“It has been a volatile few years for dairy producers but 2024 is shaping up to be calmer – a return to a more normal environment, if you will,” wrote Graeme Crosbie, a senior economist with the ag lender, in a Feb. 8 article.

He named feed prices and availability; butter stocks; and retail demand and inflation as the top economic trends likely to impact the sector this year.

“Feed availability and pricing will be the ultimate determinant of profitability in 2024,” Crosbie wrote.

A large U.S. corn crop in 2023 lowered prices and put downward pressure on feed wheat and barley, despite drought that limited production, he said. Record imports of U.S. corn to Western Canada has continued to keep a lid on feed prices, though prices remain elevated.

FCC forecasts feed costs to be lower in 2024 but trend higher throughout the year.

Hay prices, meanwhile, will likely be “stickier” in the west, Crosbie said, and producers will be hoping for spring moisture.

At present, low snow levels look to exacerbate already dry conditions in much of the west.

Butter stocks are relatively low compared to recent history, Crosbie wrote.

“Low butter stocks leave little room for error should production not meet anticipated demand,” he said.

More incentive day announcements may be forthcoming for producers, he added.

Demand for dairy appears to be holding up fairly well despite stressed consumer budgets. One reason, Crosbie wrote, is that dairy price increases were lower than many other major food products.

For instance, overall beef prices rose nearly 11 per cent year over year, chicken rose by almost five per cent year over year, and fresh fruit rose more than three per cent.

Butter rose over six per cent, Crosbie said, however milk rose less than two per cent, and cheese prices rose a bit more than two per cent year over year.

While farm gate dairy prices are set to rise in May, dairy product prices are forecasted to increase a fairly modest 1-3 per cent, Crosbie wrote.

Interest rate cuts are anticipated in the second half of the year, he added. However, profitability in the west will likely be contingent on growing season conditions.

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The proposal is the latest in a string of hardline demands from the U.S. side that are increasingly fuelling doubts as to whether the Trump administration wants NAFTA to collapse.

U.S. producers have long complained about the Canada’s so-called supply management system, which imposes high tariffs on imports and controls domestic production as a means of supporting prices in the dairy, poultry and egg sectors.

The source, who requested anonymity because of the sensitivity of the situation, said the U.S. wanted full access to Canadian markets within 10 years, effectively killing off supply management.

Canada had already made clear the idea was a non-starter, said the source.

Canada has a powerful dairy lobby and successive governments have for decades promised to keep the system of protections intact.

A spokesman for Foreign Minister Chrystia Freeland — who is in overall charge of Canada’s NAFTA negotiating team — did not immediately respond to a request for comment.

— Reporting for Reuters by David Ljunggren.

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Officials from the U.S., Mexico and Canada are in Ottawa for the third of seven planned rounds of talks. The U.S. delegation has yet to unveil its precise position on several points, prompting concerns the process to update the 1994 pact could drag on beyond the scheduled end-December finish.

“We’ve been working very hard so I don’t see a problem,” John Melle told reporters when pressed on the matter. “We’re moving across the board, so it’s very ambitious.”

Canadian Prime Minister Justin Trudeau earlier predicted some tough days ahead for negotiators and declined to say whether he thought the talks could meet the deadline.

“The negotiations are still under way and of course there will be more difficult discussions in some cases than others,” he told a Toronto news conference.

Asked whether he was concerned the talks might not end on schedule, he replied: “The negotiations move forward at a certain pace and we respect that reality.”

U.S. President Donald Trump, who frequently describes the treaty as a disaster, is threatening to walk away unless major changes are made.

Canada’s chief negotiator on Sunday said he did not expect the U.S. side to present detailed proposals in Ottawa on major issues such as dispute settlement, the dairy sector and tougher rules for North American content on autos.

Canadian officials say it is still possible to meet the year-end deadline although they concede there are significant uncertainties about the timetable.

Earlier this month, U.S. Trade Representative Robert Lighthizer said the negotiators were working at warp speed.

“I think that’s accurate,” said Melle.

Trudeau said Ottawa’s team of officials was “moving forward in good faith” and repeated a promise to defend Canada’s system of tariffs and import restrictions put in place to defend its domestic dairy sector. The U.S. industry dislikes the measures.

Kenneth Smith, Mexico’s chief negotiator, told reporters late on Sunday that “we feel there is a positive environment in the negotiations.”

Lighthizer, Canadian Foreign Minister Chrystia Freeland and Mexican Economy Minister Ildefonso Guajardo — the three top officials driving the NAFTA modernization — will meet in Ottawa on Tuesday and Wednesday, the last two days of the third round.

