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Good, bad and ugly: A processor’s perspective of factors impacting the dairy industry in 2017

Progressive Dairyman Editor Karen Lee Published on 12 October 2017

As some efforts that effect Canadian dairy policy are making an impact, others are just at the starting point.

In presenting to the Progressive Dairy Operators at the group’s annual banquet on Sept. 14 in Woodstock, Ontario, Michael Barrett, president and CEO of Gay Lea Foods, the largest dairy cooperative in the province, labeled each of these items as good, bad, ugly and a big unknown.

Good: The ingredient strategy

The implementation of Class 6 in Ontario and Class 7 nationally has spurred growth for Gay Lea Foods and the country’s dairy industry, which was its intention, Barrett said.

“If one of the goals was to make sure there was investment, then the ingredient strategy has certainly worked,” he added.

Since the implementation of Class 6 in Ontario on April 1, 2016, there have been two announcements of significant investments in the province. One of which was Gay Lea’s announcement to invest $140 million across its facilities, including a new drying facility. “These investments would not have taken place without Class 6 in Ontario and Class 7 nationally,” Barrett said.

The growth in the ability to process milk in Canada has resulted in quota growth for dairy producers.

Barrett noted the strategy is not yet fully operational but, for the most part, it is finished.

While some pieces are working well, there are some pieces that are not, one of which is the fact there is a huge international surplus of milk powder.

“Everyone is increasing milk production,” Barrett said. “If they can’t sell it, they turn it into powder, which then has continued pressure on world pricing.”

For the better part of the past year, the world price for skim milk powder has been declining. “It gets very, very difficult to be able to sell powder into the marketplace with pricing looking like this and being able to maintain margins, but the volatility is ours,” he said, continuing, “You can’t cry for Class 6.

You can’t cry for control and then cry foul when it doesn’t work on pricing. As a co-op, we just have to be able to utilize and reflect the marketplace.”

Barrett said he plans to keep focused on the long game. “The ingredient strategy has worked well. We don’t regret being part of that partnership.”

Bad: Canada’s Food Guide

The initial draft for the revisions to Canada’s Food Guide released this summer put an emphasis on plant-based foods while removing “milk and alternatives” as one of the four main groups.

“It is bad. It’s absolutely ridiculous, and we should be very concerned,” Barrett said.

He quoted a statement in the Toronto Sun, which read: “The elimination of the milk and alternative products category from the food guide would send a message all proteins are the same and not take into account that milk products contain nutrients vital to human health, such as calcium and potassium, other protein-rich foods don’t.”

Immediate action is required by every farm and every person who works in the industry to ensure dairy remains an important part of the food guide. One way, he suggested, is to go to www.keepcanadianshealthy.ca and sign the online petition.

“We cannot sit by and idly allow bureaucrats in Ottawa to determine that dairy is no longer an important food group,” Barrett said.

Ugly: CETA

The Comprehensive Economic and Trade Agreement (CETA) between Canada and the European Union entered into force provisionally on Sept. 21. Most of the agreement now applies, but there are still some issues to be arrived at with the EU.

Meanwhile, the government of Canada is marketing to Canadian businesses on how good the agreement is for the country.

“It’s not good. It’s ugly,” Barrett said. “We didn’t like it to begin with. What we don’t like is how it is being delivered as well.”

The agreement did prompt the initiation of the Agriculture and Agri-Food Canada Dairy Farm Investment Program with $250 million to be dispersed to farmers to improve productivity through upgrades to their equipment over the next five years. However, the first year of the program was fully subscribed in seven days.

“If you weren’t quick off the mark, you as a farmer didn’t get an opportunity to try to capitalize on that,” Barrett said.

The government has also offered a $100 million Dairy Processing Investment Fund for dairy processors to support investments in equipment and infrastructure, or provide access to specialized expertise to introduce new products or processes.

“Unfortunately, Gay Lea decided it was going to build Teeswater prior to implementation of the program, so we’re not eligible for the funding that takes place,” he said.

The shortfalls of the investment programs aside, Barrett’s main contention with CETA is in how the cheese tariff rate quota was allocated.

“Based upon the discussions we had and were having with the Canadian government was that they understood it was important to be able to divide the quota to those processors who are actually investing in Canada,” he said. Instead, 50 percent was given to retailers, distributors, brokers and importers who don’t have investments in processing capacity.

“We are not happy with this,” Barrett said. “It was not what we were led to believe.”

Unknown: NAFTA

The distrust brought about by CETA is not sitting well with Barrett as Canada enters another set of trade discussions in the renegotiation of the North American Free Trade Agreement (NAFTA).

“There is a trust factor that has been broken. We have to be very conscious of this because CETA’s one thing. CETA is an irritant; NAFTA could be a way of life,” Barrett said.

“[NAFTA] has integrated our economies and would be very difficult to pull apart without massive economic disruption, not only to agriculture but also to many, many of our industries,” he added.

There is a lot of opposition to Canada’s dairy policy, including supply management and the ingredient strategy. Barrett listed U.S. President Donald Trump and his administration, U.S. border states that invested in ultrafiltered milk, the U.S. Congress, the World Trade Organization’s Agriculture Committee, U.S. dairy lobbyists and other countries with a strong export interest like New Zealand.

Canada’s best approach to maintain its dairy policy in NAFTA discussions is to look for partnerships, use fact versus fiction, have strong united leadership and use every opportunity it can to influence.

“You can’t take [our current policies] for granted,” Barrett said. “We have to be diligent. We have to celebrate the good pieces, but we also have to be aware of the bad stuff and be aware of the ugly.”  end mark

Karen Lee
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