What is behind the market price of dairy products?

 

Picture by Jessica St-Pierre

Dairy products are part of the Canadian daily diet recommendations (Government of Canada, 2017). They can be present as milk when we were kids, as cheese or yogurt for a snack, as cream in our morning coffee or as ice cream during the hot days of summer. Most of us know that these products come from the milk a white, pure and tasty product that is generated by dairy producers all around Canada. Mainly due to the presence of a quota system that regulates this production. Did you ever wonder what is actually behind the price you are paying?

On the market, the milk from the farm is divided in different classes according to the final product obtain. Every class have subclasses, but let make it simple. In general, class 1 represents the drinking milk and cream of every fat level, class 2 represents the yogurt and ice cream frozen or not, class 3 represents every type of cheeses, class 4 includes every type of butter and powder, and class 5 (i.e. the special class) include every dairy product use in secondary processing (CDC, 2016). The price of the milk being transformed, the one consumers can purchase, is based on all the contributors involved in its production and marketing. This price should be able to pay the producers for the production of the raw material, the transformer for its change to other products that contain milk, and the distributor and retailer for the sell to consumers.

Frequently, it is said that producers are paid base on the kilogram of butter fat produce which is set to cover their production costs. It is the general definition of the quota system. In fact, it is more complicated than that. The milk price at the farm is determined over three main categories of sell. The fluid milk category has a price base equally on the Consumer Price Index and the Cost of Production Index which composed the indexing formula. The second category is based on the support price of butter and skim milk powder set by the Canadian Dairy Commission. The third category is based on the world market price (PLQ, 2016; L’actualité).

A small portion of the price is regulated for the retailers that sell dairy products. Only the regular fluid milk found in plastic bags of 4 litres and the carton box without plastic cap of 1, 1.5 or 2 litres have a fix minimum and maximum prices. Other milks find in carton box with plastic cap or with added value or certify organic for examples have their price fix at the own discretion of the retailers as it is not regulated by any rules. The price regulation is done to ensure an efficient and harmonious marketing of various agricultural products. For example, on average in Quebec, the minimum retailer price is fixed at 1.92$ and the maximum retailer price is fixed at 2.08$ for 1 litre of 3.25% fat (RMAAQ, 2018). This allows the different retailers to fix a price within this 0.16$ interval and it is similar for the other fat levels.

If we are still unsure that the price for milk is fair, let compare it with the price all around the world and for other commodities. According to a comparison of prices done by the Dairy Farmers of Canada and Nielsen Society in 2016, the Canadian milk price was higher than United States prices by 0.26$, but lower than New Zealand and France prices by 0.20$ and 0.27$ respectively (PLQ, 2017). Within Canada, milk was less economic than other commodities such as soft and sports drinks. However, milk was more economic than juices, almond and soy drinks (PLQ, 2017). This seems fairly good for a product that is produced locally.

Next time you are passing by the dairy section, do not forget all the contributors behind these products and hopefully you will enjoy more the prices.

 

References:

Canadian Dairy Commission (CDC). 2016. Harmonized Milk Classification System. Available at http://www.cdc-ccl.gc.ca/CDC/index-eng.php?id=3811 (accessed 12 Feb. 2018). Canadian Dairy Commission.

Government of Canada. 2017. Get your copy. Available at https://www.canada.ca/en/health-canada/services/food-nutrition/canada-food-guide/get-your-copy.html#a1 (accessed 12 Feb. 2018). Government of Canada.

L’actualité. Détermination du prix du lait. Available at http://lactualite.com/assets/uploads/2015/12/2015-12-14-Prix-du-lait-fiche-techniqued%C3%A9tail-versionN1.pdf (accessed 12 Feb. 2018). Mishmash Média.

Les Producteurs de lait du Québec (PLQ). 2016. Comprendre et répondre à la croissance. Available at http://lait.org/fichiers/RapportAnnuel/FPLQ-2016/RapportAnnuel2016.pdf (accessed 12 Feb. 2018). Les Producteurs de lait du Québec, Longueuil, QC.

