Mid-year hike has been controversial but soaring costs have to be recognized, says J.P. Gervais.
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Pouring a glass of Milk

Anyone expressing surprise or dismay at the recently announced plan to increase the farm-gate milk price this fall is ignoring financial realities, says the chief economist at Farm Credit Canada.

“I definitely saw it coming,” J.P. Gervais said about the Canadian Dairy Commission’s approval of a 2.5 per cent price increase to take effect Sept. 1.

“There was little doubt in my mind that there would be a request for a mid-year increase.”

The move has drawn criticism because inflation is running high and the commission already approved an 8.4 per cent increase in February. The latest increase was also opposed by two of the six organizations the commission typically consults, Restaurants Canada and the Retail Council of Canada.

But costs have continued to soar this year, the dairy commission said in a news release.

“Feed, energy and fertilizer costs have been particularly impacted (by inflation), with increases of 22 per cent, 55 per cent and 45 per cent respectively since August 2021,” it said.

Gervais said he likes to point out to milk price naysayers that the dairy commission recommendation doesn’t ultimately amount to a fixed farm-gate price. Rather, it’s a “target price” that fluctuates depending on what happens in the marketplace regarding different classes of milk and milk components.

“That’s a widely misunderstood fact in the general population,” he said.

Perspective is also important, he added. While food has been taking a larger share of household budgets in recent years, food costs here are lower than in many countries, said Gervais.

“When you start off from a situation where we were very fortunate to buy high-quality food at a reasonable price compared to much of the rest of the world, that changes the perspective.”

The dairy commission said that “in the last five years, the consumer price index for dairy increased by 7.7 per cent. This compares to 14 per cent for meat, 21 per cent for eggs, and 32 per cent for fish.”

The commission also offered a comparison with recent farm-gate changes in the European Union and U.S., citing increases of 23 per cent and 49 per cent, respectively, over the past year for fluid milk.

The 2.5 per cent increase works out to $1.92 per hectolitre (or 1.92 cents a litre) but grocery store prices aren’t necessarily going to mimic the farm-gate price, said Gervais. The price of fluid milk will likely rise by around that amount but that might not be the case for cheese and yogurt.

However, costs are going up all along that supply chain.

“At the end of the day, everything costs more,” he said, adding that relief may be in sight.

“If we get good crops in North America this year (and) if we get a good supply of grains and oilseeds in 2022 … there should be some relief for the dairy cost of production.”

As well, by the end of this year “we’re likely done with rising interest rates” and inflationary pressures should ease, said Gervais.

“I’m an optimist. I think we’re going to see inflation slow.”

Restaurants Canada said the move sets a bad precedent and that “restaurants are at a point where they can no longer absorb or pass along any kind of additional charges.”

However, Dairy Processors of Canada said, “the mid-year adjustment … will allow for dairy prices to increase more incrementally and may mitigate the impact on consumers.”

With calving underway, dairy farmers are being urged to plan ahead to combat feed shortages.

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