Report Highlights:

Due to an increase in Canadian dairy requirements, total milk production for calendar year 2007 is forecasted to increase to 8.1 MMT. Production of cheese is expected to increase to 297 TMT. Available production data shows a 10% decrease in butter production in 2007 compared to the previous year. Due to the need to replenish butter stocks, butter production in 2007 is forecasted to reach 80 TMT. Available trade data suggests that an increase in usage of the IREP program will result in increased milk imports in 2007 compared to year 2006 levels, while butter imports will decrease due to a decrease in IREP usage for butter. A strong Canadian dollar vis a vis the US dollar, stable production levels and an increased domestic requirement is forecasted to result in lower dairy exports in 2007. Proposed changes to Canada’s cheese compositional standards were announced in 2007 that, if made into law, could have a negative on US cheese and dairy ingredients exports to Canada.

Production

Milk production in Canada supplies two markets. The fluid milk market includes creams and flavored milks. The industrial milk market is milk used for to make products such as butter, cheese, yogurt, ice cream and milk powders. In Canada, provincial milk marketing boards maintain responsibility for the production of its own fluid milk and set its own pricing formulas, quota policies and other regulations. Industrial milk production levels are allocated using a national management tool called the Market Sharing Quota (MSQ). Quota is allocated on a butterfat basis. It is set by the Canadian Milk Supply Management Committee (CMSMC), which applies the terms of the National Milk Marketing Plan (a federal-provincial agreement) to establish each province’s share of the MSQ. The provinces are then responsible for distributing shares of the quota to producers according to provincial policies and in accordance with pooling agreements.

The CMSMC sets the MSQ based on the recommendations of the Canadian Dairy Commission (CDC). The CDC monitors the trends in Canadian requirement and makes recommendations on the necessary adjustments to reflect changes in demand for milk for industrial dairy products. Since October of 2006, the CMSMC, based on recommendations by the CDC, has adjusted the MSQ (and thereby production) upwards every two months in response to increased Canadian requirements (consumer demand plus planned exports for industrial dairy products). The recent MSQ adjustments are presented in the graphic below:

Due to the increase in Canadian dairy requirements, total milk production for calendar year 2007 is forecast to increase to 8.1 million metric tons (MMT) from 8.0 MMT in 2006. The first six months of available industrial milk production data from Statistics Canada for 2007 does not show an increase in milk production in response to the increased demand. This is because the increase in Canadian requirements was met by releasing stocks into the marketplace. However, milk production will have increased in the last six months, as an increase in milk production is needed to replenish stocks and ensure that there is no shortage in the fall. For 2008, milk production is forecast to stay at relatively the same level with perhaps a slight decrease if support prices are increased to reflect increases in dairy producers’ costs of production.

Total cheese production for 2007 is expected to increase to 297 thousand metric tons (TMT, a 2% increase from year 2006 levels of 291 TMT. Cheese production for 2006 and 2007 has been adjusted to exclude fresh cheeses such as ricotta, cream cheese, and cottage cheese. Production of specialty (variety) cheese (excluding ricotta, cream cheese, and cottage cheese) is forecast to increase slightly to 154 TMT in 2007. Cheddar cheese production is forecast to also increase slightly to approximately 143 TMT in 2007. Total cheese production is forecast to slightly increase again in 2008 due to an expected increase in consumer demand. The Canadian economy is doing well and consumers tend to increase their consumption of specialty cheeses during those times.

The first six months of butter production data from Statistics Canada shows a 10% decrease in butter production in year 2007 compared to the same period of time in 2006. Due to the need to replenish butter stocks, meet the Canadian requirements, and high world prices, butter production in 2007 is forecasted to reach 80 TMT by the end of 2007. Butter production is forecast to increase to 83 TMT in 2008. Butter production declined from a high of 99,426 MT in 1990 to a low of 75,832 MT in 2002 to a new low of 75,406 MT in 2006. Between 2002 and 2006, butter production had rebounded and is expected to continue to do so, due to the increasing demand for butter for pastries and other baked products, the increase in dairy spread production, and its increasing use in the domestic market.

Non-fat dry milk production (skim milk powder (SMP)) production for 2007 is expected to increase by 4% to 75 TMT from 72 TMT in 2006 due to an increase in butter production. Increased butter production in 2008 is also expected to increase skim milk powder production in 2008. Despite the increase in production, stocks are unlikely to become unmanageable since additional markets are being found as an outlet for the surplus.