— Reporting for Reuters by Adriana Barrera and David Ljunggren.

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The strategy is meant to create a lower-priced class of milk, Class 7, to encourage the use of skim milk powder in further-processed ingredients.

Ontario has already independently implemented such a strategy with its Class 6, causing consternation in the rest of the country, but likely gave a push to an agreement in principle reached last summer.

“There are still details to be worked on,” said Therese Beaulieu, assistant director of policy communications with Dairy Farmers of Canada. “The agreement in principle still stands. The timelines depend on how much time everybody needs to make changes.”

An agreement among 10 provinces, all with jurisdiction in agriculture, and their dairy boards, along with the federal government, can take a while to hammer out, she noted. No new deadline has been set.

Delays in getting agreements in place have hamstrung the supply management system and are in part what has led to a lack of investment in skim milk drying capacity and further-processing of milk ingredients by Ontario processors.

That’s why the Ontario initiative, and the national agreement in principle, have been lauded as ground-breaking.

It’s also why there’s significant desire in the country to get the agreement finished, despite some concerns in some parts of the country about trade retaliation.

“The West was pretty excited about it and excited about Feb. 1,” says Beaulieu.

Increasing popularity of dairy products derived from milk fat, such as cream, butter and ice cream, created the surplus in skim milk — and without the drying capacity to process the skim milk to something deemed valuable by the marketplace, by mid-2015 significant volumes of skim milk were being dumped on fields and in manure pits.

The ingredients strategy is an attempt to create a template for doing business in the future for supply management.

“It’s a solution, maybe, to the surplus protein that we have. There are lots of opportunities,” Beaulieu said. “If you look at the food trends for 2017, protein is right there. Dairy protein is very high quality.”

The U.S. dairy sector has the ingredients strategy in its sights, however, and it formed a significant part of a letter the dairy industry sent to U.S. President Donald Trump recently, calling the strategy an affront to Canada’s trade obligations and a barrier to trade.

The Canadian dairy industry maintains it is providing an alternative and competitive option for Canadian dairy processors to imported U.S. product. Processors are under no obligation to buy Canadian skim milk or powder, as milk proteins enter the country free of tariffs.

Canadian processors, have, however, committed in the past eight months to invest hundreds of millions of dollars into upgraded dairy ingredient processing and research.

— John Greig is a field editor for Glacier FarmMedia based at Ailsa Craig, Ont. Follow him at @jgreig on Twitter.

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The study, prepared for the federal government by its Office of the Chief Economist and released Friday, notes Canada has offered expanded access for imports of dairy, egg and poultry products from TPP member nations, over and above its commitments through the North American Free Trade Agreement (NAFTA) and World Trade Organization (WTO).

Among the TPP member nations, Canada already has free trade deals with the U.S. and Mexico under NAFTA and separate trade pacts with Chile and Peru.

A TPP deal, which Canada has already committed to bring back to Ottawa for review, including all 12 partners would also give Canada free trade agreements (FTAs) with Japan, Australia, Malaysia, New Zealand, Singapore, Vietnam and Brunei Darussalam.

The impact study looks at projected economic impact for Canada if it chooses to be a party to the TPP — and the impact if it opts out of the deal — on the assumption that all of the 11 other member countries remain in the pact.

In the case of Canada’s dairy sector, assuming its current supply management system is “strictly preserved” — that is, if market prices stay the same in Canada after a TPP deal takes effect — “the net effect of an increase in dairy import quotas on the Canadian dairy sector would be neutral,” the impact report said.

Canadian imports of dairy products from TPP countries, mainly from the U.S., would increase by US$500 million, the report said.

A net increase in imports of international dairy products would be about US$358 million after a TPP deal, the report said, after deducting the “displacing effect” for imports from the rest of the world, mainly dairy imports from the European Union.

“There could be some losses in Canadian dairy production” from the TPP, the study said, “and subsequently losses in economic welfare from producers’ perspective, but these losses could be offset by gains elsewhere in the sector benefiting from imported dairy products.”

That assumption, the study said, is based on the “majority” of the additional TPP-related milk and butter import quotas going into value-added processing.

“Room for liberalization”

For export sectors overall, the TPP’s “central benefits” to Canada include “a guarantee of preferential market access to the seven new FTA partner countries.”

A TPP deal would give $428 million per year in tariff savings to Canadian exporters shipping to those seven countries, mainly from Japan, Vietnam and Australia. The resulting boost in exports to those countries would be US$2.2 billion per year, the study said.

