Suppliers & Products
Fact Sheets

Profile of the
Canadian Dairy Industry

International Dairy Federation - Canada

Prepared by
Agriculture and Agri-Food Canada - Dairy Section
Canadian Dairy Commission
Dairy Farmers of Canada

1. INTRODUCTION

The agriculture and agri-food sector plays an important role in the Canadian economy, providing one in eight jobs in Canada and accounting for 8.3% of the total Gross Domestic Product. Canadians enjoy one of the least expensive food supplies in the world, with food accounting for only 10% of household expenditures.

Canadian dairy farms are the foundation of $26 billion¹ in economic activity. This includes production, sales and manufacturing of milk, and jobs and economic activity created in the industries that provide goods and services to dairy producers and processors².

Today, the Canadian market is supplied primarily by Canadian milk production. Canada adopted a system of supply management for milk in the early 1970s in order to provide a balance between the demand for dairy products and the production of milk. Today, the goal of effective milk supply management remains the production of sufficient volumes of milk to meet the Canadian demand for milk and dairy products as well as certain planned exports.

2. REGULATORY FRAMEWORK

Elements of Supply Management

Supply management is a sustainable food marketing system that matches production of milk on the farm to consumer demand. It ensures stability of supply from the farm to the processor to the consumer and guarantees that enough milk will be available to meet Canadians' needs, while minimizing surplus milk production.

Supply management is founded on three pillars. Each of them is critical to supporting the system, ensuring it operates smoothly:

• Matching supply to demand or production planning
• Predictable imports
• Pricing mechanisms

Each pillar of supply management is equally important.

• Production planning

Producers plan production to ensure a steady supply of quality milk is there to meet consumer demand for milk and dairy products. This balance between supply and demand stabilizes prices from farm to fork.

• Predictable imports

Producers need to know the level of imported dairy products so they can plan their production to meet Canadians' needs, without creating a surplus. A predetermined quantity of dairy products is imported tariff-free every year. To keep imports predictable, a negotiated higher tariff applies to any import above that level.

• Pricing mechanism

Once a year, farm gate prices for milk are reviewed in light of costs to produce milk, labour and investments and market indicators. Prices are then regulated to enable producers to cover costs without need for government subsidies. This process allows 16,000 dairy producers to deal as one with the smaller number of processors who buy their milk.

The administration of supply management is a joint responsibility of federal and provincial authorities.

Provincial Responsibilities

Generally speaking, each province is responsible for the production of its own fluid milk and sets its own pricing formulas, quota policies and other regulations. Provincial marketing boards and agencies govern the production and marketing of milk within their own borders.

However, to reduce business risk, provinces have come together in two regional milk pools. In the Eastern pool, revenues from all milk, markets, transportation costs and promotion costs are shared among all producers. In the Western pool, only revenues and markets are shared. Over the years, these pools have increased the level of harmonization of dairy policies among provinces.

Provincial marketing boards

In order to manage the marketing of milk, provincial governments delegate statutory powers to either provincial agencies or marketing boards. Although responsibilities vary from province to province, boards and agencies generally license producers, establish prices paid to dairy producers and, in the case of fluid milk, determine provincial demand and allocate quotas to producers. Dairy producers sell their milk to their respective marketing board.

Federal Responsibilities

The federal government has jurisdiction over the market of milk for processing, which is administered through a federal-provincial agreement.

A number of federal government organizations have responsibilities in dairy. Agriculture and Agri-Food Canada's (AAFC) mandate includes dairy research, livestock development, animal health, policy development, as well as market and rural sector promotion. AAFC also administers a number of programs, such as a HACCP-based on-farm food safety program, which have a direct impact on milk producers.

The Canadian Dairy Commission (CDC), a Crown corporation created in 1966, has played a key role in the evolution and implementation of the national dairy policy. Working closely with provincial marketing boards, producers, processors, and exporters, the CDC advises the minister of Agriculture and Agri-Food for Canada on matters pertaining to dairy and develops policies and programs to meet the needs of the industry while providing Canadians with adequate supplies of quality dairy products.

