Milk industry | Costs go down, but prices go up

The Canadian Dairy Commission granted milk price increases this year totaling 10.9%, even though production costs fell 1% in 2021, a report reveals. The Press got a copy.

Isabelle Dube
The Press

The internal report of the Canadian Dairy Commission (CDC), which oversees the country’s dairy supply management system, indicates a decrease in production costs of 1% in 2021. The farm gate price of milk determined by the organization, on the other hand, increased by 8.4% on 1^er last February and will increase by another 2.5% on the 1^er next September.

In its calculation of production costs, the Commission noted a reduction in capital costs, maintenance and repair of buildings, labour, remuneration for management as well as a reduction in the costs fertilizers, herbicides and pesticides.

Unsurprisingly, animal feed, fuel, lubricants, transport, promotion, taxes, insurance, electricity and telephone all suffered increases.

The Commission analyzed production costs on more than 200 farms.

The current rise based on 2020

“Last February’s milk price increase is attributable to production costs for 2020, not 2021,” said Lucie Boileau, director of communications for Dairy Farmers of Canada.

This is confirmed by the CCL, which explains the drop in production costs in 2021 by the modernization of equipment.

“On the other hand, we are still seeing a significant increase in input costs since then. These cost increases largely justify the announcements for 2022,” says Ms.^me Allen.

According to the Commission’s internal document, production costs increased by 2.8% from 2019 to 2020, while price increases will total 10.9% this year.

According to Sylvain Charlebois, senior director of the Laboratory of Analytical Sciences in Agrifood at Dalhousie University, who has repeatedly been critical of the Canadian dairy industry, the increase granted in 2022 is exaggerated.

“If we follow the logic of the Commission’s explanations, we should have had a price increase of 2.8% this year, because it is the 2020 increase that applies. Which is a reasonable increase, by the way,” he said.

Inflation taken into account

Questioned on this subject, the Commission affirmed by e-mail that it does not rely solely on the result of the changes in the cost of production to grant a price increase. It also takes into account changes in the consumer price index (CPI). “The study of the cost of production is only one step in the process of establishing the price of milk at the farm,” emphasizes Shana Allen.

“The cost of production data we use for pricing is indexed,” she continues. By increasing the costs for 2020 according to the inflation rate calculated by Statistics Canada since then, the 2.8% increase increases to 13.4%.

“The next price adjustment will take into account all the factors, namely the rise in input prices in 2022 and that of productivity gains in 2021,” she assures.

The report was presented on July 28 to the Canadian Milk Supply Management Committee (CMSC), a national body that oversees the commercial and promotional activities of the Canadian Dairy Commission.