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The challenge with fluid milk

Processors struggle with fluid milk profitability while dairy farmers work hard to rebuild the market

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The profit and loss for fluid milk in Ontario is “already bust,” says a dairy processing company executive.

Mark Taylor, president and chief executive officer of Lactalis Canada, the parent company of Parmalat, told the annual meeting of Dairy Farmers of Ontario that fluid milk consumption had a large drop in 2013 and has stagnated since.

Why it matters: Dairy farmers get paid more for milk that is used for fluid milk, so farmer profits hinge on rebuilding confidence in fluid milk.

“Class 1 (fluid milk) is attractive for farmers to produce,” says Taylor. “Sadly it’s the least attractive for processors.”

Innovation is needed in the area of fluid milk, but Taylor says that’s difficult to justify when there’s no profit in the product now.

It’s also expensive to move fluid milk compared to processed dairy product.

Taylor says fluid milk is also under pressure from a growing number of drinks that take direct aim at cow’s milk, including oat, almond and soy beverages.

“Class 1 (fluid milk) is attractive for farmers to produce.” – Mark Taylor, president and CEO of Lactalis Canada.
photo: John Greig

When retailers lower the priority of milk by 10 per cent, they give that space to plant-based products, which reduces the visibility of milk.

Dairy Farmers of Ontario is putting significant focus on marketing fluid milk. Sixty per cent of DFO’s marketing funding is going toward growth in milk. Ontario had less of a decline in fluid milk last year, with a 1.7 per cent decline, compared to 2.3 per cent in the rest of Canada, said Sean Bredt, director of Marketing and Business Development at DFO.

Fluid milk takes the biggest reputation hit, he says. Milk takes the brunt of animal welfare and sustainability ire, compared to yogurt and cheese.

“I continue to believe we can make a significant dent. We will know success when consumers say enough of the fake news, enough of the lies and start chirping back at the activists. This is the healthiest drink out there.”

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DFO talks a lot about making dairy an “inspired food choice.”

Bredt says he believes there are big potential wins in connecting milk with health and responsibility.

“If we win, we have to make sure the processors win as well,” he says.

Processor calls for grocery code of conduct

Dairy processors are being squeezed, between the control of the supply of milk by farmers and retailers increasingly trying to take more margin from the middle of the supply chain.

Taylor says that Canadian operations are the second largest in the Lactalis group. The company invested $200 million in Canada between 2016 and 2019.

The company has a large research and development facility in London, which also helps provide support to its United States and Latin American operations, but Taylor says it is difficult for the company to invest in research and development when it is being squeezed financially.

He says that 83 per cent of the products sold in Canadian stores were developed or manufactured outside of the country.

Lactalis acquired Parmalat and is converting the company name in Canada to Lactalis. It owns major dairy brands such as Beatrice, Black Diamond, Lactancia and Balderston.

Costs to list products on store shelves have increased significantly, Taylor says.

He says there’s a grocery code of conduct in the United Kingdom that “sets the guardrails” for interactions between grocery retailers and their suppliers.

“It’s taken the focus away from fighting with retailers to doing the right things, things we need to do together all the way through supply chain to improve efficiency, drive out cost and add value for all from delivering secure growth,” said Taylor.

The U.K. has a highly concentrated grocery sector, similar to Canada.

Taylor hopes to push the idea of a code of conduct through the Dairy Processors Association of Canada (DPAC) and he says “it’s important to have the support of dairy farmers who have a very, very strong lobby.”

About the author

Editor

John Greig

John Greig has spent his career in agriculture journalism and communications. He lives on a farm near Ailsa Craig, Ontario. Contact John at [email protected] or follow him on Twitter @jgreig

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