Importance of the Canadian dairy sector

• The dairy sector is the third largest agricultural industry in Canada behind grain and red meat production. The total net farm cash receipts from the dairy sector in 2000 was $4.1 billion. Quebec received about 38% of the total Canadian net receipts (~$ 1.6 billion). At the retail level, daily products is valued at $8 billion accounting for 14% of all sales in the food and beverage industry in Canada. There are about 26,000 people working on dairy farms and about 20,500 people are employed at the primary processing level.

Structure of the Canadian dairy farms

• There are about 20,624 dairy farms in Canada (2000) producing about 8 billion liters of milk (3.6% fat) per year. The typical diary farm in Canada has 50 cows and produces 326,000 liters of milk per year. Although the number of dairy farms has declined considerably in the last 20 years, the volume of milk produced has remained almost the same.

• More than 85% of the dairy cows in Canada are Holsteins. Other breeds include Jersey, Ayrshire, Brown Swiss and Canadienne. The average production of the Canadian dairy cow reached a level of 8,738 kg of milk in 305 days of lactation (Table 4). Canada is among the countries having the highest average levels of milk production.

• The annual revenues from milk and cattle sales per farm are about $175,000 (1998-99). Milk revenues are generated from marketing dairy products and from the federal dairy subsidy. In 1999, the subsidy was set at 2.28 cents per liter.

 

Table 3. Number of cows and (heifers) by province (`000)

Table 4. Average production of Canadian dairy cows by province (1999).

2- Industrial milk market: Includes milk used for manufacturing dairy products such as cheese, butter, and ice cream (61% of the market). 

Despite the fact that most of the milk sold in Canada is industrial milk, the ratio of fluid:industrial milk varies from one province to another (Figure). For instance, more than 80% of the milk sold in Quebec is industrial milk while more than 60% of the milk sold in BC is fluid milk. 

Fluid milk sales in 1999-2000 totaled 2.7 billion liters. The 2% fat milk accounted for 51% of total fluid milk sales while homogenized milk 3.25% fat) accounted for 16% of the total fluid milk sales. Specialty milk products (e.g. microfiltered products, calcium enriched milk, lactose free milk) are gaining popularity. More than 50% of the industrial milk is used for the manufacturing of cheese. The total amount of fluid milk sold in Quebec in 1999-2000 was 6.5 million hL (24% of the fluid milk sales in Canada).  The 2% milk accounted for 59% of the fluid milk sales in Quebec. 

Most of the industrial milk (~60%) sold in Canada is used for cheese production. The total cheese production in Canada in 1999-2000 was 326,000 tons with cheddar accounting for 40% of total cheese production (Figure). Canada's production of specialty cheese in 1999-2000 was 193,598 tons with mozzarella accounting for 59% of the total specialty cheese production (Figure). Quebec is the main cheese producer in Canada, accounting for 50 and 58%  of total cheddar and specialty cheese production, respectively. Quebec is also the leading province in butter and yogurt production (38 and 48%, of the total production, respectively) while Ontario remains the leading ice cream producer in Canada (48% of total production). 

Table 4. Per capita consumption of dairy products in Canada (2000).

Introduction

2- Control of dairy product imports through tariff rate quotas. 

3- Federal price subsidies. 

·The supply management system is employed by the dairy industry in Canada to provide a balance between the supply of industrial milk and the demand for dairy products based on butterfat usage. The system was adopted in the early seventies to enhance income stability for dairy producers and to reduce market unstability. 

·The Canadian Dairy Commission pays subsidy directly to the producers on deliveries of industrial milk. Subsidy on qualifying shipments of industrial milk and cream is $0.844 per kg of butterfat. In the early nineties, the subsidy was $6 per hL of milk (3.6% MF) and has dropped to $0.76 per hL in 2001.  This subsidy will be eliminated by the year 2002. There is no limit to the amount of milk a producer can deliver in excess to their quotas. However, producers will receive world price for production exceeds quotas. 

·In order to maintain stability to the national milk supply management system, Canada has placed several restrictions to minimize the import of dairy products. However, these restrictions changed in 1995 as a result of the World Trade Organization Agreement on Agriculture, which moved Canada into a much more global market place and opens the door for more imported dairy products. The imported dairy products are first received by the Canadian Dairy Commission and then sold to processors for further processing in a manner design to minimize adverse effects of domestic market. 

The Canadian Dairy Commission (CDC)

Duties of the CDC

- Administration of pooling agreements on behalf of dairy producers. 

- Determination of support prices at which it will purchase butter and skim milk powder. 

- Works with the private sector to balance the seasonal demand and supply of dairy products. 

- Acts as the first receiver of imported butter. 

- Exports Canadian dairy products either directly on a government to government basis or through Canadian exporters. 

- Provides technical support to provincial boards and the CMSMC (chairman of the CMSMC).
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Table 1. Market Sharing Quota by province for the year 2000.

Source: Canadian Dairy Commission

Each province allocates its share of the MSQ to its producers according to its own policies. Supply management takes into account the domestic demand for industrial milk, certain imports and some production, which is shipped to export markets. Estimates of MSQ are based on : 

- Previous year's domestic consumption. 

- Anticipated changes in demand. 

- Projected dairy product stocks. 

- Import commitments. 

- Export obligations 

A safety margin (currently 1.2%) known as the sleeve, is added to estimated MSQ to absorb unexpected increases in demand. Milk surpluses are managed trough quota and stock adjustment, and export programs. In 1995, the Canadian dairy industry adopted a new system for pricing and pooling of market return. Under this system, industrial milk is classified and made available for use in dairy products at prices, which vary according to the end use of the milk.

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Inter provincial marketing pools

• Several agreements have been signed by provinces for revenue sharing of milk sales. In 1995, an agreement (known as P9 agreement) was signed between all provinces to share revenue form sales of industrial milk among all provinces (except New Foundland). In 1996, six provinces (Price Edward Island, Nova Scotia, New Brunswick, Quebec, Ontario, and Manitoba) signed an agreement to share revenue from all milk sales (fluid and industrial). This marketing pool is known as the Eastern All Milk Pool or P6. 
• In 1997, the four western provinces (Manitoba, Saskatchewan, Alberta, and British Columbia) implemented a similar pooling system known as Western Milk Pool  The main feature is that the use of fluid and industrial milk is on a regional basis rather than a provincial basis. The pooling agreements, which are administered by the CDC ensure that revenues from all milk sales (fluid and industrial) are shared among provinces.

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Farm gate prices of milk

- Quota will move from fat only to multiple component price for fat, protein and other solids. 

- Raw and processed fluid and industrial milk will move freely across provincial borders (now only industrial products move freely. 

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• Canadian Dairy Commission.
• Canadian Dairy Information Center.