Canadian Dairy Commission
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Increase to Support Prices for Butter and Skim Milk Powder Effective February 1st, 1999

OTTAWA, December 17, 1998 -- The Canadian Dairy Commission (CDC) today announced that, effective February 1, 1999, the support price for skim milk powder will rise from $4.4310 to $4.5247 per kilogram, and for butter, from $5.3927 to $5.4667 per kilogram. The pricing decision was taken by the Commissioners after full consideration of the views provided by major dairy industry stakeholders including milk producers, processors, further processors, restaurant and food service operators and consumers. As well, provincial cost of production formulae, market conditions, the changing dairy environment and the economy in general were considered.

The increase in support prices provides additional market revenue to producers to offset a planned reduction in the dairy subsidy of $0.76 per hectolitre as well as $0.09 per hectolitre to cover a revenue shortfall that occurs when the subsidy reduction is recouped through an increase to the support price for skim milk powder rather than fully recovered on butter.

After carefully reviewing the cost of production calculations, an additional amount of $0.27 per hectolitre is provided to producers to partially offset a shortfall in domestic market returns they received in the 1997-1998 dairy year.

CDC Chairman Guy Jacob indicated that these changes are expected to result in higher milk prices for processors of $1.12 per hectolitre or about 1.8 percent which is in line with forecasts of increases to the Consumer Price Index for 1999.

"The Commission felt that this balanced approach provides some increase to producer incomes while maintaining domestic market stability," explained CDC Chairman Guy Jacob.

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

Support prices are used as references by provincial boards for pricing milk sold to processors. Actual consumer prices for dairy products are also influenced by many factors such as transportation and packaging costs and margins obtained in the supply chain.

Federal dairy subsidy payments, which will be phased out by January 31, 2002, continue to moderate the price of industrial milk products sold to consumers by reducing the portion of producer revenues to be provided from the marketplace. Payments are made to producers on their industrial milk and cream shipments that are within quota and are needed to meet domestic demand.

The carrying charges associated with the purchase and storage by the CDC of normal stocks of butter to ensure plentiful supplies for domestic needs, and to cover administrative costs related to the CDC's domestic marketing activities have been held at $0.07 per hectolitre. The level of assumed processor margin also remains unchanged.

Overall, producer revenues are achieved through the market return on dairy products, and the federal subsidy payment.

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.