Frequently Asked Questions on the Price of Milk
Q. Why has the Commission decided to conduct a mid-year review of the price of milk?
On May 27, 2022, the Dairy Farmers of Canada asked the Commission for a midyear milk price increase due to inflation. Under the current milk pricing mechanism, any of the following stakeholders can make the same request under certain conditions: Dairy Farmers of Canada, the Dairy Processors Association of Canada, the Consumers’ Association of Canada, the Retail Council of Canada, the Canadian Federation of Independent Grocers and Restaurants Canada.
Q. What justifies a 2.5% increase in the price of milk.
The September 1 increase is justified by inflation. The February 2022 price increase was based, among other factors, on inflation data as of August 2021. The latest data (April 2022) from Statistics Canada show increases of 22% for feed, 55% for fuel, and 45% for fertilizer costs since August. These exceptional increases happened after the February 1, 2022, 8.4% price increase was decided.However, the Commission also took into account the fact that producer revenues are improving and possible impacts of an increase on consumers.When the Commission reviews prices again in the fall, the September 1 adjustment will be deducted from any adjustment for February 1, 2023.
Q. Is this increase in farm milk price unique to Canada?
No. Farm milk prices in the EU have risen by approximately 23% in the last 12 months. Class I prices (for fluid milk) in the US have risen by 49% in the last 12 months compared to 6.6% in Canada. Class IV prices (for butter and skim milk powder) in the US have risen by 55% in the last 12 months compared to 38.3% in Canada, mostly because the price for milk processed into milk powder in Canada follows US prices.
Q. Should we expect two increases per year from now on?
No, the normal process remains one adjustment per year.
Q. Does the milk price ever go down?
Yes, in a normal year, the adjustment to the price of milk is adjusted using a formula that is based on the cost of producing milk and on the consumer price index, which is a measure of inflation. If these factors go down, then the price of milk goes down. This formula reduced the price of milk at the farm level slightly in February 2017 and 2018.
Q. Why did the Commission agree to review the request from DFC?
An important part of the Commission’s mandate is to provide efficient dairy farmers with the opportunity to obtain a fair return for their labour and investment. Due to the current inflation, the Commission agreed to review the request to determine if a price increase was warranted before next year.
Q. When will the adjustment go into effect?
The adjustment will go into effect on September 1, 2022, after it has been approved by provincial authorities.
Q. Which dairy products will be impacted?
This increase applies to the price that farmers get when they sell their milk. It is expected that all dairy products will therefore be impacted although the effect for consumers may vary between products. The Commission only regulates the price of the milk that leaves the farm. The retail price is set all along the supply chain and is also affected by increases in costs such as transport.
Q. How often does this midyear price adjustment happen?
It happens from time to time when the situation justifies it. The last time it happened was in 2018 at the request of Dairy Farmers of Canada because the gap was widening between cost of production and producer revenues due in part to record low world prices for commodities.
Q. How will this impact consumers at the retail level?
Companies who make dairy products will pay 2.5% more for the milk they buy. This may have an impact on the retail price of all dairy products although the size of the impact will depend on decisions of players along the supply chain about their own cost increases.
Q. How is the price of milk usually set?
The usual mechanism for price adjustment is explained here.
Q. Why is the price of milk regulated?
This is one of the elements of the supply management system for dairy. However, only the price of milk that farmers get is regulated. Exceptionally, certain provinces regulate the retail price of fluid milk. The other elements of the supply management system are a control of milk production using quotas, and the regulation of imports of dairy products. After the milk leaves the farm, it enters a free market where forces of supply, demand and competition are at play.
Q. What were the details of DFC’s request or other stakeholder positions?
The Commission does not disclose the positions of the various stakeholders consulted to ensure that they are can share information that may be commercially sensitive with the Commission. This way, the Commission has the most complete information possible to make a decision. Each stakeholder therefore decides for themselves to make their position public or not.
Q. What process did the Commission follow to decide on this increase?
The Commission notified stakeholders that it received a request to make a mid-year review of the price of milk. Stakeholders were invited to present their views along with the impacts of a price adjustment on their sector. Following these consultations, the Board reviewed all the information, including economic data, and rendered a decision.
Q. Who was consulted?
The Commission consulted the main stakeholders all along the supply chain, which include the Dairy Farmers of Canada, the Dairy Processors Association of Canada, the Consumers’ Association of Canada, the Retail Council of Canada, the Canadian Federation of Independent Grocers and Restaurants Canada.
Q. When did the consultations take place?
The consultations took place on June 15, 2022.
Q. What is a support price for butter?
The support price for butter is used by the Commission when buying and selling butter under its Domestic Seasonality Program. These programs allow the Commission to work with the private sector to balance the seasonal demand and supply of products for the domestic market. When milk production exceeds requirements for the Canadian market, the Commission buys butter from processors at the established support price.
Q. What is a butter make allowance?
A make allowance (sometimes referred to as a processor margin) is an estimate of how much it costs to process milk into butter. It includes costs such as labour, packaging, energy, equipment and cleaning products.
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