P5 Tasked with Lowering the Excess SNF Ratio This Coming Year
EDITORIAL / ÉDITORIAL
George Van Kampen Chair, Jersey Canada Milk Marketing Committee The structural surplus or excess Solids Non Fat (SNF) has grown over the past 10 years from a domestic demand of 2.20 to 2.01. This is due to an increased consumption of butterfat and a decrease in fluid milk consumption. After multicomponent pricing was introduced 25 years ago some producers lowered their B.F. test to increase the amount of SNF they could do on their B.F. quota, leading to an increase of structural surplus. Years later the industry placed an SNF cap on provinces, who in turn put SNF caps on their producers. The problem was rather than basing the cap in Domestic demand, it was based on an negotiated SNF B.F. ratio which would result in a surplus. All SNF produced above the domestic demand would be pooled and paid to all producers. It should be noted that surplus SNF has a rough value of $3.00 while domestic SNF has a value of about $11.00 As B.F. demand grew and SNF demand diminished the milk board did very little until Class 7 was introduced in 2017. Because Class 7 was a non-contingent class the milk industry could not only compete with low price SNF that were being imported but they could also export as much excess SNF that the industry could process.
About a year and a half ago the Western Milk Pool directors realized that their processors could not process enough raw milk to meet the B.F. demand in Western Canada. To remedy this they changed the pricing of raw milk to the producers and paid 85% of the milk for B.F., 10% for protein and 5% for other solids. This had the desired effect and the SNF to B.F. ratio dropped. It has also helped the blend price for all producers especially low SNF ratio producers, some of who enjoyed $10 per hectolitre increase in their blend price for milk. The P5 Quota Committee was much more reluctant to change, thinking processing capacity would continue to rise to handle the increasing SNF and exports of SNF to grow as well. Soon the Canada-US-Mexico Trade Agreement will be ratified, throwing chaos into the P5 Quota Committee’s plans. Canada exported 75,000 metric tonnes of excess SNF in the 2017-2018 dairy year and projected higher amounts in 2018-2019. Milk has also been skimmed for its butter fat and the excess SNF has been dealt with for even more structural surplus. Under CUSMA, Canada is limited to 55,000 metric tonnes of exports SNF in year one and 35,000 metric tonnes of SNF in year two. This will require the P5 Quota Committee to address this issue by next year.
It was noted at the fall regional meeting that 92.5% of producers have a ratio between 2.10 and 2.40 and 14.86% of producers have a ratio greater than 2.30 (18.5% in Ontario) which is not surprising give the current policy signal is to produce milk at 2.35 ratio to increase gross revenue. THE P5 SNF POLICY REVIEW HAS 5 PRINCIPLES TO LOOK OVER: 1. Send a clear market signal 2. Decrease excess SNF production 3. Equity between producers 4. Maintain SNF production discipline through at least one SNF/B.F. ratio 5. Have a policy with the flexibility to include research findings about dairy components and/or market changes. With principals so vague it is up to the milk producers to hold the directors of the milk boards accountable to ensure the producers are treated fairly.
Canadian Jersey Breeder / Eleveur De Jersey Canadien DECEMBER / DÉCEMBRE 2019 9
