MARCH 2020 • COUNTRY LIFE IN BC


19


Strong dairy demand underpins bright future FCC benchmarking exercise to take a closer look at dairy production costs


by DAVID SCHMIDT


ABBOTSFORD – The outlook for dairy is extremely positive, Farm Credit Canada vice-president and chief economist J.P. Gervais told a room full of Mainland Milk Producers in Abbotsford, February 12. “If costs are contained and demand stays robust, dairy looks positive,” he said. Although growth in demand for dairy products has slowed since a 13.4% increase in 2017, it is still increasing about 4% per year. If that continues, and Gervais expects it will, it should at the very least offset the increased imports allowed under the CETA, CP-TPP and CUSMA trade agreements. While demand for fluid milk and other animal-based proteins is decreasing, cream and cheese demand continues to increase. Gervais believes milk will not suffer as much as other animal-based proteins, noting only pork is a cheaper animal protein and that could change as African Swine Fever takes its toll on global pork production.


The big question mark is what will happen to Class 7, which is being eliminated through CUSMA. “How we replace Class 7 will have an impact,”


world price of non-fat dry milk products increased 30% last year and expects it to increase another 20% this year. He admits the surcharges could affect individual processors differently depending on how those export permits (quotas) are applied. He said the key to success is efficiency. Although he admits there are some economies of scale, FCC’s recent data indicate farm size does not determine efficiency. The numbers show that while all Canadian dairies average 73 cents of cost per dollar of revenue, the top 25% of farms have a cost of 69 cents or less. “That’s $40,000 in additional profit for a farm with annual revenues of $1 million,” Gervais pointed out. There is an even bigger


MYRNA STARK LEADER PHOTO


Gervais said, noting processors need access to lower-priced ingredients while Canada needs a way to manage the structural skim milk surplus. He is not particularly concerned about CUSMA’s cap on dairy exports, saying Canadian ingredient exports will still be competitive even if surcharges are applied to some products. He points out the


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discrepancy in debt-to-equity ratios among farmers. While the average ratio for Western Canadian dairy farms is $1.60 debt per $1.00 of equity, the top 25% of farms have a debt- to-equity ratio of $0.65 per


dollar while the bottom 25% have a whopping ratio of $2.30 per dollar. Now that FCC has a vast collection of data on


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