Gay Lea investing millions to increase dairy processing in Ontario. By John Greig.
Ontario’s Gay Lea Foods has announced $140 million in projects to be spent over four years to dramatically increase dairy ingredient processing in the province.
The announcement last week in Teeswater, Ont., is the result of several years of work to bring revitalized ingredients processing to the province and to stem the flow of milk protein ingredients coming across the border in greater volumes.
Dairy ingredients have been a challenge for Canada’s supply management system as they are inexpensive and have been able to enter Canada duty-free.
The creation of a national strategy, approved this summer, has created a lower-cost class of milk for use in dairy ingredients. The aim is to have the national strategy implemented by February 2017.
Dairy Farmers of Ontario forced the implementation of that strategy with the unilateral creation earlier this year of what is now called Class 6, for milk destined for lower-priced ingredients, such as milk protein concentrates and milk protein isolates.
“This means an extra level of security for the future,” said Ralph Dietrich, chair of Dairy Farmers of Ontario. “This is the reason we implemented Class 6 pricing. We want to create the environment so processors make the investment in Ontario. This is a direct result of the ingredient strategy, so we are very pleased with it.”
At one point, Ontario had most of the other provinces and Dairy Farmers of Canada against its ingredients strategy, but Dietrich said there had been two earlier attempts to create an ingredients strategy over the past 12 years, and with greater amounts of dairy ingredients being imported into the country free of tariffs like there was “no tomorrow.”
“We always felt it was the right thing to do. We felt so strongly about it and the urgency of the timing. We did receive the wrath of the country for that and we don’t blame them.”
The price of Class 6 ingredients will be closer to world price, designed to give processors the option of buying Ontario and eventually Canadian ingredients versus imports.
Tying more of Canadian dairy production to world price will mean more variation in the price paid to dairy farmers.
Dietrich said the DFO has no control over what products can be imported legally, but it can find a way for Canadian products to compete.
Ontario regularly has too much skim milk and sells much of it into the feed market, which is at a lower price than the world price for milk, so having markets for skim milk and greater drying capacity in the province should create more stability for the lower value dairy ingredients. Last fall some skim milk was discarded because there was no market for it.
This year, Dietrich said the demand is better balanced and there isn’t as much of a skim milk surplus.
Dietrich also said that the ingredients strategy will make smaller processors more competitive, as many of them have been loyal to Canadian milk, but that has made them less competitive versus processors importing ingredients.
In the first phase, $60 million will be spent in expanding processing capacity in Teeswater, where Gay Lea has a plant. The Teeswater plant has been part of Gay Lea since 1981.
The first phase will also fund a new research and development centre for dairy ingredients in Hamilton. Dietrich pointed to opportunities in pharmaceuticals derived from dairy products as an important area of potential future use for dairy ingredients.
The first phase will also result in some improvements to current plants.
Gay Lea Foods CEO Michael Barrett could not be reached for comment before publication.
Gay Lea is in a significant expansion mode, recently announcing a joint venture with Vitalus Nutrition to build a new dairy ingredients and butter processing facility in Winnipeg. It has also purchased Stirling Creamery and Black River Cheese, along with a minority interest in Mariposa Dairy Ltd., in 2016. It also is a major player in Ontario dairy goat milk processing, with the purchase of Hewitt’s Dairy in 2014.