The Canadian Food Inspection Agency (CFIA) is responsible for the establishment of dairy product standards, product grading, plant inspection, regulating packaging, nutritional labelling, animal health and the monitoring of the safety of dairy products.

Imports of most dairy products are subject to tariff-rate quotas (TRQs) administered by International Trade Canada. Tariffs within the TRQs and the over quota tariffs are administered by the Canada Border Services Agency.

Health Canada continues to develop standards and policies for the safety of dairy products, which are applied by the CFIA.

3. AT THE FARM

The typical Canadian dairy farm has 60 cows and uses state of the art technology. It is smaller than a dairy farm from other countries such as the US and New Zealand; however, individual farm size varies from province to province. There are fewer and larger dairy farms in the Western provinces than in Eastern Canada.

Over the years, dairy producers have invested in improving dairy cow genetics through the use of artificial insemination. The Canadian Holstein is renowned world wide for its health and milking capacity. The national herd has decreased from 2.4 million heads in 1970 to 1.08 million heads in 2004. Dairy farms, becoming more specialized and focusing more on milk production, have decreased from 122,194 to 16,033 with the number of cows per farm increasing from 19 to 60 and the average production per farms increasing to 415,250 litres per year.

Because of the extremes of the Canadian climate, Canadian farms need sophisticated barn structures, with good ventilation and insulation. Larger farms often choose to house their animals in free-stall housing with milking parlours while a number of usually smaller farms still opt for the tie-stall barns. Whatever the barn style chosen, producers care about quality feed and optimal feeding practices, efficient equipment, high standards of animal care and comfort and good veterinarian care to preserve the health of cows and calves. This is reflected in the types of research conducted in top Canadian universities.

The length of the Canadian winters also means that dairy farming includes a lot of field work during the spring and summer months. Typical dairy farms store silage in vertical or bunker silos. Silage is not enough, therefore, cows are also fed grains such as corn, soybeans or barley (grown on the farm or bought) mixed with commercial supplements needed to ensure proper nutrition and health in order to enhance milk production.

Milk Safety and Quality

Canadian milk is produced according to standards that are among the highest in the world for safety and quality. All milk produced on Canadian farms is tested for antibiotic residues. Severe financial penalties ensure that no residues are found in the milk Canadians drink or in the dairy products they consume.

A number of dairy farms are implementing a HACCP-based program on their farm. The onfarm food safety program Canadian Quality Milk Program (CQM) was developed by Dairy Farmers of Canada and recognized by the Canadian Food Inspection Agency. The program prevents and reduces food safety hazards and risks to assure consumers that Canadian milk is produced in a safe manner.

This program keeps track of on-farm actions to minimize the risk of exposing food to safety hazards by:

• effectively cooling and storing milk;
• shipping dairy animals safely;
• closely monitoring the use of medicines and chemicals to prevent residues in milk;
• sanitizing the milking equipment and making sure the wash water is clean.

Canadian dairy producers are proud to highlight that efficiency gains also benefit the environment through reduced methane emissions. Under the Kyoto Protocol, the target for Canada is to reduce greenhouse gas emissions to a level 6% below 1990 emissions. Since 1990, the emissions from the dairy industry have been lowered by over 10%. This is because fewer cows are required to produce enough milk to fill the Canadian demand. We have the potential to do even more as milk production per cow increases and cow nutrition research and new technology allow farmers to feed cows more efficiently.

4. DAIRY CATTLE IMPROVEMENT AND GENETIC EVALUATION

The Canadian dairy herd is primarily made of Holstein cows (95% of animals). Other breeds include Ayrshire, Jersey, Brown Swiss, Guernsey, Milking Shorthorn and Canadienne.

Most of these breeds are present in other areas of the world except for the Canadienne breed.

The Canadienne breed, which was developed from the Breton and Norman cows imported to New France in the 1600s, is found mostly in Quebec. Because of its general conformation, the Canadienne is often compared to the Jersey, even though it has a larger body (over 540 kg).

The strength of the Canadian dairy genetics industry lies in the mutual benefits achieved by industry partners working together for a common goal. Milk production and dairy cattle performance have attained high levels, thanks to long lasting investments in genetic improvement programs since 1905.

