Ontario Dairy Fact Pack November 2013

Transcription

1 Ontario Dairy Fact Pack November 2013 L i v e s t o c k R e s e a r c h I n n o v a t i o n C o r p o r a t i o n R e s e a r c h L a n e, S t e G u e l p h O N. N 1 G 0 B 4 P : e x t

2 Purpose of the fact pack This Fact Pack is designed to give a high level overview of the industry and pertinent background information (including trends in external factors impacting on the industry) so that everyone has a similar understanding of the sector, along with the operating environment in which we are planning. There are historic trends for important inputs for our industry such as oil, land and feed costs. Please take the time to review the information contained in the Fact Pack as it may be useful during the research strategy session. Sources: Dairy production data is sourced from the Canadian Dairy Commission and Agriculture and Agri-Food Canada, General external conditions data from FCC, Mintel, Platts, Canadian Grocer.

3 Overview Canadian milk and dairy products are as diverse as Canada s land and people and are world-renowned for their excellence. Enforcement of strict quality standards on dairy farms and in processing plants enhances this international reputation, along with a strong commitment to sound animal welfare practices and environmental sustainability. The Canadian dairy sector operates under a supply management system based on planned domestic production, administered pricing and dairy product import controls. The dairy industry ranks third (based on farm cash receipts) in the Canadian agriculture sector following grains and oilseeds and red meats. Production From 2005 to 2012, the national dairy herd declined by 11%, while total milk production increased by 6%. In the dairy year total Canadian production was million hectolitres while in , it reached million hectolitres. These adjustments reflect ongoing restructuring at the farm level. There are fewer farms but more cows on each farm. Since 2005, the number of cows per farm has risen by about 13% and the average Canadian dairy farm now has 77 cows. Better feeding, disease control and genetic advancements have increased the amount of milk produced per cow. The industry has experienced a 30% per cent decline in the number of dairy farms over the past decade, from 18,673 in 2001 to 12,529 in However, individual farming units have grown in size and have become more effective in operation. From 2002 to 2012, the average production per farm has increased significantly by 34%. The overall number of cows has decreased over the past 10 years, however the production per cow has increased by 16%. In 2001, there were 1,091,000 cows in Canada producing an average of 67 hl of milk per cow. In 2011, there were approximately 987,000 dairy cows in Canada, producing an average of 78 hl of milk per cow

4 Average Dairy Farm The typical Canadian dairy farm is quite specialized, with most of its revenue coming from milk production and the sale of dairy cattle. It is a family-owned operation with a herd of about 77 Holstein cows. Dairy farm operators typically range in age from 45 to 54. They are concerned about how to pass on their dairy farms to the next generation while the next generation is concerned about how to pay for them. As farm size increases, operations require more than a single farmer and parttime family help, and the availability of skilled farm labour is an issue in communities across the country. There is a trend for milking facilities to get larger and more automated. Many feature new technology such as rotary parlours, animal identification systems and automatic cow-sorting devices. Some dairy producers used robotics to milk cows. The goal of these technologies is to reduce production costs. Producers can save money on labour and can expand without increasing labour requirements.

5 Genetics The Canadian dairy industry is famous for the superior genetic quality of its herd as well as its strong dairy cattle improvement and genetic evaluation programs. Over 76% of Canadian dairy herds are enrolled in milk recording programs Cows recorded in official milk recording programs produced on average 9,780 kg of milk per lactation (305 days) with an average content of 3.85% fat and 3.22% protein The Holstein breed is the most common dairy breed (94% of the dairy herd); Ayrshire, Brown Swiss, Canadienne, Guernsey, Jersey and Milking Shorthorn breeds are also found on Canadian farms Canada is at the forefront of new and innovative research into dairy genetics. Animal DNA profiles are determined by estimating genomic evaluations for over 60 different traits. To date, evaluations are calculated using imputed genotypes (6K and 50K panels). Supply Management In dairy, balancing supply with demand largely implies balancing milk production from all farms with domestic consumption of dairy products. Controlling national production at the farm level is achieved through the establishment of marketing quotas through the framework provided in the National Milk Marketing Plan. Supply management also takes into account certain imports which enter Canada, as well as some production which is shipped to export markets.

