Milk Producer - April 2010 - (Page 8)

DAIRYUPDATE Market outlook Mature dairy industry likely to grow at same one per cent pace as population O verall growth in the Canadian dairy industry will likely continue at the same rate as population increases over the next decade, two Dairy Farmers of Ontario (DFO) economists have concluded. During this period, producers are unlikely to see the same revenue growth they have experienced during the previous 10 years. DFO economists Phil Cairns and Patrice Dubé reached these conclusions in a discussion paper detailing Canadian dairy markets from 1998 to 2009, and weighed prospects for the next decade. It was presented to Ontario’s dairy producer committees during DFO’s spring regional meetings. “Market growth has been a major industry issue,” says Cairns, DFO’s senior policy adviser. “We have all heard many ideas and opinions about how to grow the market, some of them quite simplistic and not based on any real facts.” He and Dubé researched markets and compiled the paper to provide solid data and facts as a basis for market growth discussions. “Now that we know where we have been, where we are now and where we are likely going, we can have rational discussions about this issue,” Cairns says. They reached some key conclusions: • given the dairy industry’s mature state, overall growth of one per cent annually can be expected during the next 10 years—in line with Canada’s population increase, and the same growth rate experienced during the previous decade; • producer revenue grew by more than 43 per cent from 1998-99 to 2008-09, more due to price increases than market growth. This level of revenue growth won’t be possible in future without significant world price increases; • fluid milk and cheese will continue to provide more than 75 per cent of producer revenue; • the industry will have to be more price competitive and use promotion effectively to compete with substitute products; • exports aren’t an option for growth; • Canadian milk production per capita is growing at a rate similar to that in the U.S., despite lower American prices. Exports explain most of U.S. growth beyond population increases. To examine past performance, the two economists focused on Canadian market developments during a 10year period starting with the 1998-99 dairy year. Evolving consumer tastes and preferences coupled with rapid technological developments by processors result in abrupt market changes. This makes any comparison beyond 10 years difficult, they note. Their paper examines markets from a producer perspective instead of looking at dairy product retail performance. This relates directly to producer revenues and butterfatbased quota levels. During the 10-year period they analysed, milk volumes utilized by processors grew 9.08 per cent to 7.6 billion litres from 6.9 billion. Butterfat utilization went up 9.6 per cent and solids non-fat (SNF) SNF utilization 8.98 per cent. Here are some of the paper’s expectations for growth in specific markets: Fluid milk and cream (Class 1) In terms of butterfat utilization, fluid cream stood at 40 million kg in 2008-09 and fluid milk at 47 million kg. Rising fluid cream butterfat utilization should surpass that of fluid milk in three to five years. While fluid cream growth is expected to exceed population increases, it is unlikely to keep up the Comparison of changes in utilization and revenue generated in fluid and industrial milk between 2008-09 and 1998-99 Milk Class Class 1 Class 2 Class 3 Class 4 Special Classes* 5d *5a, 5b, 5c, 4m, 4a1 Volume (hL) 5% 44.7% -1.4% -38% 266.8% -31% Revenue ($) 40.6% 58.4% 44% 12.6% 102.9% -46.5% Butterfat (kg) 15.08% -10.6% 14.9% -6.6% 121.7% -70.6% SNF (kg) 4.59% 49.8% -2.0% -42.8% 272.2% -30.7% 8 | April 2010 | MilkPRODUCER

Table of Contents for the Digital Edition of Milk Producer - April 2010

Milk Producer - April 2010
Contents
Editor's Notes
DFO Chair's Message
Dairy Update
DFC Policy
Industry Roundup
DFC Promotion
Industry Initiative
Research
Applied Science
Ruminations
Markets
New 'N' Noted
Back Forty

Milk Producer - April 2010