There is no doubt that production performance is important to cow profitability. However, high production for a short period of time would barely cover the costs of raising the heifer in the first place. Superior conformation also affects profitability through reduced involuntary culling and longer productive life. The Canadian “Balanced Breeding” philosophy combines high production with desirable conformation, thereby contributing to increased longevity and profitability. Canadian producers have been quite successful with this objective as witnessed by the significant rate of genetic progress realized during recent years for both protein and conformation. In 2004, dairy cows on an official Canadian milk recording program (which represent over 70% of the Canadian dairy herd) produced an average of 9,458 kilograms of milk. (see appendix 2)

The Canadian Dairy Network (CDN) was created in 1995. Its members include artificial insemination organizations, breed associations, the four official milk recording agencies and Dairy Farmers of Canada. The two main responsibilities of the CDN are the provision of dairy cattle genetic evaluations and the establishment of a national dairy database for the dairy cattle improvement industry in Canada. The CDN acts as the voice of the Canadian dairy cattle improvement industry both nationally and internationally.

Figure 1

Figure 1.
The flow of information amongst the various industry groups and the interdependence of the various stakeholders underline the need for co-operation.

Trade in Dairy Genetics

Canada is continuing to feel the economic repercussions of the discovery of its first case of bovine spongiform encephalopathy (BSE) in May 2003. Although the United States opened borders to animals under 30 months of age going to abattoirs, fewer older animals or animals for reproduction are exported. Canadian exports of dairy cattle and dairy genetic material have dropped by 72.7% since May 2003. Canada continues to make representations to its various trade partners to have the borders completely reopened. To date, some of the representations have been successful, particularly for embryo and semen exports, for which most borders were unaffected by the crisis. In 2004, Canadian exports of embryos and semen increased in relation to the two previous years. At the beginning of 2005, access to several foreign markets for dairy genetic material was restored fully or in part.

Figure 2. The Effect of the BSE Crisis on Canadian Exports of Dairy Cattle and Genetics

Source: Statistics Canada; Calculations by the Dairy Section, Agriculture and Agri-Food Canada

In 2004, genetic material imports amounted to $304,000 of which semen made up over 90%. The primary suppliers were the United States and Sweden.

5. DAIRY PROCESSING

Overview

The dairy processing industry represents a significant segment of the Canadian economy. In 2004, dairy processors shipped nearly $11.5 billion worth of products making up 14.9% of all products shipped by the Canadian food and beverage industry. About 26,800 people are employed in the processing of dairy products. The majority of these employees are concentrated in central Canada.

As of August 2005, the number of processing plants in Canada was 459. Of these plants, 297 were registered with the Canadian Food Inspection Agency (CFIA) entitling them to sell their products outside of their respective provinces. The majority of these processing facilities are located in Quebec and Ontario. A significant number of dairy plants are HACCP and ISO certified.

Over the past decades, the dairy processing industry has undergone a major rationalization. In 1965, there were 1,413 plants in Canada. In addition to rationalization, there has also been a trend towards expanding operations beyond the small regional scale on which dairies traditionally operated.

In Canada, fluid milk and cream production represents 38% of total milk production while the remaining 62% is dedicated to other manufactured dairy products.

Major Players

The dairy processing industry in Canada is dominated by three companies that, combined, process about 70% of the milk in Canada.

Figure 3. Percentage of Total Milk Processed in Canada by Company

Source: Company Research, Milk Marketing Boards, Canadian Dairy Commission, Estimates

Saputo Inc.
Saputo is the largest dairy processor in Canada. It operates 28 manufacturing facilities in Canada with 4,551 employees. The company is our largest cheese producer with 38% of market shares and also holds about 20% of market shares for fluid milk. Saputo has an annual processing capacity of about 2.5 billion litres of milk. For the fiscal year ended March 31, 2005, Saputo had revenues of $3.88 billion.

In recent years, Saputo Inc. has worked to increase its international presence. Primarily through foreign acquisitions, it has become the fifth largest dairy processor in the United States and the third largest in Argentina. In total, Saputo has 8,500 employees working in 46 plants and distribution centres throughout the Americas.

