by SUSAN MANN
Grocery retailers and dairy processors are unlikely to pass on the decreases in farmers’ milk prices effective later this winter to Ontario consumers, says Al Mussell, an industry analyst.
Effective Feb. 1, the 0.446 cent or 0.454 per cent decrease in the fluid price will reduce the producer blend price by about 15 cents a hectolitre, Phil Cairns, Dairy Farmers senior policy adviser said in an earlier interview with a Better Farming reporter. The current average farmer blend price before deductions is $82.34 a hectolitre for milk of average provincial composition.
The decrease in the farmer blend price applies to all farmers in the P5, which includes Ontario, Quebec, Nova Scotia, Prince Edward Island and New Brunswick.
Another decrease in the producer blend price kicks in March 1 with the skim milk powder support price reduction announced by the Canadian Dairy Commission Jan. 15. That will further reduce the producer blend price by 68 cents a hectolitre. The two together will reduce the producer blend price by 83 cents, or about one per cent this year.
Mussell says on the fluid milk side, Ontario consumers won’t likely see a break in milk prices after Feb. 1 as many grocery retailers are already selling four-litre bagged milk “at a fairly significant loss leader.” He adds selling as a loss leader is a practice grocery retailers use to intentionally discount products, such as milk, eggs or bread, to attract shoppers to their stores. The products sold as a loss leader are generally staple products.
The four-litre milk category is known to be a loss leader, he says.
In Guelph at various outlets, such as Shopper’s Drug Mart, No Frills “really any of them,” a four-litre bag of milk is $3.99, he says. “Essentially the price of the two-litre (container) and the four-litre (bag) are the same so that tells you something right there.”
With the fluid milk price cut “is that four-litre bag going to go from $3.99 to $3.89, I doubt it,” he says. “I doubt if it changes much.”
But people will still have to wait and see what grocery retailers will actually do, he notes. Retailers set the prices of milk in stores and “they can do whatever they want.”
As for products made with industrial milk, such as marble or cheddar cheese, the regular price is about $7.99 or $8.99 per 500-gram block, he says. But some cheese is very frequently featured at $3.99 or $4.99 per 500-gram block. “They’re not so much a loss leader, it’s just that they’re chronically on sale,” he notes. “They (retailers) do promote them (500-gram cheese blocks) quite frequently.”
Mussell says he doubts if those cheese promotions would be influenced by the industrial milk price decrease.
Still, Mussell called the Commission’s decision to reduce the skim milk powder support price this year a “gutsy” move. “It indicates the dairy industry is in a tough spot particularly around imports of dairy proteins.” Some processors are using imported milk protein concentrates and isolates to make products like cheese rather than using the protein in Canadian-produced milk.
Mussell says the Commission’s decision is gutsy because the dairy industry is accustomed to increases in support prices. “In the past, there are plenty of cases where the cost of feed and other inputs went down, but the support price didn’t.”
He also predicts there will be future skim milk powder support price cuts. “I’m not sure you’re going to find that support price going up again anytime soon. We’re under siege from protein imports in one form or another.”
Christina Lewis, president of the Ontario Dairy Council, which represents processors, and a spokesperson for the Retail Council of Canada, couldn’t be reached for comment.
Mussell is a former George Morris Centre senior researcher now with his own consulting company, Agri-Food Economic Systems. The centre closed at the end of 2014. BF
Comments
For the first time in 22 years, the Canadian Dairy Commission has decided to reduce the price of milk at farmgate by 1%. Price reductions will commence in February. Under its supply management regime, established in 1966, the Commission's mandate has been to set the price of milk per hectolitre for dairy farmers owning production quotas. The new decision to reduce prices, according to Commissioners, is to stimulate domestic demand for milk per capita which has been decreasing for decades in Canada. As surprising as this decision may be, such a move from the Commission is evidence that the dairy sector is fully aware of systemic pressures on supply management.
Big changes are coming. If ratified, the Comprehensive European Trade Agreement would allow over 17,000 tons of cheese into our country. Currently in Europe, milk is cheap, and getting cheaper. In April, Europe ends its quota system, and many producers have started to flood the market with much more milk. There is an abundance of supply which has depressed milk prices at farmgate and retail. Prices have gone down by more than 40% in some regions which makes European cheese more competitive against our own. In addition to having concealed subsidies, European cheeses have a significant competitive advantage.
