OTTAWA, ONTARIO--(Marketwire - Feb. 14, 2013) - The Canadian Dairy Commission (CDC) announced today increases in the support prices for butter and skim milk powder that will be effective April 1, 2013. The support price for butter will increase from $7.2810 to $7.3379 per kg, and the support price for skim milk powder will increase from $6.3673 to $6.4170 per kg. Support prices are the prices at which the CDC buys and sells butter and skim milk powder to balance seasonal changes in demand on the domestic market. They are also used as references by provincial marketing boards to price industrial milk used to make products such as yogurt, cheese, butter and skim milk powder.
"The change in support price reflects the increase in the cost of inputs, especially the cost of feed," says Randy Williamson, Chairman of the CDC. "However, it remains considerably lower than the rate of inflation for food which currently stands at 2.4%. Furthermore, the CDC is determined to continue to seek efficiencies in dairy production and processing in order to support market growth for milk and dairy products."
For dairy producers, this increase in support prices should translate into a revenue increase of 0.9% for industrial milk. Prices received by producers for fluid milk are determined by provincial authorities through a process independent of this announcement. The overall increase to producers may vary depending on the pricing decisions made by provincial authorities.
The carrying charges collected by the CDC to pay for the storage of normal butter stocks and the margin received by processors for butter and skim milk powder purchased by the Canadian Dairy Commission remain unchanged.
This year, the CDC delayed its decision on support prices in order to further its consultations with industry stakeholders and to take into account the many changes occurring in the industry.
The impact of this increase at the retail level will be influenced by many factors such as manufacturing, transportation, distribution and packaging costs throughout the supply chain.
The Canadian Dairy Commission, a federal Crown corporation created in 1966, is a key facilitator within the Canadian dairy sector. It is mandated to provide efficient dairy 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 quality dairy products. The CDC helps design, implement, and administer policies and programs to address dairy producer and processor needs.
BACKGROUND ON SUPPORT PRICES
What is pricing?
Pricing is the process that the Canadian Dairy Commission (CDC) follows to review and establish support prices for skim milk powder and butter for the year to come.
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 are 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 of pricing?
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, the CDC holds consultations on milk prices. The following segments of the industry are formally invited:
- Dairy 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. This year, because of ongoing discussions with industry stakeholders and the many changes in the industry, the CDC had to postpone its decision.
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.