Can our milk boards compete with global processors?

Exporting milk products in a global marketplace and at the same time competing for the domestic chocolate and cookie market, and the pizza market is a big headache for marketers. In fact, the whole area has become a Mecca for professional negotiators and lawyers. Dairy Farmers of Canada last year spent more than $800,000 on legal fees.

Despite what people say, nobody knows for sure how much milk is coming into the country in cookies or on top of pizzas. It has to be considerable.

Since the world trade agreement was signed in 1995, milk boards in this country tried to take a little of the market back. They began to export milk at a lower price than they sold it for on the domestic market. The U.S. would have none of that and the board had to revert to a third party for export. The company was Deloitte and Touche.

From here on the system seems shrouded in secrecy. We took four phone calls to find out who audited the flow of contract milk. We were told Price, Waterhouse and Cooper audited the movement of export milk, going into a plant at least once every six months.

With great reluctance, a member of the board told us the export contract milk was going into the United States and Japan mostly as cheese. So being in a business where we watch for anomalies we noticed that Saputo, the largest dairy processor in Canada, had a 37 per cent profit in the last quarter. This was announced about the same time Ontario dairy farmers were being cut back.

Still more interesting was that Saputo complained its profits would have been bigger had cheese south of the border not dropped (US)$0.37 per pound. At the same time the price of export milk was moving downward.

There are a couple of things from a business point of view that are wrong here. The first is a lack of transparency. Do any producers know where this milk is going? Secondly, is this an uneven field, when milk is sold at a profit on the domestic market and below cost of production on another market. The WTO thinks so. Complaining Americans accused Canada of depressing the world price. And won.

Dairy farmers have to re-think their markets. As Peter Dowling, a Howe Island dairy farmer told us in an interview, it’s not the tilted playing field it’s the size of the players. Milk processors over the past dozen years have become global.

To prosper, the dairy industry has to get its act together. Dairy producers should demand transparency from their boards and their governments. As important, they should make everyone get on the same page. The strategy has to be built around a domestic market. Is there anything more dangerous than going after the U.S milk market?

What’s more, globalization requires alliances with farmers, not processors.