After the Canadian Dairy Commission (CDC) conducted their annual cost of production survey and meeting with industry stakeholders, they are raising prices 11.7 percent, effective February 1st.
We at PMQ have studied the cheese price crisis in Canada and have made some observations that may be helpful. We are in the process of working with the Canadian Restaurant and Foodservice Association (CRFA) and other groups fighting for reform of the CDC’s policies. We will be working closely with the CRFA in their movement to bring about change in future issues. We’ll keep you informed of news and steps you can take to help alleviate this crisis.
Right now, you can help by contacting your Member of Parliament and make them aware of how this policy is hurting your business. You can find your M.P. by following this link http://www.parl.gc.ca/common/ index.asp?Language=E. We also want to hear your view on the situation. Please email your comments to canadiancheese@pmq.com.
Since the CRFA is determining their next step after the recent increase, we wanted to make sure you had a backgrounder on the situation. Read on for full details.
The Basics
As mentioned, Canadians face yet another dairy price increase this year. The CRFA says that dairy prices are supposed to reflect a rise and fall in the cost of dairy production, ensuring a fair return to dairy producers. Many pizzeria owners believe this system is not working according to plan because price increases are implemented even when production costs go down.
“We want to work with the dairy industry to increase demand for dairy product, but it’s impossible under the current pricing system,” Stephanie Jones, CRFA vice president of food supply (Phone: 800-387-5649, Email: info@crfa.ca) , says. “A price hike of this magnitude, made without justification, calls into serious question the credibility of the Canadian Dairy Commission (CDC). Taxpayers are being double-billed for BSE compensation now that the CDC has unilaterally decided to hand out this extra cash to dairy farmers.”
The price hike will cost Canadian restaurateurs an extra $254 million per year, according to the CRFA. Restaurateurs already spend $2 billion annually on dairy products.
The September 2004 Farm Income Data Book, published by Agriculture and Agri-food Canada, says the dairy industry is the most heavily subsidized industry in Canada. The report says that the “dairy industry continues to enjoy the highest level of (consumer/taxpayer) support in Canada, accounting for over one-third of the total producer support and two thirds of the market support.”
Another report backs this up: “The International Dairy Federation (IDF) and the Organization for Economic Development (OECD), reports that wholesale Canadian dairy prices are up to 155 percent higher than world price, and Canadian consumers and restaurateurs provide subsidies of more than $2.5 billion annually to dairy producers in the form of higher than world prices.”
Why Are Prices So High?
Chantal Paul, a CDC representative (Phone: 613-792-2000, Email: cdc-ccl@agr.gc.ca), said the 155 percent is not accurate because the world price has factors reflected in it like American dumping prices and the subsidies paid to European farmers. Stephanie says that the world price is set by New Zealand, which has the most efficient dairy prices in the world. New Zealand does not pay any subsidies to its farmers.
According to a release from the CRFA, the CDC did not explain the price hike other than a commitment to support the cost of production for half of the nation’s farmers by 2006. The CDC’s price announcement release said this commitment was established in 2002. The mandate calling for this support is based on cost of production from efficient farmers. Chantal says the definition of what constitutes an efficient farmer is “arbitrary.” The CDC has reported a drop in the cost of production of 5.1 percent since 1999, according to CRFA release. With a drop of 5.1 percent, we must ask why there is an 11.7 percent price hike.
The Effects of “Mad Cow Disease”
In another report from the CRFA, the CDC says a significant increase in dairy prices is necessary to offset BSE-related (commonly know as “mad cow disease) losses by dairy producers. The CRFA says that BSE compensation is outside the mandate of the CDC, and federal and provincial governments already have programs in place to determine appropriate levels of BSE compensation for beef and dairy farmers.
Stephanie says that in the weeks prior to the price increase, the CDC would not explain to stakeholders how it would arrive at a number for BSE compensation for dairy farmers. “They provided no numbers regarding what BSE compensation dairy producers may need,” Stephanie says.
Stephanie says that the efforts of the CDC to compensate for BSE losses looks a lot like “double-dipping by the dairy farmers. Farmers deserve compensation for severe losses due to BSE, but not in the form of a permanent price increase.”