Agropur Cooperative
Agropur is Canada's largest dairy cooperative with approximately 4,200 members. Agropur operates 20 plants and employs about 3,000 people. Through its various divisions, Agropur has an estimated production capacity of roughly 2.3 billion litres. In 2004, the cooperative processed 1.7 billion litres. Its sales for the year amounted to $1.93 billion.

Agropur holds about 25% of market shares in fluid milks, and about 18% of shares in the cheese market. With Ultima Foods Inc., its joint venture with Saputo, it holds about a 30% share in the national yogurt market.

Parmalat Canada Ltd.
Parmalat Canada is a subsidiary of the Italian holding company Parmalat Finanzaria SpA. It has been operating in Canada since 1997 and has continued to operate unaffected by the accounting scandal from which its parent company is currently recovering.

Parmalat Canada employs about 1,900 people, operates 19 processing facilities from Quebec to Alberta and processes an estimated 1.65 billion litres of milk per year. In 2004, Parmalat Canada had revenues of approximately $2 billion.

Parmalat Canada is most prominent in the fluid milk market where it holds over 25% of market shares. However, it also has a strong presence in the cheese market with a 12% market share, and in the yogurt market where it holds a 20.5% market share.

Others
In addition to the three main players in the industry, there are also several other companies that have a significant presence.

Kraft Canada, a subsidiary of U.S. food giant Kraft Foods Inc., has operated in Canada since 1928 and has over 23% share in the national cheese market, second only to Saputo.

Atop the ice cream market in Canada are two other multinationals, Nestlé and Unilever, who hold 28% and 23% of market shares respectively. Finally, Danone Canada Inc., a subsidiary of the French firm, is the market leader in yogurt with over 30% of market shares.

In addition to these companies, there are a number of regional dairies that have strong market shares in their respective province. As well, the consolidation of the industry has left a gap in fine cheeses and other specialty products which is being filled by numerous small artisan cheese makers and dairies. This trend is particularly evident in Quebec.

6. CANADIAN DAIRY PRODUCTS AND INGREDIENT MARKETS

In addition to traditional dairy products such as Cheddar cheese, butter, ice cream and yogurt, Canada also manufactures value-added products such as omega 3 milk, calcium added milk, ultra filtered milk, yogurt containing probiotics, organic dairy products and specialty cheeses. More than 450 fine and traditional cheeses, including raw milk, goat and ewe cheeses, are produced in various regions of the country and are recognized as some of the finest cheeses in the world.

The Canadian dairy and food processing sectors are witnessing some of the most exciting and challenging opportunities in decades. Working parents, a growing ethnic Canadian population, the preoccupation with nutrition, and aging baby boomers are changing the way dairy and food processors select ingredients and formulate their products. “New generation” components such as milk protein concentrates and isolates are finding their way into the functional food and beverage markets. At the same time, the use of traditional dairy ingredients such as cream and buttermilk powder continues to grow in frozen meals and desserts as well as in breakfast food such as frozen waffles and pancake mix.

Canadian dairy and food processors seem well-positioned to take advantage of the unique properties inherent to milk products and components. Nutrients such as calcium, potassium, protein and vitamins A and D are hard to find elsewhere. The well known organoleptic and sensorial attributes associated with milk components remain important features for food manufacturers who are also keenly interested in their low carbohydrate and trans-fatty acid content.

7. CONSUMPTION OF DAIRY PRODUCTS³

Social and demographic changes influence the needs, tastes and spending habits of consumers. Because of their large numbers, Canadian baby boomers have an enormous impact on consumer trends. As they age, baby boomers are becoming more and more interested in, and informed about, nutrition. They expect the foods they eat to have certain health benefits.

Canadian consumption patterns are also influenced by immigration. The influx of immigrants has exceeded natural population growth for the last ten years or more. A more diverse population demands more diversity in food products. The Atlantic Provinces are less affected by this diversification because of the traditional origins (Europe and United States) of most of their immigrants. Ontario, Quebec and the Western provinces are already innovating in terms of the variety of dairy products they offer. For example, kefir (a fermented milk beverage from Eastern Europe) has been marketed since the early 1990s in several large Canadian cities, especially in Quebec.