As such, the Commission is giving a chance for our dairy sector to compete, domestically and globally. Here, restaurant owners and processors alike applaud the decision, and why wouldn’t they? This will make them more competitive, allowing them to increase margins, innovate and recapitalize some of their infrastructure.
Most importantly, this move from the Commission is indicative that it can adapt to change, at least to a certain degree. Even if many have criticized the virtues of supply management for years, we should render to Caesar what is owed to him. Price reductions at farmgate have been uncommon in Canada due to the Commission’s lopsided cost assessment scheme. This is an audacious decision, but it should not stop there. More should be done to promote excellence and productivity in the dairy sector instead of using averages as a price setting benchmark for an entire sector.
Indeed, the Commission operates obscurely, away from any media attention. In fact, more than 90% of Canadians are not even aware of the Commission’s role, let alone its existence, and yet, its influence on our lives is real. Consumers will likely be affected by this. This could very well impact the price of dairy products Canadian consumers buy regularly, like cheese and yogurt. Even restaurants could potentially pass on their saving to consumers when serving pizzas and lasagna, but whether or not processors and restaurants will pass on their savings to consumers remains to be seen.
Dairy price cut. As for our own artisan cheesemakers who are about to face tougher competition from abroad, they are still waiting for the Harper government to provide any details on support programs. Even if Ottawa has been indefinite on this issue, the Commission’s decision is likely the help they need, at least part of it. It will certainly be welcome news and may ease the burden of increased competition.
Dr. Sylvain Charlebois
Professor/Professeur Titulaire
Food Distribution and Policy/
Distribution et Politiques Agroalimentaires
College of Business and Economics/
Collège en Management et Études Écononomiques
University of Guelph/Université de Guelph
We have already seen a price reduction in Mozzarella cheese go by without a significant reduction in Pizza prices,why would we think any different with a reduced farmgate price in milk?
This has been debated for years by Dairy farmers,whether we should reduce our prices to stimulate consumer buying! However if the grocery chains,restaurants and Pizzeria's aren't going to pass on those reductions on to consumers then farmers tend to get their backs up and say "never again"
Think back not that long ago when pork and beef prices tanked for farmers . No reduction in the store for retail prices . Who was the fool ? Oh yes and the word was from consumers , we support you !
At the same time beef and pork producers were complaining about the price of feed but not the price they were getting for their animals .
The food products produced under Supply Management should have all mandantory labelling of Origin.With imports increasing all the time,this is the only way Supply Management can be saved and at the same time providing needed value to the Canadian Consumer.This would be promoting Supply Managements excellence.Without mandantory product of labelling Origin(Provincial,Canadain) processors will only continue to choose the lower priced ingredients to make their products short changing the Consumer and negating the value of Supply Management.
John Van Dyk
The Majority of Canadians don't give a damn about supply management. Farmers, the dairy and chicken ones, all think the world revolves around them. Guess what, it doesn't .
For Mr. Van Dyk to be at all credible, he should be advocating that Canadian dairy farmers "pledge" they don't use BST on their own farms and thereby give Canadian consumers the same "BST-free" choice given to US consumers. At present, when it comes to the un-reported use of BST on Canadian dairy farms, the "excellence" of supply management is highly-suspect and even laughable.
Stephen Thompson, Clinton ON
The European farmers by getting rid of a quota system are just following the way of the US.Where the solution to low milk prices is the same solution to high milk prices,that being to milk more cows ! Then of course after a significant number of small producers have bit the dust, the Government steps in with more prop-up subsidies and insurance programs.Its a rollercoaster system that most smaller Countries can't afford.
Thank you for this intelligent and informative letter. Seldom do we have an opinion like this available to us. The dairy industry has been able to get away with an outdated cost of production system for a long time. Im not saying it is wrong, for smaller producers that is, but times do change and they have.
Sid Caesar was a well-known comedian and satirist who died just about a year ago at age 91 - Julius Caesar was a Roman emperor who died on the Ides of March at the hands of his friend, Brutus. Other than the observation that supply management deserves to be eliminated by everyone including its "friends", the definitional-insanity of supply management owes more to Sid than to Julius.