The CRFA has been fighting the price increases all along. On July 16, 2004, the Dairy Farmers of Canada (DFC) submitted a proposal to increase dairy prices for their BSE related losses. The CDC rejected this proposal and gave them five months to come up with a plan that would mitigate their losses.
Rejected Alternatives
The Georgian Bay Milk Company offered to buy surplus cows from the DFC that were no longer allowed to be shipped to the U.S. because of border restrictions set after a BSE case found in Canada. The Georgian Bay farmers said they would export the milk produced by the surplus cows. The DFC refused this offer, opting for a dairy price increase instead. The Georgian Bay proposal would have cost consumers nothing. Price review was then set for December.
“The restaurant industry relies on Canadian farm products and supports fair and equitable compensation for the 90,000 beef and 18,000 dairy farmers that have been hit by the BSE crisis,” Stephanie says in a CRFA release. “If the existing programs are not doing the job of providing financial relief to producers, then it is the responsibility of the Minister of Agriculture — not the CDC — to re-examine the issue.” Federal and provincial governments have so far announced $1.7 billion in compensation for Canada's beef and dairy producers.
After the rejected proposal, the CRFA began calling on the new federal Minister of Agriculture (Honourable Andy Mitchell, Phone: 613-759-1059, Email: mitchella@agr.gc.ca) to appoint a CDC oversight committee. The oversight committee is part of the CDC mandate, but according to Stephanie, was abolished in 1994. The committee has yet to be appointed despite repeated recommendations from the Auditor General, she says.
The Frozen Pizza Exemption
Not only do the Canadian pizzeria owners face the increased cheese prices, but they also face the disadvantage of paying the domestic price for cheese. This amounts to 30 percent higher costs for the same cheese that frozen pizza makers use. The frozen pizza makers were given this discount so they could better compete with frozen pizza producers in the NAFTA market.
According to the CFRA’s “The Impact of Two-Priced Cheese on Canada’s Pizza Market” report, pizza operators are competing head-to-head with the frozen pizza manufacturers. The report said that the advertising materials of Canadian producers of frozen pizza sold in retail stores directly target the home delivery and take-out customers of Canadian pizzerias. Companies such as McCain and Digiorno distinctly say in their marketing slogans “Who can tell it from take-out?” and “It’s not delivery, it’s Digiorno.” The CDC argues that the frozen pizza manufacturers are not direct competitors of the RTE segment. This is just not true. They compete more and more for customers looking for simple meal solutions as pizza becomes increasingly competitive with other forms of convenience foods.
“Continued increases in the price of cheese will eventually force small franchise operators and independents out of business because we will not be able to compete with large frozen food producers and grocery stores who get their cheese at a lower cost than us,” a Stoney Creek, Ontario restaurateur says in a postcard to the Minister of Agriculture and Agri-food. “We cannot keep passing on price increases to the consumer because the consumer will just stop purchasing.”
What Has Been Done?
In November 2004, the CRFA launched the website www.gotmilked.ca to allow foodservice operators and their customers to join the fight against higher dairy prices. The site presents information on the dairy pricing system and solicits feedback to the decision-makers in Ottawa.
On December 9, 2004, the CFRA delivered 50 pizza boxes filled with 3,600 postcards protesting the cheese prices. The boxes were sent to the CDC demanding a freeze on dairy prices. The same cards were sent directly to the Minister of Agriculture and Agri-Food in Ottawa.
CRFA and the CAC are calling on the Minister of Agriculture and Agri-food to take steps to make the CDC accountable to Canadian taxpayers. The CRFA and the CAC will continue its fight to get fair dairy prices for Canada.
One way pizzeria operators may be able to change the status quo is to voice their opinion and get the attention of the elected officials who are appointing members of the CDC. Pizzeria owners in Canada need to begin by contacting their local Member of Parliament (M.P.) and let them know what the high prices are doing to your business. You can find your Parliament members at http://www.parl.gc.ca/common/index.asp?Language=E.
The CRFA is evaluating their next step in the battle for fair cheese prices. We’ll fill you in on their next moves and let you know what the next step will be. Let us know how you feel by emailing your comments on the situation to canadiancheese@pmq.com. Please encourage your customers to email their comments as well.
– PMQ –