In addition, the demand for ready-to-eat and high value-added foods has risen as a result of the growing number of one-person households, smaller families, and the increased presence of women in the labour market.

The industry also influences demand by offering innovations to consumers such as filtered milk, various types of packaging, and existing products presented as health foods.

Consumers have several dairy products to choose from to meet their needs. Over the last twenty years, numerous specialty cheeses, dairy desserts, yogurts and yogurt drinks, gourmet ice cream and ice cream novelties have been added to staples such as milk, cream, butter and cheddar cheese.

Fluid Milk

There are four major types of fluid milk: homogenized (3.25% butterfat), partly skimmed (2%), low fat milk (1%), and skim milk (which has less than 0.5% butterfat). A smaller market also exists for other fluid milk products such as flavoured and lactose-free milk. Creams are marketed with butterfat contents ranging from 10% for coffee cream, to 35% for whipping cream.

Fluid milk sales between 2000 and 2004 increased by a little less than 1% from 27.18 to 27.41 million hectolitres. In the last 10 years, part of the consumption of fluid milk has shifted to 1% milk. Consumption of chocolate milk on the other hand has increased significantly over the same period reaching 5.4 litres per person. Cream has also experienced a significant rise in consumption from 4.26 litres in 1990 to 6.91 litres per capita in 2004. This is explained by the increase in sales of both 10% and 18% cream which are most frequently added to coffee or used in specialty coffee products.

Figure 4. Per Capita Consumption of Fluid Milk in Canada (in litres)

Source: Statistics Canada

In the future, the development of new milk products including flavoured milk beverages beyond the traditional chocolate milk, functional milks with added vitamins or enriched with calcium and omega-3 fatty acids, will also have an impact on consumer demand for fluid milk.

Dairy Products

Canadians have their dairy paradox. While consumers demand low fat for products they consume on a regular basis, low fat is the least of their concerns for products they consume only occasionally. Both specialty cheeses and deluxe ice creams greatly benefit from this paradox. Some manufacturers have gone even further by offering high-fat yogurts.

Source: Statistics Canada; calculations by the Dairy Section, Agriculture and Agri-Food Canada

8. INTERNATIONAL TRADE

Canadian Dairy Trade Balance

There was a deficit of $323.8 million in the Canadian dairy trade balance in 2004, which represents an increase in the deficit of 38.9% over the previous year.

Figure 6. Canadian Dairy Trade Balance (millions of dollars)

Source: Statistics Canada, May 2005

Exports

The main dairy products exported by Canada in 2004 were cheeses (28.9%), followed by dairy spreads (18.3%) and skim milk powder (14.9%)⁶ . The main export markets for Canadian dairy products were the United States (48.1%), the European Union (12.2%) and South Korea (6.0%). Between 2001 and 2004, Canadian dairy exports to Mexico fell by 91.8% and Mexico went from being the second to the fourth leading destination for dairy exports, owing to a steady decline in exports of skim milk powder to that country in recent years.

Figure 7. Canadian Exports of Dairy Products

Source: Statistics Canada; calculations by the Dairy Section, Agriculture and Agri-Food Canada

Over the past year, the Canadian dairy products with the sharpest rises in quantities exported were dairy spreads (+5.1 million kilograms), whole milk powder (+1.4 million kilograms), ice cream (+0.4 million kilograms) and specialty cheese (+0.3 million kilograms).

In relative terms, the largest growth in the past year in Canadian dairy exports was in whole milk powder (+490%), casein and casein products (+147%), dairy spreads (+44%), condensed milk (+46.6%) and yogurt (+31.4%).

Of the products listed above, yogurt is the only Canadian dairy product that has had uninterrupted growth in exports over the past four years. Canadian exports of liquid yogurt to the United States are not subject to tariff rate quotas or tariffs. However, powdered yogurt is subject to a tariff rate quota of 4,105,000 kilograms.

Imports

Canadian dairy imports increased by 7.4% over the past year, to $588.1 million. In terms of quantity, imports totalled 184.9 million kilograms, up 5.2% over 2003. Canada's main dairy suppliers are the EU-25 (41.2%), the United States (24.3%), New Zealand (24.1%), Switzerland (4%) and Australia (1.7%).