Consumption

Per Capita Consumption of Dairy Products

Per-capita milk consumption, calculated by dividing annual fluid milk sales of standard, 2%, 1%, skim and chocolate milk by the Canadian population decreased slightly in 2006 to 82.92 from 83.37 liters per person in 2005. Consumption of higher-fat milk like 3.25% and 2%, continued to decline in 2006 as consumers continue to shift consumption away from higher-fat milk in favor of 1% and as chocolate milk continues to gain in popularity. Skim milk consumption decreased slightly to 8.70 in 2006 from 8.73 in 2005. Consumption of 1% milk continues to increase and increased to 18.06 in 2006 from 17.84 in 2005. Chocolate milk consumption increased slightly in 2006, increasing to 5.49 from 5.47 in 2005. In the move away from higher-fat milk, consumers are shifting primarily towards 1% milk. In 2006, 3.25% milk accounted for 14.86% of consumption (15.10% in 2005), 2% milk accounted for 46.24% of consumption (down from 46.47% in 2005), 1% milk accounted for 21.78% of consumption (up from 21.40% in 2005), skim milk accounted for 10.49% of consumption (unchanged from 2003), and chocolate milk accounted for 6.63% of total fluid milk consumption (up from 6.56% in 2005). Fluid milk sales also support the changing trend in fluid milk consumption. Canada’s changing demographics and the availability of other calcium-fortified beverages such as soy beverages, has reduced consumer demand for milk over the past ten years. Immigration is responsible for the population growth in Canada and milk drinking often is not part of new Canadians’ cultural eating patterns. This has a negative impact on milk consumption in Canada. Conflicting health messages regarding the consumption of milk has also led to the increased popularity o f new beverage such as soy beverages that compete with milk. The dairy industry has tried to counter this with the promotion of milk beverages as an alternative to sugary fruit and soft drinks and as a way of combating obesity-related issues.

Despite the consumer shift away from higher-fat milk, consumption of cream, calculated as 10%, 18% and 35% cream sales divided by the Canadian population increased 3.4% in 2006 from 2005. Percapita cream consumption has increased 95% since 1980. Increased consumption of coffee, specialty coffee products and desserts have contributed to the increase in the use of cream.

Per-capita total cheese consumption (including fresh cheese) in 2006 was 2.83 kilograms, a 1.5% increase from 2005. Increases in per-capita cheddar consumption and processed fondu cheese is responsible for this increase, increasing 4.3% and 1.8%, respectively from year 2005 levels of 3.97 and 2.25 kilograms per capita. Consumption of specialty cheese and cottage cheese was unchanged between 2005 and 2006.

In 2006, per-capita butter consumption decreased for the first time in the last 10 years. Much of the decrease can be attributed to the decrease in the number of imports arriving under the Import for Re- Export Program (IREP) (for use in further processing) in 2006 as these imports are a part of the percapita consumption calculation. Per capita consumption of butter in 2006 fell to 2.83 kilograms per person from 3.15 kilograms per person in 2005, a 10% decrease. The high cost of butter and greater competition from healthy oils as consumers continue to demand healthier and lower-fat alternatives to traditional products, may also be contributing to the consumer’s demand for butter.

Domestic consumption of skim milk powder increased in 2006 by 12% to 3.15 kilograms per capita, as a result of the development of new uses and markets for the surplus powder. The Dairy Marketing Program was expanded in 2004/2005 into the area of innovation; the Program’s main objectives are to promote awareness and increase utilization of dairy products and components for dairy product manufacturers. This includes finding new and innovative uses for skim milk powder in dairy and food products. In addition, the creation of a new milk class that encourages the use of products like skim milk powder has also aided in the utilization and reduction of the surplus skim milk powder. The utilization of skim milk powder in animal feed is an additional outlet that is aggressively being pursued. The consumption of skim milk powder is expected to stay high, and will face reduced competition from imports once a new TRQ currently being negotiated for at the World Trade Organization (WTO) for milk protein concentrates is implemented. This new TRQ will not be applicable to the U.S.

Utilization of Milk

The Canadian Dairy Commission publishes the milk utilization by class (on a dairy year basis). The price paid for milk by processors varies according to the milk class 1 - 5. For dairy year 2006-2007, on the basis of butterfat content (3.6 kg/hectolitre), 29.64% of all the milk produced in Canada was transformed into fluid milk, cream, and milk beverages, 34.76% into cheese, 6.82% into yogurt and ice cream, 18.72% into butter, and 7.94% into further processed products destined for the domestic and export markets. More information on the harmonized milk classification system is available at the following website:http://www.cdc-ccl.gc.ca/cdc/index_en.asp?caId=812&pgId=2182

Further Reading

- You can view the full report, including tables, by clicking here.

List of Articles in this series

To view our complete list of 2007 Dairy and Products Annual reports, please click here

November 2007