like most dairy-producing countries, Canada is facing a growing surplus of solids non-fat (SNF), the remaining component once cow's milk is processed and the fat is removed for use in products like butter and cream. Without additional processing capacity, the CDC projected a growing SNF surplus. This surplus results in lost opportunities for dairy processors and farmers.  In September 2023, the Government of Canada launched the Dairy Innovation and Investment Fund (DIIF). The program provides up to $333 million over a ten-year period (2023 to 2033) and will benefit the dairy sector by supporting the modernization of processing infrastructure and/or innovation and by providing additional funding to help increase SNF processing capacity. The CDC is responsible for the administration and delivery of the DIIF on behalf of AAFC.

Permanently increasing the CDC's borrowing authority

The mass closure of restaurants and schools due to the COVID pandemic has forced a sudden shift from the food service industry to the retail market reducing demand, especially for cheese and cream. As a result of these challenges, overall demand for milk has dropped which in turn forced dairy producers to dispose of surplus raw milk during the first weeks of the pandemic.

To address this challenge, provincial milk marketing boards have implemented various measures to reduce milk production including quota cuts and the dairy industry has increased its donations to food banks. The Government of Canada has also responded to the situation by permanently increasing in May 2020 the CDC's borrowing authority from $300M to $500M, providing assistance to the dairy sector by enabling the CDC to purchase dairy products and manage the surplus of milk during sudden and unforeseen fluctuations in demand and to avoid milk dumping.

Recent Article on Milk Dumping in Canada: "Over 6 Billion Liters of Canadian Milk Wasted Since 2012" by Thomas Elliot, Benjamin Goldstein, and Sylvain Charlebois

Criticism of the supply management system regarding milk dumping is not new. In 2023, an Ontario farmer posted a video on TikTok describing how he was forced to dump 30,000 liters of surplus milk at the end of the month due to government regulations. The video caused a media uproar.

An article titled: “Over 6 billion liters of Canadian milk wasted since 2012” was published in the journal of Ecological Economics. These 6 billion liters represent the delta over ten years between the authors’ proposed theoretical calculation of the estimated raw milk production based on herd size and average milk yield per cow lactation against the confirmed and validated raw milk sold to processors, published by Statistics Canada. Retail Dairy Price Increases

On November 1, 2023, the Canadian Dairy Commission announced an increase to the farm gate price of less than two cents per litre of milk, effective May 2024. The impact of this increase on retail dairy prices might vary depending on the type of products. Consumer prices for dairy products depend on the fat and solids not-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 by retail dairy price increases compared to products high in non-fat solids such as milk.

While marketing boards are setting the prices paid by processors for raw milk, retail prices of dairy products are market-driven. 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.

Between 2019 and 2023, the Consumer Price Index for dairy increased by 22.5%. This compares to 26.3% for food purchased in stores. On a year-over-year basis in September 2024, retail prices increased at a slightly faster rate for dairy (3.7%) than retail food inflation (2.8%).

We will continue to work with all dairy industry players to preserve the integrity of our supply management system, ensure supply meets demand, and prevent milk dumping.

Provincial marketing boards are responsible for quota administration, and it is the responsibility of each dairy farmer to respect their quota.

Milk dumping is rare in Canada. Over 99% of raw milk from Canadian farms was processed in 2023.