Les Producteurs de lait du Québec (PLQ). 2017. La gestion de l’offre et la mise en marché collective du lait. Available at http://lait.org/wp-content/uploads/2014/11 /BROCHURE_FR_2017.pdf (accessed 12 Feb. 2018). Les Producteurs de lait du Québec, Longueuil, QC.

Régie des marches agricoles et alimentaires du Québec (RMAAQ). 2018. Prix du lait de consommation. Available at http://www.rmaaq.gouv.qc.ca/index.php?id=118 #ContenuPage (accessed 12 Feb. 2018). Régie des marches agricoles et alimentaires du Québec, Montréal, QC.

 

4 responses to “What is behind the market price of dairy products?”

  1. dorianebisaillonbielen says:

    This article was really interesting and highlighted how differently the price for a dairy product is set according to the class it fits in. This article was simple and the information was very easy to understand while still providing some technicalities which is certainly its strongest aspect. To improve the quality of information provided, it would have been relevant to mention how and if the price evolve in time and how often it is reviewed. While some may argue that the price is set too high for milk, the comparison of price between different countries and within the country with other types of drink put everything into perspective, to come to the conclusion that the price seems fair and within the range of other similar commodities. Nonetheless, an explanation of why this topic might be controversial could have been included. The take-home message I keep from this article is that we are paying for a product that is not only produced locally, but that has gone into the hands of many organizations before ending up on the shelves in grocery stores and that the price is a direct consequence of the journey of milk produce. The title was straightforward while intriguing by formulating it as a question.
    Nonetheless, I wonder how this method to set the price is viewed in the industry from the different point of view of producers, processors, distributors and retailers. Do they feel like they get enough for their work? Does it satisfy the producers? Do some benefit more from it than others?

  2. yasminschuermann says:

    When choosing to read an article, often times we never make it past the title and I must say that I applaud the simple and engaging title that Jessica brainstormed. I knew exactly that the author was going to decipher the mystery behind the price of milk paid by consumers and how exactly this value is established. I particularly enjoyed the heartfelt introduction towards milk products and I got a little hungry for a bowl of ice cream! I commend Jessica for taking on the task of addressing milk pricing, as it must have been difficult to gather the information on different milk product classes. Although, I think it would have been noteworthy to address the aspect of the new class 7 products, which stirred some controversy last year, and whether they had any recent impact on milk prices in Canada.

    Jessica included all the steps from on-farm production to retailers and how the price of milk is meant to cover everyone’s cost, while still selling at a reasonable price. It is important to inform consumers that there is very little leeway in different prices offered at the store and that every value is calculated to provide a fair price for milk products. Furthermore, a strong aspect of this article was that Jessica compared milk pricing between Canada and other countries, where the latter depend mostly on the world market price. I was surprised to learn that the milk price was lower in Canada compared to both France and New Zealand. This would lead to further questions as to why these prices are in fact lower in these countries? It would have been interesting to the compare the annual milk product consumption of the French versus that of the Canadians, with these different prices. Very informative article!

  3. Olivia Belisle says:

    The title of this article is very clear, and it is a question, which makes it intriguing. The introduction pulls you in as well by bringing up childhood memories. The goal of this article is to provide some awareness to the public, and producers, regarding the price breakdown of milk and compares the price of milk in Canada (specifically Quebec) with prices in the USA, New Zealand and France. The strongest aspect of this article is how the topic relates to people personally and explains who they are paying when they pay for milk and other dairy products. My one suggestion for this article would be some slight grammar improvements. The mistakes make the article a bit clunky. Despite this the message is clear.

    The most compelling argument of this article is the price comparison. It truly shows how our country competes on the world dairy market. While the information on price allocation, and the different kinds of dairy products is interesting, the information of world markets leaves the reader feeling like they know more about their country’s economy. The photo plays well into the introductory paragraph and is an asset to this article. There are many ways in which this article could be expanded, going into more detail with costs and the justification of price allocation. Overall, very informative and a pleasure to read.

  4. Julie Major says:

    You say the price paid to the farmer depends on the category of the milk. How is the category determined?

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