The “most significant new export opportunities” would be in Japan, with an expected increase of US$1.1 billion per year in exports led by pork, beef, and wood products, the study said. Other gains would come in food and automotive products to Vietnam and machinery and equipment exports to Australia and Malaysia.

Canada has “overall lower levels of tariff protection” than most TPP countries, the study said, so “holding other conditions constant, liberalization under the TPP should provide a net advantage for Canada.”

Most TPP countries have low tariffs on average, the study added, but “there is still considerable room for liberalization for Canada’s trade with the seven new FTA countries and for liberalization of some sensitive agricultural products in all TPP countries.”

For example, the study noted, Vietnam’s simple averaged applied tariff is 10.6 per cent, and Japan’s tariffs on fresh/chilled and frozen beef are 38.5 per cent.

Not joining TPP, meanwhile, “would put Canada in a disadvantaged position relative to other TPP competitors in these markets,” the study said. “In particular, the cost of losing export opportunities for agricultural products to Japan would be substantial.”

For example, the study said, if Canada opts out of the TPP, Canadian beef exports to Japan could drop by more than 66 per cent and pork exports by 13 per cent.

Also, the report warned of an “erosion of Canada’s NAFTA preferences in the U.S. and Mexican markets” as those countries favour trade with other TPP nations. That erosion, the report said, “will occur regardless of whether or not Canada chooses to be a party to the TPP agreement.”

However, the study also expects Canada to see “positive export gains in the U.S. market driven by TPP-induced income growth in the U.S.”

For example, Canadian exports of “some agricultural products to the U.S. are projected to grow even though there are no new additional market commitments from the U.S. in these sectors.”

Across all sectors, the study found, opting out of the TPP would “present several risks to Canada’s economic well-being, which could lead to total (gross domestic product) losses of approximately $5.3 billion.” Joining a TPP deal, meanwhile, would “boost Canada’s GDP by a permanent 0.127 per cent above baseline, generating GDP gains of $4.3 billion” by 2040.

“Little good news”

The federal New Democrats’ trade critic, Essex MP Tracey Ramsey, said Saturday the impact study offers “little good news to reassure Canadians that this deal will benefit them.”

A TPP deal, she said, “will damage important industries while driving down wages and putting corporate interests ahead of citizens’.” Canada’s auto sector, she said, “has already been penalized by bad trade deals” and would see “a decline in investment and production” under TPP.

“Despite this, the Liberals are pushing ahead (on a TPP deal) and have also made no clear commitment to supply management.” The government, Ramsey said, “needs to provide more evidence that this deal can benefit Canadian workers before the deal is ratified.” — AGCanada.com Network

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The world’s largest yogurt maker, whose brands include Actimel and Activia, reported a 3.5 per cent increase in first-quarter like-for-like revenue, on the back of robust baby food sales in Asia, stronger dairy product demand in North America and a better than expected performance at its water division.

This beat a company-compiled average of analyst estimates of 3.2 per cent like-for-like growth in group sales.

The company, which competes globally with Nestle and Unilever, has had to cope with difficult market conditions, including in Europe, plus the impact of food safety scares in Asia.

Danone’s first-quarter performance lagged its rivals, with Unilever’s first-quarter sales up 4.7 per cent and Nestle producing sales growth of 3.9 per cent.

Emmanuel Faber, who took over as CEO in October 2014, is trying to return Danone to profitable and sustainable growth by 2020, reviewing its business in China and overhauling its dairy division in Europe, where it has cut costs and launched new products.

“We continue to view Danone as much more robust than in the past and continue to see Danone 2020 as a coherent medium-term strategy,” Societe Generale analysts said in a note, referring to Faber’s growth plans.

Faber said the first-quarter performance included progress on Danone’s dairy agenda, with what he described as a re-acceleration in the United States and sequential improvement in Europe.

Sales of dairy products, which account for the bulk of the group total, grew 2.3 per cent in the first quarter. A 4.4 per cent rise in prices outpaced a decline in volumes largely due to Russia and Brazil, where growth is slowing.

In Europe, Danone said it was relaunching the Danonino, Actimel and Activia brands, which will drive an improvement in the second quarter and help to stabilise dairy sales in the region by the end of the year.

Baby food sales rose 4.8 per cent in the quarter, with sales in China driven by demand for international brands of ultra-premium baby food.

Finance chief Cecile Cabanis said a new tax on online baby formula imports in China should not have a major impact on demand as brand and product origin had more influence on consumers.

The water business delivered growth of 3.9 percent, beating expectations for two per cent, thanks to strength in Europe, Latin America and Asia, but excluding China where Danone is cutting inventories of its Mizone drink.

