Expected dairy price increase a result of rising production costs, say U of G expert, local dairy farmer

WELLINGTON COUNTY – Soaring production costs in one of Wellington County’s largest agricultural industries means a noticeable increase in the price of dairy products for consumers is coming in the future.

In late October, the Canadian Dairy Commission (CDC) announced a completed review of farm gate milk prices, which is the price paid to dairy farmers or producers, and determined they should be increased. 

Beginning Feb. 1, 2022, farm gate milk prices are recommended to increase by $0.06 per L, which is an 8.4 per cent increase. 

Michael von Massow, a food economist at the University of Guelph, said this is a bigger jump than seen in many years. 

“If you look at the consumer level, the price increases for dairy products have been fairly consistent,” von Massow said, adding this is due to the supply management program that tends to smooth out variabilities in the market.

He explained milk prices aren’t set based on broader inflation but based on the CDC review of the cost of production. 

He said recently the cost of fertilizer, feed and fuel have all been going up which would contribute to the CDC’s recommendation. 

The degree to which this impacts prices for consumers isn’t clear as this also depends on the level of processing involved but von Massow said he expects it to be noticeable.

While the increase seems high, Fergus-area dairy farmer Janet Harrop, also the president of the Wellington Federation of Agriculture, said it is still considerably less than the general increase of food in correlation to the same period of time.

A press release from the CDC noted in the last five years, the consumer price index for dairy has increased by 7.4 per cent compared to 11.8 for meat, 20.6 for eggs and 7.7 for fish. 

Von Massow said he believes this may be an important point being missed. He said food prices generally are rising in Canada for a variety of reasons — for example he noted the drought in Western Canada will have a significant impact on red meat — but most industries don’t announce these in advance. 

“The historical sort of smoothing of the big ups and downs that dairy has seen will still happen, it’s just that this year we’ve had our shock to the system so we have record high increases in milk prices,” von Massow said. 

“We’re highlighting dairy because there was an announcement but we’re ignoring the other because they don’t get announced in advance.”

Overall, he said this announcement is good news for dairy farmers and there’s many in Wellington County. 

Although it isn’t the largest producer by volume, data from OMAFRA shows Wellington County has more dairy producers than any other county in Ontario with 371, or more than 10 per cent of the total in the province. 

Harrop confirmed dairy farmers are facing soaring costs in feed, fuel and fertilizer but also in lumber and steel as she described these operations as “essentially small manufacturing businesses.”

“The CDC looked at their cost of production and had producers that were saying our margins were getting so tight, it was really hard to cover their operating costs,” Harrop said, adding she has personally experienced this recently. 

Dairy farmers have no other recourse to recoup costs other than through the CDC and Harrop said the recent announcement doesn’t even fully meet the increased cost of production.

“We sell all of our products to Dairy Farmers of Ontario that then work with all the processors to be able to use that product,” Harrop said. “We don’t have the ability to pass any kind of increased costs directly to our consumers.”

New farm milk prices will become official once approved by provincial authorities which is expected in December.