Canadian Dairy Commission

Canadian Dairy Commission

December 15, 2006 15:52 ET

The Support Price for Skim Milk Powder Will Increase on February 1st, 2007

OTTAWA, ONTARIO--(CCNMatthews - Dec. 15, 2006) - The Canadian Dairy Commission (CDC) announced today that, effective February 1, 2007, the support price for skim milk powder will increase from $5.8337 to $5.9212 per kg. The support price for butter will remain unchanged at $6.8695 per kg. Support prices are the prices at which the CDC buys and sells butter and skim milk powder to balance seasonal supply and demand changes on the domestic market.

For dairy producers, this increase in the support price of skim milk powder (SMP) should translate into an increase of 0.75 cent per litre (1.06%) for industrial milk used to make products such as yogurt, cheese, butter and skim milk powder. Prices received by producers for fluid milk and cream are determined by provincial authorities by a process independent of this announcement. The new support price of SMP will also include an increase of 0.03 cent per litre in the carrying charges collected by the CDC to pay for the storage of the normal butter stocks. The actual increase to producers may vary slightly depending on the pricing decisions made by provincial authorities using support prices as a reference.

The margin received by processors for the skim milk powder purchased by the Canadian Dairy Commission, and included in the support prices, will remain unchanged.

"I believe that this small increase is appropriate in the current marketplace" said John Core, Chairman of the CDC.

Any market impact of the increase 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. The CDC helps design, implement, and administer policies and programs to address dairy producer and processor needs. 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.

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 study on the cost of producing milk (the COP study).

2. In the fall, the CDC holds consultations on milk prices. The following segments of the industry are formally consulted:

- Dairy producers

- Processors

- Further processors

- Retailers

- Restaurateurs

- Consumers

3. CDC Commissioners then make a decision on the support prices which is announced in mid-December and effective February 1st of the next year.

What is the pricing decision based on?

The CDC Commissioners base their pricing decision on the following elements:

- The results of the COP study

- 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.

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