The Facts about the Retail Price of Milk

Certain critics have spread false information about the process behind the adjustment of the farm gate price of milk and the retail price of dairy products at grocery stores by trying to suggest that dairy producers are responsible for the higher retail prices. However, we have clearly demonstrated that what producers are paid for their milk is still just a fraction of its actual value.

But first, let us return to the second farm gate price adjustment announced during the year. As we already know, the price paid to producers is usually indexed once per year by the Canadian Dairy Commission (CDC) based on a formula that takes production costs (50%) and the Consumer Price Index (50%) into account. The decision is then announced at the end of October and takes effect on February 1.

Following its consultations in the fall of 2021, the CDC announced a large 8.4% increase effective in February 2022 for Classes 1 to 4, excluding ingredients, which had an estimated effect of around 6¢ per litre for producers. Even though this is historically the largest increase ever, it did not offset the meteoric rise in the cost of inputs that we have seen on farms since the beginning of 2022. In June 2022, dairy cattle feed costs had climbed 18.9% since January 2022, while fertilizer had risen 7.8% and fuel 53.4%. These are major expenses in the cost of producing milk. Of course, in addition to these costs, we also have higher interest rates and inflation, which affect all of our business expenses.

The CDC’s mandate is to ensure equitable revenue for efficient dairy farmers. A midyear adjustment was necessary due to the exceptional circumstances caused by these higher costs. That is why the CDC announced a 2.5% increase in the farm gate price of milk for September 1, 2022. This increase is an advance. When prices are analyzed as usual in the fall, the September adjustment will be deducted from any February adjustment.

As entrepreneurs, we try every day to cut our costs and be as efficient as possible, and we see this in our improving feed efficiency and the lower number of hours worked to produce a litre of milk. The whole planet and all industries have been hard hit by higher costs. Like everyone else, we too have to adjust to the current situation. Naturally, we understand that consumers are also feeling the strain on their finances, in every type of expense, including food. The adjustments made to the price of milk were necessary to ensure the viability of our farms.

 

In the false information that has been spread, there are all kinds of misstatements about milk price fixing in the retail and food service sectors. In Quebec, the retail price of fluid milk is not only regulated based on the price paid to producers, but also on the demand by processors and retailers.

 

In the false information that has been spread, there are all kinds of misstatements about milk price fixing in the retail and food service sectors. In Quebec, the retail price of fluid milk is not only regulated based on the price paid to producers, but also on the demand by processors and retailers. This regulation sets a minimum price for all types of milk and a maximum price for regular types of milk. In addition, retailers set the retail price of other products and adjust them at their discretion, as these products are not regulated, and the free market rules apply.

When consumers buy dairy products at the grocery store, the producers who produce and deliver their milk receive only a portion of the sale price. We are talking about 54% for fluid milk and about 14% for yogurt, for example. The case of butter is quite specific: Considering that around 9 litres of milk are required for one pound of butter, the milk is valued at $4.11, even if the retail price is $5, $6, $7 or $8. The last two increases, i.e. 8.4% and 2.5%, had a very specific effect: $0.56 for one pound of butter. No more, no less. The farm gate price of milk is therefore only one of many factors that enter into the cost structure of the price that consumers pay for dairy products.

Furthermore, it should be noted that the Consumer Price Index (CPI) for dairy products has increased less rapidly than for all other foods in Canada in the past five years. For instance, the CPI for dairy products has risen 17.3%. In comparison, the index grew 44.8% for margarine and 36.9% for vegetable oil.[1] And according to the data compiled by The Nielsen Company, milk is still a healthy, high-quality and economical option for Quebec consumers, with an average price[2] of $2.10/litre. Plant-based beverages were sold at a price that was 12.7% higher during the same period, i.e. $2.37/liter.

Thanks to supply management, the farm gate price adjustment process administered by the CDC is public and transparent, which is not the case in other sectors, where the prices are adjusted discreetly and without justification. Supply management gives us financial stability and an environment that is conducive to investment, which allows us to innovate, improve ourselves and make efficiency gains.

In recent years, we have seen just how vulnerable we are to crises, such as the COVID-19 crisis, the war in Ukraine, climate change, disruptions in the supply chain and the labour shortages. Our system helps us get through the crises and brings stability to our economy, thanks in large part to our investments and the jobs generated by dairy production. The some 20,000 people who work every day on Quebec farms are dedicated to producing a local, high-quality and nutritious food. Our profitability is crucial if we are to keep playing our essential role: feed Quebec.

[1] Statistics Canada, July 2017 to July 2022.

[2] Over 4 weeks ending June 18, 2022.

 

SignatureDanielGobeil

 

Daniel Gobeil, Chairman

 

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