OTTAWA, ONTARIO--(Marketwired - July 15, 2016) - The Canadian Dairy Commission (CDC) announced today an increase in the support prices of butter and skim milk powder that will be effective September 1, 2016. The support price of butter will increase from $7.7815 to $8.0062. The support price of skim milk powder will increase from $4.4176 to $4.5302/kg.
"These adjustments in support prices are meant to offset the significant reduction in producer revenues in the last year. This revenue reduction has been partially compensated by a declining cost of production, which allowed us to limit the price adjustment" says Alistair Johnston, Chairman of the CDC. This lower revenue was partly due to a decrease in world prices and partly due to larger sales of surplus milk protein in low-priced markets.
The CDC expects these adjustments in support prices to add up to an overall revenue increase of approximately 2.76% for dairy producers for milk processed into yogurt, ice cream, cheese, and butter. Prices received by producers for fluid milk are determined through a process that is separate from this announcement. Overall increases to producers will depend on the pricing decisions made by provincial authorities.
The impact of these adjustments at the retail level will be influenced by many factors such as manufacturing, transportation, distribution and packaging costs throughout the supply chain.
The margin received by processors for butter and skim milk powder purchased by the CDC under the Domestic Seasonality Programs will remain unchanged. Carrying charges collected by the CDC to pay for the storage of normal butter stocks will also remain unchanged.
Support prices are used by the CDC when buying and selling butter and skim milk powder under its Domestic Seasonality Programs. These programs balance seasonal changes in demand on the domestic market.
The Canadian Dairy Commission, a Crown corporation created in 1966, is a key facilitator within the Canadian dairy sector. It is mandated to provide efficient milk producers with the opportunity to get a fair return on their labour and investment, and to ensure that Canadian consumers are provided with adequate supplies of dairy products. The CDC helps design, implement, and administer policies and programs to address stakeholders' needs.
BACKGROUND ON SUPPORT PRICES
What are support prices?
Support prices are the prices at which the CDC purchases and sells butter and skim milk powder within the framework of its various programs. Support prices may be used as references by provincial milk marketing boards and agencies for determining the price paid by processors for the portion of the milk produced that gets processed into butter, skim milk powder, cheese, yogurt, ice cream, etc.
What are the steps leading to support price adjustments?
1. Each year, the CDC, in collaboration with provinces, undertakes a national survey on the cost of producing milk (the COP survey).
2. In the fall or as needed, the CDC holds consultations on milk prices. The following segments of the industry are formally invited:
- Milk producers
3. CDC Commissioners then make a decision on the support prices which is announced no less than 45 days before they take effect, generally towards the end of the year.
What is the pricing decision based on?
The CDC Commissioners base their pricing decision on the following elements:
- The results of the COP survey
- The arguments presented by the various stakeholders consulted
- An evaluation of the processors' margin
- Various economic indicators such as the Consumer Price Index
- Their own judgment, experience and knowledge of the industry.
The price that producers receive for their milk, how is it established?
The price that producers receive for their milk is determined provincially. Mechanisms will vary from province to province. Provincial marketing boards and agencies should be contacted for further details.