Among the EU-25, Canada's main suppliers are Germany, France and Italy, which together account for 63% of imports from the EU-25.

In terms of quantity, the following imports grew substantially in 2004: whey products (+9.3 million kilograms), butter and other milk fats (+7.4 million kilograms), whole milk powder (+1.7 million kilograms), cream (+1.2 million kilograms) and products consisting of natural milk constituents (+1.0 million kilograms). Between 2003 and 2004, imports of specialty cheese, fresh cheese, ice cream, evaporated and condensed milk, skim milk powder and dairy spreads also increased.

Figure 8. Canadian Imports of Dairy Products

Source: Statistics Canada

9. DAIRY RESEARCH

Facilities

Three of the 19 agri-food related research centres of Agriculture and Agri-Food Canada (AAFC) put a particular emphasis on dairy. Centres located in Lennoxville, Quebec, and Lethbridge, Alberta, are very active in production research. Another centre, located in St. Hyacinthe, Quebec focuses on dairy processing and the various milk components. Universities that have a faculty related to agriculture, food science or veterinary science are also very active in production and processing research. Research related to human nutrition is mostly carried out by universities having a strong health-related faculty.

Research Topics

Milk production research in Canada embraces a wide variety of topics. Cattle nutrition and health, along with genetic improvement, are now traditional areas of study. Newtechnologies have allowed major developments in these fields. Molecular biology is now widely used and new measuring tools are broadening researchers' possibilities. In recent years, Canada has also developed a strong expertise in animal welfare. The University of British Columbia recently built a research facility that puts particular emphasis on the study of dairy cattle behaviour and comfort. Mastitis research has also received a lot of attention, with the creation of the Canadian Bovine Mastitis Research Network in 2002.

Besides the St. Hyacinthe AAFC centre, research in dairy processing is concentrated at Laval University in the province of Quebec (INAF, STELA), at University of Guelph (Ontario) and at the University of British Columbia. Research topics include the isolation of milk components and the study of their functionality and properties, as well as technical issues such as fermentation and packaging.

Dairy nutrition research looks at relationships between dairy products and consumers health. Research priorities include the health of bones, of the digestive system, the heart and the circulatory system and the prevention of obesity in children and adults.

Financing of Research Activities

Dairy research dollars in Canada are mainly provided by the Federal Government and various producer organizations.

In addition to the sources of funding listed above, the various provincial governments and milk marketing boards may encourage research through direct financing or more indirect measures.

APPENDIX 1 - Links

Agriculture and Agri-Food Canada
www.agr.gc.ca

Canadian Dairy Commission
www.cdc-ccl.gc.ca
www.milkingredients.ca

Canadian Dairy Information Centre
www.dairyinfo.gc.ca

Canadian Dairy Network
www.cdn.ca

Canadian Food Inspection Agency
www.inspection.gc.ca

Dairy Farmers of Canada
www.dairygoodness.ca

APPENDIX 2 - The Canadian Dairy Industry by Numbers

Source: Canadian Dairy Commission; compiled by the Dairy Section, AAFC

Source: Statistics Canada; calculations done by the Dairy Section, AAFC.

Source: Canadian Dairy Herd Improvement; calculations by the Dairy Section, AAFC

Photos:
Agriculture and Agri-Food Canada, Canadian Dairy Commission,
Dairy Farmers of Canada, Holstein Canada.
20

1 All dollar figures in this brochure are in Canadian dollars.
2 Doyon, Maurice, 2004. Impact of Cross-Sectoral Activities in the Canadian Dairy Industry, 2002.
3 Specific information related to Canadian expenditures for butter, ice cream, cheese, yogurt and milk and cream can be found at
http://www.dairyinfo.gc.ca/cdicar.htm
4 Includes cheese used in the making of processed cheese
5 Includes skim milk powder and whey powder
6 In monetary value.
7 Expenses listed for Agriculture and Agri-Food Canada do not include infrastructures and salaries of permanent employees.
8 Figures for NSERC are estimates.
9 Novalait is a major source of funding for dairy research in the province of Québec. It is a 50/50 partnership between dairy producers and processors. Its investments generate an additional $1.5 million in investments from other sources.