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Provinces creating new dairy class

The move is seen as a proactive strike against cheap imported milk proteins

Anew initiative by Ontario milk producers could help to slow the growing flood of milk protein imports undermining the Canadian dairy industry.

Dairy Farmers of Ontario has implemented a new class for dairy ingredients which will allow processors to get competitively priced milk protein concentrates domestically instead of importing them.

The new milk class, known as Class 6, took effect April 1. Manitoba hopes to implement a similar program August 1, the start of the new dairy year.

The move by provinces is seen as a proactive strike against cheap imported milk proteins creating instability in Canada’s supply-managed dairy sector.

The industry is currently negotiating a national ingredient strategy but provinces say they can’t wait that long.

“We felt it was very important to begin to move in that direction sooner rather than later,” said David Wiens, Dairy Farmers of Manitoba chair.

The Ontario program centres on skim milk, which goes through a process known as ultrafiltration to generate concentrates containing up to 90 per cent protein and used in cheese, yogurt and other prepared dairy foods.

A growing consumer demand in Canada for butterfat has created chronic surpluses of non-fat milk solids (i.e. skim milk powder) that cannot be exported, have a limited domestic food market and are often sold for livestock feed. This paves the way for imports of high-protein milk concentrates, which are not subject to tariff-rate quotas applied on other dairy imports.

Canadian milk used to be the base component for dairy products. But many processors are now adding less costly milk protein ingredients instead of using 100 per cent milk. Since these ingredients enter Canada under the tariff wall, they are cheaper and more competitive.

Import tsunami

The result is that, over the years, imported milk protein has grown from a trickle to a virtual tsunami. According to Statistics Canada, nearly 27,000 tonnes of non-tariff milk protein substances worth almost $130 million entered Canada in 2015, more than double the volume in 2013.

DFO’s solution is to move skim milk from animal feed to a new class which identifies components of skim-based products. These components are priced according to a formula reflecting the world price for milk, which is lower than the domestic price.

The idea is that processors will buy competitively priced domestic protein substances instead of importing them, said Graham Lloyd, DFO’s general council and director of communications.

Lloyd insisted the purpose is not to prevent milk protein imports but to give processors a local option.

“Our hope is that, should domestic processors choose to use it, it’ll reduce the amount of surplus skim going to animal feed and those lower classes,” Lloyd said by phone from Mississauga.

“The program is not designed to replace or displace imports. It’s designed to compete with them. It positions the domestic product competitively. No more, no less.”

The change could also encourage processors to upgrade aging plants and expand drying capacity to ease the strain of skim milk powder surpluses, Lloyd said.

Lack of drying capacity is a chronic problem for Ontario processors. Last year Ontario had to dump 800,000 litres of skim milk because the province lacked the capacity to dry it.

“If the product is priced competitively, there becomes a marketplace for it. Once there’s a marketplace for it, then processors have an incentive to invest and modernize their plants. Once they do that, we are then hopeful there will be a greater space or capacity for drying further skim. That would free up space for more butterfat, more usage for whole milk,” said Lloyd.

U.S. challenge?

He rejected suggestions in a recent Globe and Mail article that the competitive ingredient class could trigger a World Trade Organization challenge by the United States on the grounds that it constitutes an unfair subsidy.

“Whenever you create a program that makes Canadian products competitive (compared to) anything that is regularly imported, you have to be prepared for some form of challenge. But I can tell you with great certainty that the Ontario program has been designed to defend any type of challenge because it simply is not an import replacement or export subsidy program.”

Wiens said creating a new and higher class for skim milk could eventually boost dairy farmers’ incomes if it means less skim milk going for low-priced animal feed.

“Within this program I expect that our incomes will be stable and I also expect that potentially it allows us to continue meeting the Canadian market.”

Meanwhile, Canada’s milk producers continue to lobby the federal government to reclassify milk protein substances so they are subject to import tariffs, just like other dairy products.

“We are simply asking that the existing rules be enforced in the manner they are intended to be enforced,” Caroline Emond, Dairy Farmers of Canada executive director, said in a Mar. 9 presentation to the House of Commons agriculture committee.

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