For example, the Canadian Dairy Commission would appear to be "in charge" of the farcical three-price mechanism for dairy products used to make mozzarella cheese, based not on price but on who is using it for the purpose of making pizza:
(1) frozen pizza makers get to pay the world price
(2) fresh pizza makers get to pay a price set at some point above world price
(3) people who make pizzas at home are forced to pay the "cost-of-production" price which is well-above world price.
Dr. Charlebois, therefore, greatly-understates the obvious when he notes that the "dairy sector is fully aware of systemic pressures on supply management".
Stephen Thompson, Clinton ON
THE DOCTOR HIT IT OUT OF THE PARK ,WHEN HE MADE THAT STATEMENT !! SUPPLY MANAGEMENT AS DAIRY FARMERS KNOW IT ,IS ABOUT TO MEET THE FREE MARKET SYSTEM HEAD ON IN 2015 !! IT IS NOT GOING TO BE PRETTY ,THE FEDERAL GOVERNMENT NEEDS TO FESS UP WITH THE TRUTH !! THAT WAY DAIRY FARMERS IN CANADA CAN PREPARE PRICE WISE FOR WHATS HAPPENING IN THE GLOBAL TRADING MARKETS FOR DAIRY ! PRICES ARE POISED TO DROP ANYWHERE BETWEEN 30% TO 50 % ON SOME MILK PRICE CLASSES WITH WHAT IS BEING ALLOWED IN UNDER NEW TRADE AGREEMENTS AND OLD ONES !! WE KEEP FORGETTING THAT MARKET ACCESS KEEPS INCREASING YEARLY ON OLD TRADE DEALS THAT WERE SIGNED BY THE FEDERAL GOVERNMENTS ,TARRIFFS % KEEP DROPPING OVER TIME IN THOSE AGREEMENT AND NO MORE DAIRY EXPORTS UNDER SUPPLY MANAGEMENT KEEP GOING DOWN BECAUSE OF HIGHER PRICE IN CANADA FOR RAW MILK !! THE C.D.C HAS NO CHOICE NOW BUT TO KEEP LOWERING THE PRICE PAID TO DAIRY FARMERS ,WE ARE PAST THE POINT OF NO RETURNS !! I AM GLAD TO SEE SOMEONE ELSE SOUNDING THE WARNING BELL !! BILL DENBY / IMPORTER /EXPORTER OF DAIRY PRODUCTS
In other news today, the BofC lowered rates by a quarter percent.
Since many dairy farms carry large amounts of debt, this will represent huge savings for those floating their loans.
The net result even with the cut in milk prices will be postitive to their bottom line.
Another price reduction should follow shortly.
Raube Beuerman
The lenders have not yet lowered prime and do not have to, but I'd be surprised if they don't.
Raube Beuerman
I don't wish to question Mr. Musell on his expertise in pricing but l rarely see Dairy on the front page of local grocery flyers.I don't consider Shopper Drug Mart a true grocery store but if included in this week's gathering of flyers, 5 out of 5 have a front page without Milk for sale on it.However 4 of the 5 have Pop up front on sale.
Is this related to the new rules i see are put up on the 'whats new' webpage for the commission?
Let's see if I have this straight. From a previous news story: http://www.betterfarming.com/online-news/milk-price-cuts-coming-60582
"Randy Williamson, Commission chair, says in the release the March 1 support price reduction is due to a decrease in the cost of producing milk in Canada during the past year. Cost decreases were in Feed, milk Transportation, Fuel and Interest paid."
Therefore, it is not just milk folks. Chicken, eggs, turkeys all just got a whole lot cheaper. So when can we expect to see the supermarket price drop?
