December 18, 2003

Canadian Dairy Commission Hike Milk Prices To Producers

The Canadian Dairy Commission (CDC) recently announced a price increase to producers of two cents per litre of milk ($2.20/hectolitre). This increase is to fulfill CDC's commitment to close the price gap so as to ensure that 50% of dairy producers can cover their cost of production by the year 2006. However, the incremental cost burden that producers must currently bear is not taken into consideration.

The CDC has missed a great opportunity to help ease producer strain caused the mad cow (BSE) crisis. The impact of BSE on the producer cost of producing milk is about $2.80 per hectolitre. The compensation program announced by the federal government in November amounts to about $0.66 per hectolitre, which is insufficient to relieve producers' reduced margins resulting from the BSE crisis.

"The CDC missed a chance to help producers when the BSE crisis caused a drop in sale of animals and struck a serious blow to producers' bottom lines," said Jean Gregoire, President of Dairy Farmers of Canada. "Producers are facing increased costs beyond their control and the CDC is offering them exactly the same percentage increase they are offering processors. Producers deserve greater consideration, especially when the retail market shows strength."

Despite the CDC's attempts to close the gap so that 50% of producers can cover their cost of production, the gap is not closing very fast. With the added impact of BSE, the producers' cost of doing business is increasing. Meanwhile, since 1990, the retail price for dairy products has increased at less than the rate of inflation and much less than the increase in consumers' disposable income.

"Only when the gap closes will average producers in Canada be able to cover their full cost of production. Only then will the CDC be in a position to claim that it is fulfilling its commitment," concluded Mr. Gregoire.