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Features In the Kitchen Ingredients
Support prices increase again in 2008

The cost of dairy products will go up one per cent


February 29, 2008
By Canadian Pizza

Topics

It’s not a significant hike, given the history of dairy
prices in Canada, but the cost of cheese will still be going up in
2008. How much is yet to be seen.

It’s not a significant hike, given the history of dairy prices in Canada, but the cost of cheese will still be going up in 2008. How much is yet to be seen.

The Canadian Dairy Commission (CDC) has announced increases in the support prices for butter and skim milk powder that will be effective Feb. 1, 2008.

The support price for skim milk powder will increase from $5.9212 to $5.9835 per kg. The support price for butter will increase from $6.8695 to $6.9316 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.

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The Canadian Restaurant and Foodservice Association sees the small increase as a “step in the right direction,” according to Ron Reaman, the federal vice-president for the CRFA.

“With unjustifiable price hikes over the last many years, dairy products have priced themselves off the menu. Restaurateurs want to grow the market for Canadian dairy products, but it can’t be done when these products are among the most expensive in the world.”

For dairy producers, this increase in the support prices should translate into a revenue increase of one per cent, or 70 cents per hectolitre (100 litres), 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 overall increase to producers may vary depending on the pricing decisions made by provincial authorities.

“Increased productivity at the farm level allows the CDC to announce an increase that is below inflation. Our decision takes into account increases in direct farm costs such as feed, fuel, fertilizers and herbicides,” said Randy Williamson, Chairman of the CDC.

The CRFA says, while the one per cent price increase in 2008 is a drop of good news; there are ongoing challenges and questions for restaurateurs and consumers when it comes to Canada’s dairy industry:
 • The price of industrial milk is the traditional benchmark from which provincial milk marketing boards set the price for fluid milk and cream. But last year some provincial boards came up with a new equation that led to much higher prices for consumers. Will the same thing happen again this year?
• Dairy producers are pushing for changes to the compositional standards for cheese that would significantly alter cheese production in Canada. The result will be higher prices and less selection for consumers, including fewer low-fat dairy products available on the market. 
• Pizzerias continue to compete on an uneven playing field with frozen pizza manufacturers when it comes to the price of their main ingredient, mozzarella cheese. Fresh pizza makers are forced to pay prices up to 30 per cent higher than the special price offered to their competitors, frozen pizza makers.
 

However, little was mentioned again this year of the “temporary” increase dished out in 2005 to compensate for the Canadian beef and dairy industry being hit by BSE (bovine spongiform encephalopathy, or more commonly known as mad cow disease). Last year, the CDC rolled that “temporary” increase into base prices, and dished out the annual hike on top of the previously adjusted price.

The new support price of butter will also include an increase of two cents per hectolitre in the carrying charges collected by the CDC to pay for the storage of the normal butter stocks.

The margin received by processors for the skim milk powder and butter purchased by the Canadian Dairy Commission, and included in the support prices, will increase by 10.7 cents per hectolitre to take into account rising energy costs.

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. Dairy costs have shot up, as most consumers have already seen at the retail level.

On an international scale, prices also continue to increase, while domestic consumption declines. In 2006, Canada was the highest priced nation for butter and skim milk prices, almost three times higher than the world average.

Yet, consumption is expected to drop 12 per cent by 2020, after already shrinking 16 per cent since 1986.
The Montreal Gazette, in an editorial from early in 2007, called the CDC’s approach one of “cartel economics, made legal.” The newspaper cites tariffs reaching 300 per cent to ensure Canadian dairy
producers have a captive domestic market.

This approach is also something that has not gone unnoticed by the World Trade Organization, which has continually slapped the hand of the Canadian dairy industry for a system that looks suspiciously like inflated domestic prices to subsidize lower international trade prices.

“The CDC has made a responsible pricing decision for 2008, but we have a long way to go before we can turn the tide of declining dairy consumption in Canada,” says Reaman. •


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