Danone kept its 2016 target for like-for-like sales growth of between three per cent and five per cent and an improved operating margin from last year’s 12.91 per cent.

— Dominique Vidalon is a Reuters correspondent covering France’s retail sector from Paris.

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After years of negotiations, Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, the U.S. and Vietnam reached an agreement Monday morning, which includes granting access to 3.25 per cent of the Canadian dairy market. Different aspects of the trade deal are expected to be phased in over the coming years.

Egg farmers will lose 2.3 per cent of their market, and chicken producers will see a 2.1 per cent reduction. Turkey farmers and those producing eggs for broiler hatching will see a two per cent and 1.5 per cent reduction respectively. Market loss is also expected to reduce the value of existing quota.

“When we get some more details and have an opportunity to do more analysis we’ll be in a better position to know exactly what it means for us,” said Cory Rybuck, general manager of Manitoba Egg Farmers.

“But any time you lose some of the market by opening up access it’s a concern. With eggs at least we’ve experienced steady growth over the last nine years, so hopefully that will continue and possibly mitigate the effects of this or any other trade deal.”

Ed Kleinsasser, chair of Manitoba Egg Farmers’ board of directors, said he was relieved the trade agreement didn’t give more access than it did.

“It is a very complex agreement that is going to affect a lot of different industries,” said the manager of Sunnyside Colony’s poultry operations.

Details still unknown

David Wiens, chairman of the Dairy Farmers of Manitoba, also said that it will take more time to parse out the details and assess the TPP’s full impact. But he was clear that the multilateral deal is a loss for Canadian dairy farmers.

“Obviously we’re not happy with the fact that access was given to dairy in order to conclude the deal, those increased imports will be a loss of us — this milk is not going to be produced in Canada, it won’t be produced in Canada again,” he said. “It’s revenue that will be lost on a perpetual basis.”

To compensate farmers for market loss, the Canadian government has announced a series of programs to mitigate the financial impact of the trade deal. This includes an Income Guarantee Program, which the government said, “will keep producers whole by providing 100 per cent income protection to producers for 10 years.”

Income support assistance will then continue on a tapered basis for an additional five years, for a total of 15 years. The government has said $2.4 billion is available for this program.

Over the course of those year 15 years a typical dairy farm could be eligible to receive about $165,600 in compensation or just over $2,000 per cow. The average chicken farm could receive as much as $84,100 over the same period and an egg farm could be eligible for $71,500 in compensation.

The Income Guarantee Program could provide as much as $191,700 to a typical hatching egg operation over the same period.

Prove losses?

Compensation is automatically triggered and producers won’t have to prove “demonstrable loss” before being compensated, said a senior official with Agriculture and Agri-Food Canada.

“The annual payments will be linked to the amount of quota each producer holds and will be based on the estimated sector-wide impact on their income. Income impacts are compared by comparing prices and production under conditions with the TPP and CETA in place relative to price and production without those payments,” the official explained.

A Quota Value Guarantee Program will also be established to protect producers selling their quota in the 10 years following the TPP’s implementation, with $1.5 billion in funding being set aside.

Two additional programs — a Processor Modernization Program and a Market Development Initiative — will also be established to support supply managed commodities as they adjust to the trade deal.

Wiens said the federal government had assured dairy farmers throughout the process that compensation would be provided should greater access be given, and that the government has kept its word.

“So I am somewhat encouraged that the government recognizes the contributions that we in the dairy sector make to the economy — and especially the rural economy — of Canada by providing this compensation package and other mitigation measures,” he said. “The government did what it had to do so this agreement could be signed.”

Dairy Farmers of Canada president Wally Smith said he recognized that the Canadian government fought hard against the demands of other countries when it came to supply-managed sectors.

“We have come a long way from the threat of eliminating supply management,” he said. “The government has clearly understood the importance of supply management dairy farms in rural Canada and the economic activities they generate.”

Questions about the quality of new imports remain, however, with some raising the point that U.S. dairy producers may make use of bovine growth hormone, a growth promotant not approved by Health Canada.

An official with the department confirmed that the importation of products produced with bovine growth hormone is not restricted.

Wiens noted that food quality was one of the key issues for 87 per cent of respondents in a recent Canada-wide poll.

“And that’s exactly what can be lost by giving this access,” he said.

CORRECTION: This article originally indicated that producers would have to prove “demonstrable loss” in order to receive compensation. We regret the error. 

— Shannon VanRaes is a reporter for the Manitoba Co-operator in Winnipeg. Follow her at @ShannonVanRaes on Twitter. Includes files from Allan Dawson of the Co-operator.

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