OTTAWA, ONTARIO - The Canadian Dairy Commission (CDC) announced today increases in the support prices for butter and skim milk powder that will be effective February 1, 2011. The support price for skim milk powder will increase from $6.1783 to $6.2721 per kg. The support price for butter will increase from $7.1024 to $7.1922 per kg. Support prices are the prices at which the CDC buys and sells butter and skim milk powder to balance seasonal demand changes on the domestic market.

For dairy producers, this increase in the support prices should translate into a revenue increase of 1.5% or $1.12 per hectolitre(1) for industrial milk used to make products such as yogurt, cheese, butter and skim milk powder. Prices received by producers for fluid milk and cream are determined by provincial authorities through a process independent of this announcement. The overall increase to producers may vary depending on the pricing decisions made by provincial authorities.

"The current situation is that farm revenues are lagging behind cost increases, especially since there was no rise in support prices last year" said Randy Williamson, Chairman of the CDC.

The new support price of butter will also include a reduction of 1 cent per hectolitre in the carrying charges collected by the CDC to pay for the storage of the normal butter stocks.

The margin received by processors for the skim milk powder purchased by the Canadian Dairy Commission will increase by 12 cents per hectolitre (1.5%) to take into account rising processing costs.

The impact of this increase at the retail level will be influenced by many factors such as manufacturing, transportation, distribution and packaging costs throughout the supply chain.

The Canadian Dairy Commission, a federal Crown corporation created in 1966, is a key facilitator within the Canadian dairy sector. The CDC helps design, implement, and administer policies and programs to address dairy producer and processor needs. It is mandated to provide efficient dairy producers with the opportunity to get a fair return on their labour and investment, and to ensure that Canadian consumers are provided with adequate supplies of quality dairy products.

BACKGROUND ON SUPPORT PRICES

November 2010


What is pricing?

Pricing is the process that the Canadian Dairy Commission (CDC) follows to review and establish support prices for skim milk powder and butter for the year to come.

What are support prices?

Support prices are the prices at which the CDC purchases and sells butter and skim milk powder within the framework of its various programs. Support prices are used as references by provincial milk marketing boards and agencies for determining the price paid by processors for the portion of the milk produced that gets processed into butter, skim milk powder, cheese, yogurt, ice cream, etc.

What are the steps of pricing?

1. Each year, the CDC, in collaboration with provinces, undertakes a national survey on the cost of producing milk (the COP survey).

2. In the fall, the CDC holds consultations on milk prices. The following segments of the industry are formally invited:

* Dairy producers
* Processors
* Further processors
* Retailers
* Restaurateurs
* Consumers

3. CDC Commissioners then make a decision on the support prices which is announced in mid-December and effective February 1st of the next year.

What is the pricing decision based on?

The CDC Commissioners base their pricing decision on the following elements:

* The results of the COP survey
* The arguments presented by the various stakeholders consulted
* An evaluation of the processors' margin
* Various economic indicators such as the Consumer Price Index
* Their own judgment, experience and knowledge of the industry.

The price that producers receive for their milk, how is it established?

The price that producers receive for their milk is determined provincially. Mechanisms will vary from province to province. Provincial marketing boards and agencies should be contacted for further details.

(1) One hectolitre is equal to 100 litres.