How is the price of milk set in Canada?

The price dairy farmers receive for the milk they produce is set in the 10 Canadian provinces. This price varies and depends on how the milk will be used. For example, milk sold to make cheese has a different price than milk sold to make butter.

Milk includes three components, and each has its own price. These three components are:

  • the fat contained in the milk, commonly referred to as butterfat;
  • the proteins; and
  • the other solids found in milk such as calcium and lactose.

When and how is the price of milk adjusted?

The provincial milk marketing boards routinely update the price of milk components. This typically happens once a year.

The mathematical formula used to calculate most price updates considers inflation and the cost of producing milk in Canada.

Milk price adjustment formula

Price adjustment in % = (50% of the variation in the cost of production) + (50% of the consumer price index)

The consumer price index is a measure of inflation provided by Statistics Canada. The cost of production is measured annually by the Commission.

In Canada, milk is sold according to a harmonized milk classification system that is based on what the milk is used for. When prices are updated, the milk price adjustment formula, as well as various factors relative to markets outside Canada, are applied to the price of milk in classes 1 to 4(d).

For a given year and under certain conditions, an industry stakeholder can request that the formula above not be applied. When such a request is made, the Commission holds consultations and renders a decision on the price adjustment of milk.

Milk price adjustments in the other classes

Not all classes of milk in the harmonized milk classification system follow the same method to update milk prices. The prices of milk used in classes 5(a), 5(b), 5(c), 4(a) (solids other than fat) and 4(m) are set differently.

Milk classes 5(a), 5(b) and 5(c)

The price of the milk used in classes 5(a), 5(b), and 5(c) is set monthly and posted on the Component pricing page. It is set taking into account the variations in the price of similar dairy products produced in the United States in the case of classes 5(a) and 5(b) and in the rest of the world for class 5(c).

Solids other than fat in milk class 4(a)

In the case of milk class 4(a), the price of solids other than fat (protein and other solids such as calcium and lactose) is set monthly using a mathematical formula prescribed by the Canada–United-States–Mexico Agreement. This agreement came into force on July 1, 2020. This formula applies to milk used to make products such as milk protein concentrates, skim milk powder, and infant formula.

Milk price adjustment formula for class 4(a) for solids other than fat

Milk price for solids other than fat in class 4(a) = (U.S. Department of Agriculture non-fat dry milk price - Canada’s assumed processor margin) x Canada’s yield factor

In this formula, Canada’s assumed processor margin is $0.9191/kilogram of skim milk powder and Canada’s yield factor is 0.999 kilogram of solids non fat per kilogram of skim milk powder. The resulting price is posted each month on the Component pricing page.

Milk class 4(m)

Products in class 4(m) are used to make animal feed such as milk replacer for farm animals. This class is administered using permits issued by the Commission.

The price of solids non fat in this class is updated monthly and posted on the Component pricing page.  The price of the butterfat in class 4(m) is the same as the price of butterfat in class 4(a).

The Class 4(m) permit program for animal feed encourages the use of solids non fat (SNF) in specific activities with the objective of maintaining or growing markets for SNF.

A company registered in Canada and using solids non-fat (SNF) type products in the manufacture of animal feed products and blends destined to animal feed may be eligible to a 4(m) permit.

The eligible categories of end-use of the SMP or animal feed blend purchased in 4(m) are:

  • Skim milk powder purchased in 4(m) for direct feeding to farm animals, or for blending and repackaging into an animal feed blend for farm animals.
  • Animal feed blend purchased in 4(m), to be sold as is, for animal feed for farm animals.
  • Liquid buttermilk (evaporated or not), for direct feeding to farm animals.

The Class 4(m) permit program for animal feed limit is CURRENTLY up to 20,000 MT of SMP equivalent per dairy year.