Not sure what it means but this. http://www.omafra.gov.on.ca/english/farmproducts/misc/WhatsNew.htm
DAIRY FARMERS THINK THEY CAN DICTATE PRICE DAYS ARE OVER ,THIS IS A COUNTRY THAT ALLOWS IMPORTS OF DAIRY PROCESSED AND RAW MILK INTO THE COUNTRY EVERY DAY !! DAIRY FARMERS NEED TO WAKE UP AND REALIZE THE RETAIL INDUSTRY COULD CRUSH THEM AT ANY MOMENT . DO YOU KNOW THAT YOU CAN BRING IN EVERY DAIRY PRODUCT ,ECEPT YOGART DUTY FREE ,NO VOLUME RESTRICTIONS AT 40% LOWER PRICE !! YOU FARMER ARE LUCKY THAT THE SUPER MARKET RETAILERS SUPPORT CANADIAN ,LOCAL PRODUCED PRODUCE . I WOULD NOT POKE THEM TO MUCH FOR NOT LOWERING THE PRICE IN THE RETAIL STORES ,THEY ALREADY LOSE MILLIONS OF DOLLARS A YEAR ON FLUID MILK SALES!! DO YOU EVEN KNOW WHAT THEY PAY THE PROCESSOR FOR ,1 %,2%,3.5 % PACKAGED MILK ???? DAIRY FARMERS NEED TO WAKE UP ,YOU ARE DIFFERENT THAN BUYING MILK ANYWHERE IN THE WORLD !! MILK IS MILK ,EXCEPT FOR ONE THING THE PRICE YOU HAVE BEEN GETTING IS TWICE THE U.S. DAIRY FARMER ,NOW IT IS ALMOST TWICE THE E.U. DAIRY FARMER ,NEW ZEALAND YOU CAN'T EVEN BEGIN TO COMPETE ,SO THE WRITING IS ON THE WALL !! BIG PRICE ADJUSTMENT COMING AT FARM GATE ,YOU HAVE HAD A GOOD RUN OF PRICE TAKING ,NOW IT IS GOING TO BE PRICE OFFERED ,TAKE IT OR WE IMPORT THE PRODUCT !! IT HAS TAKEN A NUMBER OF TRADE AGREEMENTS TO GET HERE ,BUT REALITY IT IS HERE !! MOST LARGE ,LOW COST DAIRY FARMERS WILL SURVIVE THE TRANSITION BACK TO FREE MARKET PRICING ,HOW EVER THE ONES THAT FIGHT THE MOST TO OPPOSE THE CHANGE BIG OR SMALL WILL DISAPPEAR !! I BELIEVE THIS PROCESS WILL TAKE I TO 3 YEARS TO COMPLETE ,GOVERNMENTS WILL INTRODUCE SUPPORT PROGRAMS THAT ARE ALLOWED IN ALL THE TRADE AGREEMENTS ! IT WILL MEAN THAT THE DAIRY ,CHICKEN ,TURKEY FARMERS WILL BE FILING LOTS OF PAPER TO GET THERE DIRECT PAYMENTS FOR SUPPORT INSTEAD OF OUT OF THE PEOPLE THAT SHOP AT THE LOCAL FOOD STORE AND DO NOT BUY DAIRY ,CHICKEN OR TURKEY !! TIMES ARE CHANGING JUST LIKE WHAT PEOPLE LIKE TO EAT !! ALL I CAN SAY ,IS I TOLD YOU ALL THE GOOD TIME IS OVER AND NOW SOMEONE ELSE IS DRIVING THE BUS !! BILL DENBY ,IMPORTER / EXPORTER OF FOOD PRODUCTS
Too many supply management supporters get lost in the "fog" of their own protectionist rhetoric and miss the point that, for all intents and purposes, the windfall gains made by supply management come at the considerable expense of others in the food marketing channel - if the transfer of wealth to dairy and poultry farmers doesn't come directly from consumers, it comes from retailers, processors and distributors who, if they weren't selling dairy and poultry products on a marginal cost/marginal revenue basis, would be able to lower prices on something else, for the benefit of consumers who, by definition, end up paying the considerable costs of the protectionism which benefits supply management.
Therefore, I decided to go beyond the loss-leader hype and do a bit of cross-border price comparison - the first was at the Goderich Wal-Mart on January 16, and the second was at the Wal-Mart in West Monroe, LA on January 22. Both were "regular" shelf prices and, to all appearances, not weekly-special prices.
A dozen grade A large eggs was $2.64 in Goderich (I normally pay $3.19 at Moore's in Clinton) while they were $1.98 in West Monroe. Assuming an 85 cent dollar, the equivalent pricing would be $2.33, making Wal-mart's Canadian eggs over 13% more expensive, yet somewhat less than the 20% extra cost recognized by my source in the Canadian egg industry.
