Industry churns butter stock solutions

by SUSAN MANN

The wave of higher than normal butter stocks in Canada is starting to subside, says Phil Cairns, Dairy Farmers of Ontario’s senor policy advisor.

Cairns says small increases in demand and exports as well as matching production to current market requirements – especially in Western Canadian provinces that have produced over their quotas during the past year —have reduced the surplus.

The Canadian industry has wrestled with above normal butter stock levels for more than a year and has been unable to agree on a plan to bring them back down. In April, the Canadian Milk Supply Management Committee rejected proposals to adjust provincial quota levels based on butter stocks and freeze current provincial quota levels until December.

At its July 21 meeting, the Committee will try again with a different proposal. Cairns, who is also a member of a technical advisory committee to the Supply Management Committee, says the plan is to add an adjustment mechanism to the current calculation of Canadian requirements. “Whenever there are surplus stocks in the system there would be an additional adjustment to the quota to reduce the quota by the equivalent amount of the surplus stocks.”

Cairns says implementing a mechanism to deal with the surplus makes sense. “If it’s properly managed, I don’t think the DFO (board) would have any problem with it.”

Dairy Farmers of Ontario board chair Bill Emmott couldn’t be reached for comment.

Canada’s butter stocks have been higher than normal since early in 2009 partly due to the industry’s decision to manage national quota monthly rather than annually but also due to aged cheddar not selling well during the recession and processors shifting milk to make butter, Cairns says. “The butter market didn’t need it so it built stocks.”

Chantal Paul, communications chief with the Canadian Dairy Commission, says butter manufacturers can sell butter to the Commission through two programs, plans A and B, when they have a lot of milk and low demand; usually in the spring and summer.

In the fall when demand picks up, the Commission sells that butter back to the manufacturers at the current support price. “We don’t profit out of it,” she says.

Normal butter stocks vary throughout the year. But at the beginning of the dairy year, Aug. 1, normal stock levels are 3,000 tonnes in plan A and 9,000 tonnes in plan B. The stock levels as of June 25 were 2,925 in plan A, 12,407 in plan B, 648 tonnes for export and 232 tonnes of imported butter for a total of 16,212 tonnes.

Under its world trade obligations, Canada can export around 3,000 tonnes of butter a year. That’s in addition to the amounts that can go into plans A and B. World prices are currently more than $3 per kilogram lower than domestic prices. The domestic butter price is $7.10 a kilogram.

To deal with a surplus, the Supply Management Committee can either export butter or reduce the provincial market sharing quota levels so provinces “produce less milk, so they produce less butterfat so we use the stocks,” Paul says.

Cutting quotas is not “a popular decision,” she says, noting ultimately the farmer’s quota is cut. BF