Guaranteed Price for Canadian Dairy Farmers

dairy cowWorld Trade Organisation proposal meets opposition from Canadian farmers

LONDON (RushPRnews)12/08/08-IN many ways Canada could not be more different to the UK – it is a huge country with a small population, while we are a tiny island swarming with people. Although the dairy sectors are of a similar size, Canadian milk producers are guaranteed 72-75 cents per litre of milk – around 38-39ppl. The Canadian dairy industry is protected with restrictions on imports and the milk price adjusted each year according to production costs.

That means the whole system is geared towards producing just the amount of dairy products needed for domestic consumption. Quotas are used to control this and there are no payments for overproduction.

Quota is calculated at a national level and then split between the various provinces.

Many farmers were allocated quota when the system was created in the late 1960s, but demand for any quota that comes on to the market is high. This is reflected in the price, which is quite incredible to those not used to the system.

Quota units are kilograms of butterfat produced per day, and the cost of one unit is $30,000 – around £15,800. Many cows produce 1kg of butterfat per day (so they need one quota unit each) but for those dairy farmers pushing fat yield, the cost per cow is even higher.

This high cost means quota is the single biggest hurdle for expansion and new entrants. The cost of land, in comparison, is very small, ranging from $4,000 to $7,000 per acre (£2,100-£3,700)

The milk price paid to farmers is calculated on solids, mainly butterfat and protein. As everything is linked to quota, with little/no seasonality bonuses and very little leeway on maximum levels, a level profile is essential.

No farmers admit to trading milk between themselves in order to keep within quota limits, although a few farmers joke it is easier to move cows to a neighbour’s farm than cart milk around in the middle of the night.

Canadian law states farmers must sell their milk to the single body working in their province, for example, Dairy Farmers of Ontario in Ontario. The umbrella organisation is Dairy Farmers of Canada (DFC), whose main role is lobbying the Government on behalf of producers.

While there is some wrangling over environmental matters at the moment, the biggest issue for Canadian dairy farmers is the World Trade Organisation (WTO) negotiations.

DFC is pushing the Government not to give up the current system, which, with price protection and strict border controls on imports, is not popular with the WTO.

However, with other agricultural sectors (particularly beef and arable) hugely reliant on exports, there is a chance the Canadian Government could ‘sacrifice’ its dairy sector in order to increase exports of other goods.

This would certainly benefit the struggling Canadian beef and arable farmers, who are currently the biggest opponents of the system, but it would have a very negative effect on dairy farmers’ incomes.

The milk sector is hopeful this will not happen, as it believes the Government appreciates the situation and the fact the dairy sector asks for no subsidies or financial support, only for borders to be policed.

The milk price guaranteed to farmers is calculated annually using a formula linked to ‘cash costs, living expenses and a fair return on investment’ and based on figures from the top 5 per cent most efficient farmers.

This price is non-negotiable once it is fixed and any wrangling over the price of dairy products on supermarkets shelves is between processors and retailers.

Around 40 per cent of the market is liquid milk and consumers pay around $6 for four litres of milk (around £3.20 for four litres or 46p for a pint)

Farmers pay a levy from their milk cheque, which goes to their provincial milk body to pay for a range of additional services. For example, Dairy Farmers of Ontario (DFO) charges $2.60 (£1.35) per 100 litres for the tanker to come to the farm and 47c (25p) for administration.

Another 4c (2p) is collected for research, which is often combined with funding from research universities and drug companies to carry out major projects.

Research is done at a provincial level and the only money pooled at a national level is that collected for advertising.

DFO collects $1.30 (68p) per 100 litres for advertising, amounting to $30 million from Ontario and $80-85 million nationally per year (around £43 million).

This is used to promote all dairy products and is believed to be the reason why consumption has increased by 2.5 per cent in the last three years.

Promoting milk in schools is also seen as important and those in the school milk programme offer children chilled milk and chocolate milk at up to half price.

The move towards getting fizzy drinks out of schools has helped (milk is seen as a healthier alternative, promoted as a ‘sports recovery drink’ for example) and in Ontario alone, 70 per cent of schools are making milk available to pupils.

How the figures were calculated

Figures have been calculated using an exchange rate of 1.9 Canadian dollars to £1 sterling.

All conversions are approximate. Unless stated otherwise all prices are in Canadian dollars or pounds sterling.

source: Farmers Guardian