Increase in the price of milk | Sell ​​at a loss or leave

The relationship between processors and retailers is tense, with the latter sometimes refusing to absorb part of the increase in farm gate prices

Nathaelle Morissette
The Press

The 8.4% increase in the price of milk at the farm caused a real showdown between processors and retailers. Companies producing yogurt, cheese and even fluid milk are struggling to pass on part of this increase to supermarkets, which, in some cases, only agree to cost increases of between 2% and 6%, reports the Quebec Dairy Industrial Council (CILQ).

“I understand that the retailer wants to minimize its increase. But it has to accept that its partners also have costs to bear,” says Charles Langlois, President and CEO of the CILQ.

Some processors even sometimes have to brandish the threat of no longer supplying the chains which will refuse to pay more for the products, affirmed to The Press two dairy companies who preferred not to be named so as not to harm their business relationships. They have recently fought hard to get their raises accepted. We were also told that negotiations with some brands were more difficult than with others.

This situation has been reported many times to Charles Langlois. The latter explains that many companies find themselves faced with a dilemma: stop delivering to stores where cost increases are refused or sell at a loss. “These are not interesting solutions. »

“The cost of milk is a regulated cost that we live with. We are not here to say that this increase is not justified, we know that inflation has affected everyone,” he insists.

According to him, the tension between these two players in the agri-food industry has “worsened” recently. “Processors have been complaining about this situation about their relationships with retailers for several years, and until now the processors have been absorbing the costs. But there, people say: “We are no longer capable, it takes us a level of profitability.” »

Rise to packaging

“Price increases are necessary for everyone on all sides, all sides,” says Nathan Kaiser, co-owner of Laiterie Chagnon, who refuses to comment on the relationship between chains and processors. Everyone has the difficult task of keeping their business profitable and keeping the consumer happy. »

In addition to the price of milk, the costs related to packaging (glass jars, cardboard, cork) are also on the rise, he recalls. Yogurt, butter and ice cream from this company located in Waterloo are sold exclusively at Sobeys (IGA). The Chagnon dairy therefore only negotiates with a single brand. Despite everything, Mr. Kaiser believes that supermarkets are mainly fighting to have a better price than their competitor.

“The chains are in a situation where they are not aware of the negotiations that a company has with another chain. This is where it gets very competitive. They don’t want their products to be more expensive than the other chain. They do not necessarily negotiate against the manufacturers. It’s more that they want to be sure of getting the best price. »

On the side of the Retail Council of Canada, which represents all the major brands (IGA, Metro, Loblaw, Costco, Walmart), the director of government relations, Francis Mailly recognizes that “the pressure is on everyone” at the moment. .

drinking milk

Moreover, although the price of milk at the farm is regulated by the Canadian Dairy Commission and the cost displayed in the fridges of supermarkets in Quebec is determined by the Régie des marchés financiers, there is no between the two, i.e. the price paid by the retailer to the fluid milk processor, reminds the CILQ. Result: these processors are also having trouble negotiating price increases, confirms Charles Langlois.

In most regions of Quebec, since January 31, the Régie has set a minimum retail price for a two-liter container of 2% fat at $3.78 and a maximum cost of $4.10. Last year, this same format was sold between $3.58 and $3.90.

“Entry and exit are regulated with caps and minimums. But between the two, it is not, summarizes Francis Mailly. These negotiations between the companies are not regulated. You have to try to find a balance through it all. »

In the absence of a framework, processors are calling for the establishment of a code of good practice to improve their relations with supermarkets. At the moment, the country’s agriculture ministers are working on a document that will probably be ready in April.