Canadian Dairy Commission
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Increase to Support Prices for Butter and Skim Milk Powder Effective February 1st, 2001

OTTAWA, December 15, 2000   The Canadian Dairy Commission (CDC) today announced that, effective February 1, 2001, the support price for skim milk powder will rise from $4.6842 to $4.8394 per kilogram, and for butter, from $5.5407 to $5.7261 per kilogram. The decision was made after giving careful consideration to the national Cost of Production study carried out in the regions, the general state of the economy as well as the views provided by major dairy industry stakeholder representatives from the farm, processing, further processing, grocery distributor, restaurant and consumer sectors.

The market revenues resulting from these higher support prices will provide dairy farmers with an amount of $2.13 per hectolitre, or 3.8 percent above their current returns. Of this amount, $0.85 was included for the purpose of continuing to allow for the recovery of the consumer subsidy from the marketplace. Consequently, net returns to dairy farmers will increase by $1.28 per hectolitre or 2.3 percent above last year''s net returns, which is below the current rate of inflation of 2.7 percent.

The decision maintains the carrying charges of $0.07 per hectolitre associated with the costs of storage programs used to offset seasonal fluctuations in milk production. There is no change in the level of the assumed processor margin.

Among the factors considered in the decision, the Commission noted that the overall state of the Canadian economy is positive. Disposable income is up and consumer demand for dairy products remains strong.

"The Commission considered that increasing costs for inputs such as fuel, transportation and fertilizer, as well as higher costs for labour and management experienced on dairy farms should be appropriately reflected by a price adjustment," explained CDC Chairman Guy Jacob.

The CDC purchases butter and skim milk powder at prevailing support prices to balance seasonal supply and demand changes on the domestic market.

Support prices are used as references by provincial boards for pricing milk sold to processors. However, actual prices consumers pay for dairy products are influenced by many other factors such as manufacturing, transportation, distribution and packaging costs throughout the supply chain.

The consumer subsidy is being phased out over a five-year period ending January 31, 2002. As the subsidy moderates the price of industrial milk products sold to consumers, the Commission has maintained the practice of recovering the reduced federal payments from the marketplace.

The Commission noted that in the period 1997-2000, net returns to dairy producers increased by 4.2 percent while the Consumer Price Index (CPI) for all foods increased by 4.2 percent and the CPI for all items increased by 5.5 percent.

Industrial milk is used to make dairy products such as butter, cheese, yogurt, ice cream and skim milk powder.

The Canadian Dairy Commission, a federal Crown corporation created in 1966, is a key facilitator within the Canadian dairy sector. The CDC helps determine, initiate and administer policies and programs which meet dairy producer and processor needs, while ensuring that Canadian consumers are provided with adequate supplies of quality dairy products. In fulfilling its mandate, the CDC provides a framework for the federal/provincial participation that is crucial given the shared jurisdiction in the industry.