6 Economic Contribution As a key contributor to the Canadian economy in the 2012, dairy production ranked second behind meats and ahead of oilseeds in terms of the value of its manufactured shipments. It generated $5.92 billion in total farm cash receipts. The dairy processing industry is vital to the Canadian economy, ranking second in the Canadian agri-food sector. In 2011, the industry employed 23,919 people and generated thousands of jobs in related sectors such as transportation, packaging, handling, and marketing of dairy products. The dairy processing industry represents a significant segment of the Canadian economy. In 2010, the value of products shipped by dairy processors totalled $13.4 billion, making up 14.9% of the value of all shipped products in the Canadian food and beverage industry

7 Milk Markets Canadian dairy producers supply two main markets: the fluid milk market, which includes flavoured milks and creams and, the industrial milk market which uses milk to make products such as butter, cheese, yogurt, ice cream and milk powders. In dairy year, the fluid market accounted for approximately 37% of total producer shipments of milk, or million kg of butterfat. The industrial market accounted for the remaining 63% or million kg of butterfat. In 2012, 65% of Canada's milk production was concentrated in Ontario and Quebec. Milk utilization In the dairy year, about 85 million hectolitres of milk were produced for both of these markets. About 39% of the milk shipped by producers was intended for the production of fluid milk and the other 61% was intended for dairy processing. On the basis of butterfat content (3.6 kg/hectolitre), 29.9% of all the milk produced in Canada was transformed into fluid milk, cream and milk beverages, 34.1% into cheese, 7.8% into yogurt and ice cream, and 18.4% into butter. Fluid Milk: Sales of fluid milk increased slightly from 2010 to 2011 to reach almost 2.8 billion litres. With sales of 1.3 billion litres, 2% milk remains the most popular drinking milk in Canada, but chocolate milk shows the strongest growth, with sales increasing form 196 million litres in 2010 to 209 million litres in One also notes that sales of 2% and 1% milk are on the rise, while those of 3.25% and skim milk remain stable. From 2010 to 2011, cream sales increased significantly, from 281 to 303 million litres. Cheese: Recession caused a slowdown in the growth of the Canadian cheese market, but growth is returning and consumers are splurging a little more on luxuries such as fine cheeses. From 2005 to 2010, average cheese consumption per capita has grown from kg to kg, with most of the growth in the cheddar and fine cheese categories, and a decline in the cottage and processed cheese categories. This is consistent with consumer trends which favour more flavourful and less processed foods. The industry also tries to cater to immigrant consumers. Paneer cheese, for example, is very popular with the East Indian community and such products sell well in urban Canadian centres with large immigrant populations. Butter: From 2005 to 2010, per capita butter consumption has decreased from 3.15 kg to 2.64 kg, most likely because consumers try to limit their intake of dairy fat and are learning to use various oils in their cooking. Yogurt: Yogurt consumption has been steadily increasing over the past twenty years. From 2005 to 2010, average yogurt consumption grew by 22%, passing from 6.77 litres to 8.28 litres per capita. Functional and fortified yogurt remains one of the most dynamic dairy segments in Canada due to consumers' growing demand for ingredients such as probiotics. Drinkable yogurt is also becoming increasingly popular among Canadians on the go.

8 Ice cream: From 2005 to 2010, ice cream consumption has fallen from from 9.85 litres to 5.50 litres per capita in Canada. While volumes are decreasing, unit prices are increasing as manufacturers are shifting towards more premium items. Imports In 2011, the value of Canadian dairy imports increased 10% to $669.8 million. Top products imported by value were specialty cheeses (33.8%), followed by milk protein substances (15.9%), whey products (7.7%) and butter and other fats and oils (6.7%). The largest suppliers in value terms were the United States (40.6%), France (12.3%) and New Zealand (11.3%). Exports In 2011, the value of Canadian exports of dairy products increased 11% to $251.9 million. Ice cream represented 22.6 of export values, followed by whey products (15.8%) and natural milk constituents (11.2%). Main destinations for Canada's dairy exports were the United States (31.9%) Saudi Arabia (10.3%), the United Arab Emirates (6.9%) and Egypt (6.8%). Canadian Dairy Trade Balance (in CS Millions) 2003 to 2012 Market observations: Excerpts (pertinent to Canadian market) from an article in Canadian Grocer December 11, 2012 Liquid milk consumption in the U.S. and Canada continues to decline. The Dairy Farmers of Canada are seeing a gradual decline in liquid milk consumption. Back in 1992, Canadians drank an average 92.6 litres of milk according to data from Statistics Canada. By 2011, that number had dropped to 78.7 litres. (Cream, on the other hand, jumped from 5.1 litres per capita to 8.8 over that same period). Thérèse Beaulieu, assistant director of strategic communications points out that while