To be fair, the Goderich Wal-Mart only recently became a "Super Store" and, therefore, I suspect it may have adopted some sort of "predatory pricing" policy to rapidly steal market share away from the nearby Zehrs store. In addition I suspect that if Wal-Mart in Goderich continues to sell eggs for $2.64 (which is effectively Amish farm-gate pricing) and both grocery stores in Clinton continue to sell eggs at $3.19, it won't be long before we have only one grocery store in Clinton, or even none at all.
A pound of Neilson butter cost $5.14 in Goderich, while a pound of Lactantia butter cost $3.98 per pound in West Monroe or $4.68 in $Canadian equivalents which is just under 10% more - I picked brand name butter in both countries rather than "no-name" store brands in order to compare branded products with branded products.
I really couldn't do a milk price comparison because all of the milk in the West Monroe Wal-mart, except for a few branded (Borden) products, was pledged as being BST-free. I therefore, challenge Ontario's dairy farmers to adopt the same BST-free "pledge" that Wal-Mart's farmers do in the US, and see if that will help declining Canadian sales. It's one thing to mislead Canadian consumers into thinking that because BST isn't allowed to be sold in Canada that it doesn't exist in the milk produced and sold in Canada, it's another to make a pledge that you don't use it on your farm - if American farmers can make that sort of pledge to get what appears to be almost 100% of the shelf space at Wal-Mart, why can't (and/or why won't) Canadian dairy farmers do the same thing?
Naturally, and of course, the West Monroe store offered a plethora of Chobani yogourt products - the single serving size was 21.1 cents per ounce for which there can be no cross-border price comparison because, thanks to the greed and collective stupidity of supply management, Chobani isn't in Canada at all.
Therefore, while the retail price of milk may be confused by the fog of loss-leader pricing, the retail prices of butter and eggs typically should be, and appears to be, substantially less so. And it only stands to reason - it is preposterous for supply management supporters to maintain the charade that substantially higher farm gate prices completely evaporate, with no cost to anyone in the marketing channel, by the time the products get to the retail cash register.
Stephen Thompson, Clinton ON
If the supply management egg people just get 1 cent extra per egg how does that work out to family member
Given that I can't seem to find anything but BST-free milk at either Wal-mart or Kroger in the US, I challenge the supply management supporters on this site to match US farmers when it comes to pledging to not use BST on their farms.
Why should Canada be a third-world backwater allowing consumers to be screwed both on price and on choice?
Stephen Thompson, Clinton ON
Somewhat like the story of a US dairy farmer shipping so many kg. of BST-free milk and so many Kg. of milk from cows treated with BST,of course it all came out of the same bulk tank, into the same milk truck, to the same dairy.
Only difference is the farmer gets paid a premium on the BST-free milk...Brilliant!
Not if you remember that BST was turned down in Canada because of the negative impact on cow health not because of any effect on the milk - in fact the milk is identical with no increase in tiny BST levels that are always in milk. The milk is the same - but if someone will pay more, then some will charge them for their bogus choice....
It becomes a major PR thing but the fact is BST just does not fit in a quota system as good as in the States,where more milk the better.I think everyone has heard stories of some large Ontario producers dumping milk in order to get away from the severe over-quota penalties,that does not happen in the US.
There are no "severe over quota penalties" just no payment for it to prevent surpluses.
There are still deduction charges on that over-quota,that in some cases could be substantial.If it was just a matter of not getting paid for the milk there would be no "rumoured " dumping!
A roadside ad yesterday near Houston said - "Milk $1.99 per gallon". While I didn't stop to check whether it was BST-free or not, it still made me realize that if $1.99 was the loss-leader price for a gallon (3.78 litres) of milk in the US, and given that $3.99 is a loss-leader price for 4 litres of milk in Guelph, even when comparing cross-border loss-leader pricing there's too much of a difference between Canada and the US to be explained by anything other than supply management gouging.
When doing the math, converting 3.78 litres into four and when converting an 85 cent dollar, the US price becomes $2.48 for four litres compared to $3.99 (or almost 61% more) here.
When, to the nearest century, are supply management supporters finally going to "wake up and smell the coffee?"
Stephen Thompson, Clinton ON
Seems a little far to go for even the most intrepid cross-border shopper but to each his own.
