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3 Open Minutes with Canadian Dairy Commission Policy and Economics Team

Published on 31 January 2019

In late October, the Canadian dairy industry officially changed how it calculates requirements and quota allotted to provinces in order to be more responsive to market needs and allow forecasting beyond a one-year period, thus creating a more reliable forecast model.

Progressive Dairyman Editor Karen Lee posed the following questions to the Canadian Dairy Commission (CDC) about the Total Requirements/Total Quota forecast model change. Here are responses from the CDC Policy and Economics Team.

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Please explain the change made to how requirements are calculated and the quota allotted to provinces.

CDC Policy and Economics Team: The Total Canadian Requirements calculation was modified to become more reactive to changes in demand in Canadian dairy processing markets. The calculation previously used yearly totals to estimate monthly demand. Now the calculation uses only monthly datasets to produce a monthly Total Requirements figure.

The monthly Total Requirements figure is then used as the initial input to calculate Total Quota. The monthly Total Quota figure begins with Total Requirements and deducts all requirements served by imported sources of butterfat through existing Tariff Rate Quotas administered by the CDC. The Total Quota calculated by the CDC is allocated to regional milk pools and subsequently issued by provincial agencies to quota holders. Quota issuance is based on provincial and regional milk pool policies, using the allocated Total Quota as a target.

To accompany each of these calculations, the CDC has refined its forecast models to provide a window into expected changes in requirements and quota in the coming years. Forecast models are used as tools to anticipate future market trends beyond the current month.

When did it come into effect?

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CDC Policy and Economics Team: Through the Canadian Milk Supply Management Committee (CMSMC), the industry made the decision to implement the new models in late October 2018. The new Total Requirements and Total Quota models came into effect for the October 2018 quota calculation. The industry made this decision after more than two years of research, analysis and consultation.

Were stakeholders involved in this process? How?

CDC Policy and Economics Team: Milk marketing boards and agencies from each province were involved throughout this process. The research and analysis were conducted by a working group of the CMSMC in cooperation with the CDC. Membership of this working group was made up of technicians from provincial milk marketing boards and agencies.

Regular updates were given to the CMSMC and its Secretariat committee, which have a variety of stakeholders at the table including dairy farmers and dairy processors. In addition, the CDC visited provinces for extensive consultation during the summer and fall of 2018. The final decision to adopt the new policy was made by the CMSMC and was based on its merits.

Why was this change necessary?

CDC Policy and Economics Team: The change to the models was necessary due to unprecedented market growth for butterfat in the Canadian dairy industry. Traditionally, growth in butterfat demand has been stable at 1 to 2 percent per year. However, in recent years, growth exceeded 3 percent. As a result, it was necessary to implement a more responsive calculation to avoid any lags in capturing growth. The new policy also streamlines calculations, improving transparency and communication.

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How will it affect farmers in the short term?

CDC Policy and Economics Team: The change to the new monthly models allows the CDC to provide more precise production signals for producers. This will help mitigate the risk of shortage or surplus production in Canada. Further, the forecasting models allow provincial milk marketing boards and agencies to issue quota in anticipation of future production needs.

What is its impact for processors?

CDC Policy and Economics Team: As a result of the increased responsiveness of the new models, processors will have a closer-to-market supply of milk. This will help ensure production meets processor demand within the regular seasonal fluctuations of supply and demand.

What will it mean for the industry long term?

CDC Policy and Economics Team: In the long term, the new model will help to balance supply with demand more efficiently in Canada.  end mark

Karen Lee
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