Fears about skyrocketing dairy prices may be misplaced, economists say
Scholars say the relationship between farm prices and supermarket prices is messy and a big bump on one end doesn’t always result in an equally big bump on the other
The chief executive of the Montreal cheese-making giant Saputo Inc. on Thursday afternoon seemed to confirm what many had already feared about the price of milk.
“Whatever increase there is going to be on the raw material, we need to pass that onto the market,” Lino Saputo Jr. said toward the end of a conference call for investors.
He was referring to the Canadian Dairy Commission’s announcement late last week that called for a historic 8.4 per cent increase in the “farm-gate” price of milk, which amounts to six cents per litre. Under supply management rules, the commission can establish the price that farmers get for their raw goods, but not the price at retail.
Canadian consumers have since been wondering how much the farm-level increase will end up costing them in the grocery store when it comes into effect early next year.
Saputo’s comments validated what many were already expecting: that the farm price increases next year will keep spiralling through the supply chain and eventually hit consumers.
Chantal Paul, director of corporate services at the Canadian Dairy Commission, acknowledged its decision would lead to increases for consumers “for sure,” but said the “magnitude of this increase is really going to depend on what’s going to happen down the supply chain.”
Historically, only a quarter of the percentage increase at the farm level “finds its way to retail,” according to Jean-Philippe Gervais, chief agricultural economist at Farm Credit Canada, who compared farm-gate milk prices to retail prices on dairy products over the past decade or so.
An 8.4 per cent increase for farmers would, historically, increase checkout prices by two per cent, he said. But there are other pressures in the supply chain currently driving up costs, too, including high transportation fuel costs and major labour shortages at processing plants.