Aging milk dryers limiting Canadian dairy sector

Without new industry investment dairy producers could 
be stuck in a negative loop as existing infrastructure ages

Aging milk dryers and industry paralysis on how to move forward and modernize is setting the stage for a prolonged crisis in the Canadian dairy sector.

Without a plan to address the situation, milk producers are going to pay the price of this shortfall, says Peter Gould, CEO and general manager of the Dairy Farmers of Ontario.

“In the absence of a well-thought-out strategy and plan to go along with it, we could well face a future of a shrinking industry, divestment, more dependence on imports, all with a devastating impact on rural Canada,” Gould told the Senate agriculture committee. He said the issue will affect rural communities and rural infrastructure, all of which are heavily dependent on a strong dairy industry in many parts of Canada.

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Central to the challenges facing the sector is a shortage of milk dryers and the age of 10 of the 12 currently in operation, he said.

“As of right now, every single one of those dryers has reached its capacity, meaning those plants cannot receive or process more milk,” Gould said.

That means the industry cannot produce more butter to meet the growing demand or turn more skim milk into powder, he pointed out.

Ten of the dryers are more than 40 years old and have outlived their useful life.

“In fact, any one of those dryers can fail at any time,” Gould said. “Failure means decommissioning due to physical failure or no longer being able to meet a quality standard required by the companies that buy the skim milk products. Those old dryers cannot make the products that are demanded in the market.”

Because there’s not enough dryer capacity, skim milk is being disposed of across Central and Eastern Canada every day, he noted. A year ago, from Ontario east, the industry reached its collective capacity for drying skim milk powder.

“We find ourselves on the brink of change,” Gould told the Senate agriculture committee. “The status quo is not an option. Doing nothing is not an option.”

The solution lies in new ingredient facilities to both expand drying capacity and produce new products from skim milk solids for the food industry and consumers.

“Facilities have to be much bigger than they are today and we estimate that to begin with we need at least twice as much capacity as what is being replaced,” Gould said. “That’s to meet the pent-up demand as well as to be in a position to satisfy growth for the next 15-20 years.

It takes about three years to build a new facility, he added, one of which is already under construction.

“A large butter powder processor in Ontario is taking an interim step. It’s not the full-ingredient facility that we’re looking for, but it will address the issue to some extent in the short term.”

Dairy farmers and processors have discussed the need for financial assistance in building new facilities with government representatives, he said. He did not mention any figures.

“To literally modernize the Canadian dairy industry, we need to bring it into the 21st century,” Gould said.

DFO has been supporting processors because the only way for producers to succeed is through investment in new processor infrastructure, Gould said.

“We need to transition from where we are to being able to service the market and supply the products in the forms and the types that are in demand,” he said. “That means processors processing more milk, producing more milk on farms and putting quota in the hands of producers.”

Gould added the investment is a good one for producers because new quota is distributed to existing producers in proportion to the size of their current operations.

“It doesn’t cost the farmers anything,” Gould said.

Gould said additional quota generally plays out one of three ways, all positive for the industry. Existing producers have the chance to expand and modernize. New entrants will find it easier to get into the business. Existing farms will be less likely to exit the industry.

“All the way around, there is a lot of positive impact,” Gould said.

Dairy Farmers of Ontario introduced an ingredient strategy in April.

“We’re literally one month into it, so it’s a little early to tell whether or how it’s working, but we’re both confident and optimistic it’s a move in the right direction,” Gould said.

The plan creates a class that includes all skim solids and products made from skim solids, and price them at what the industry calls a competitive price. That will create an environment that is conducive for new investment, and simpler than the current system, Gould said.

“(It) offers potential for growth and return on investment to those companies that choose to make the investment,” Gould said.

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