Dairy industry monitors international milk prices

Wednesday, June 3, 2009

© AgMedia Inc.

by SUSAN MANN

Recent increases in American milk prices are beginning to alleviate concerns that Canadian dairy producers might experience competition in the domestic marketplace.

Phil Cairns, senior policy adviser with Dairy Farmers of Ontario, says Canada’s huge tariff on raw milk, 241 per cent, acts as a barrier to imports. But the Canadian dollar’s increase in value and low U.S. milk and world dairy product prices mean that even after importers pay the tariff, they can sell their milk at prices comparable to, or cheaper than Canadian domestic prices.

Cairns says he’d be really concerned if the Canadian dollar reached par with the U.S. dollar. On Tuesday, the Canadian dollar hit an eight-month high and was worth US $0.92.

However, milk prices in the United States have “started to creep back up in the right direction,” he says. In April it increased to US$9.82 a hundredweight, an increase of US $0.18 over March’s price. May prices will be released in the next few days and Cairns anticipates the price will continue increasing.

Bill Mitchell, assistant communications director for Dairy Farmers of Ontario, says farmers know the “tariff wall forms essentially a maximum domestic price. The tariff wall coming down could potentially lower their domestic price on classes.”

But historically, the two factors coming together - low U.S. prices and a higher Canadian dollar – has usually just lasted for several months.

Who would import raw milk? Cairns says it would be companies looking to make a profit or wanting an alternative supply source.

So far, the tariff system has been effective in preventing imports of raw milk, Cairns says. The tariff system came close to being breached several years ago on both butter and cheese.

Just seven per cent of global dairy production is traded internationally, while the remaining 93 per cent is consumed in the same country where it’s produced, Mitchell says. About half of the internationally traded milk is surplus production from the European Union and United States. The rest is from New Zealand and Australia. BF