You didn't notice if it was BST-free,did you happen to notice if it was 2%,1%,whole or even skim milk ? I think everyone on this forum realizes you're not in the dairy business but if you're going to bad mouth Canadian prices at least tell us what kind of milk you're comparing it to! Maybe it doesn't make a difference to you but there certainly are differences.
The completely-surprising thing about two weeks of cross-border shopping is that it is extremely difficult to find anything but BST-free milk in Wal-Mart and Kroger stores in the US - and since Kroger and Wal-Mart constitute a significant percentage of US sales, that makes valid cross-border shopping comparisons for milk relatively meaningless.
However, for the curmudgeons and dyed-in-the-wool supply management zealots, I bought a half gallon (1.89 litre) container of BST-free 2% milk in College Station, TX for $1.99 - that translates into $2.48 Canadian for a 2-litre equivalent for milk which does not contain BST. However, in order to allow the Canadian dairy industry to screw me for another several days, I decided to take my chances on BST and paid $3.99 for a two-liter container of 2% milk in my local supermarket last night when I got home.
I should also note that $1.99 for a half-gallon container of 2% BST-free milk seems to be the norm throughout the central part of the US, in the same way that $1.99 seems to be the norm for a dozen eggs.
In addition, while exiting the duty-free store in Port Huron last night, I noticed that the driver of the car beside mine was re-packing the back of his SUV so that his three, one-gallon jugs of milk would fit better. I didn't have the heart to ask him if his milk was BST-free because, based on my shopping experience, there was a 99% chance it was. And since the customer is always right (and by inference, dairy farmers always wrong) I rest my case.
Finally, I believe I have done my "homework" to entitle me to continue to bad-mouth the rip-off prices commanded by supply management, and look forward to doing so for years to come, or until supply management well-deservedly folds, whichever comes sooner.
Stephen Thompson, Clinton ON
Did you notice the price of fuel while you were away? It would be nice to have some other price comparisons.
So the price of milk is a few cents more on this side of the border sometimes. Why dont you talk about something the really make a difference like the price of gas.
Two weeks ago, you could buy gas for $0.90/L (cheaper today). That works out to $4.09/Gallon in canadian dollars.
The dollar was worth .8028 USD. That means a gallon of canadian gas was worth $4.24 USD.
But the price of gas was $.73/gallon USD in Detroit. We are paying 5 1/2 times more for fuel than the people across the border. I dont like milk and never buy it but I need gas because I live in a rural community with no public transportation. The cost savings to me if the price of gas was in parity with canadian prices would make a huge difference.
Since supply management is, by defintion, net-negative for jobs and economic activity, it always has been, still is and always will be nothing more than a mythology.
In addition, since the rabble on this site keeps claiming the free market is also little more than a mythology, it would seem appropriate to deflate the egos of the rabble by, in this instance, comparing mythologies.
For example, while shopping at one of the local Kroger stores yesterday, I noticed that gallon-sized (about 3.78 litres) jugs of 2% organic milk were priced at $1.79(US) per gallon. I don't recall ever seeing 4 liter containers of 2% organic milk in Canada, and if such a thing even exists, I suggest the price, even if was ever to be used as a loss-leader, would be light-years above $1.79(US).
However, to be fair, Canadian prices for rutabagas beat the US, hands-down, at least in Texas - a fist-sized rutabaga was $1.79 at Kroger, while that amount of money would buy one many times that size in Ontario.
Therefore, I challenge those who would inexplicably defend the "excellence" of supply managment, to stop smoking DFO propaganda and, instead, spend a week traipsing through the dairy aisles of US grocery stores.
Stephen Thompson, Clinton ON
check the price of fresh boneless chicken breast. Last time I was in the States, I found the chicken to have the largest price gap compared to Canada
Raube Beuerman
Likely they have GMO chicken that has 4 legs and 4 breast's that would make their COP cheaper !
What rules and regs do US chicken farmers have to follow . Seems to remember Canadian pork producers complaining about the reg differences before .
I noticed that my milk was cheaper today.
Presently Milk price has been increased steeply by the grocery oligopoly of NoFrills, Freshco and the like. What should families with kids do, if they increase milk price to almost double (3.25% milk) in Mississauga/Brampton.
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