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)
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 MILKingredient.ca website. 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 MILKingredients.ca website.
Milk class 4(m)
Products in class 4(m) are used to make animal feed such as milk replacer for calves. This class is administered using permits issued by the Commission. Up to 5,000 tonnes are eligible to this class until July 31, 2020.
The price of solids non fat in this class is updated monthly and posted on the MILKingredients.ca website. The price of the butterfat in class 4(m) is the same as the price of butterfat in class 4(a).
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