9 liquid milk consumption is declining, other dairy categories are seeing tremendous growth. Back in the 1970s, she says mozzarella and cheddar were the only cheeses available in the grocery store. Now we re talking about 1000 different cheeses. Indeed, between 1992 and 2011, Canada s per capita consumption of cheese jumped from kilograms to 12.29, with the biggest gains made in specialty cheese. Yogurt has also taken off, giving dairy farmers, processors and grocers robust dairy sales. Thanks to the growth in these non-liquid dairy categories, consumption levels have remained relatively stable. It s not a question of crisis, Beaulieu adds. It s a question of changing demographics. We have an older population; we have a population that s more diversified. (observations on trends in the US market can be found at the end of this document) Organic Milk Canadian production of organic milk is increasing steadily in Canada and volume is now 89% higher than it was five years ago. The production of certified organic milk is concentrated in the provinces of Quebec, Ontario, Alberta and British Columbia. The dairy year saw 218 farms produce 937,137 hectolitres of organic milk, which represents 1.19% of total Canadian dairy output. In 2012, organic raw milk premiums paid by processors by provinces ranged from 16 to 30 cents per litre. Organic producers are often required to pay additional administration and transportation fees. These fees are often deducted directly from the premium paid by processors and average between $0.08 and $0.12 per litre Production of Certified Organic Milk and Number of Producers in Canada

10 Safety and Quality Government and industry partners work in close cooperation to coordinate the movement of milk from the farm to the consumer. Dairy Farmers of Canada, the Dairy Processors Association of Canada, the Canadian Dairy Commission, the Canadian Food Inspection Agency, provincial marketing boards, dairy processing companies, cooperatives and Agriculture and Agri-Food Canada all work as partners to ensure a strong and dynamic industry. Strict quality standards applied throughout Canada's production and processing chain contribute to the excellent reputation of Canadian dairy products. The main quality assurance mechanisms that ensure milk and dairy products are safe and high in quality are: A significant number of dairy plants are Hazard Analysis Critical Control Points (HACCP) and/or ISO certified. The on-farm food safety program "Canadian Quality Milk" is a HACCP-based and certified by CFIA. Sound welfare practices in the Code of Practice of the Care and Handling of Dairy Cattle. National biosecurity standards, protocols and strategies designed to protect animal resources. National eradication programs for serious cattle diseases (several of which have been eradicated from the dairy herd). Mandatory control and monitoring in accordance with international agreements, particularly World Organisation for Animal Health (OIE) agreements, protecting Canadian livestock from serious diseases. Development of a full traceability system is a priority in Canada which includes three basic elements: animal identification, premises identification and animal movement.

11 External environment scan. Input Cost trends impacting farm business The following pages are provided as a general backdrop/external environmental scan showing trends in major agricultural inputs and land prices over the last few years. Corn Price Trends - US Soy Bean Trends US

12 Labour Costs Trends - Canada Oil Prices Trends (source

13 World Bank sees slow oil price decline to $80/b in 2025 London (Platts)--12Jun2013/1147 am EDT/1547 GMT International oil prices are likely to decline slowly between now and 2025 to $80/barrel, a level consistent with the real cost of producing oil from Canada's tar sands, the World Bank said Wednesday in its Global Economic Prospects report. But the bank also warned that a major oil supply disruption caused by political turmoil in the Middle East could send prices spiking by $50/b or more. The World Bank, which uses a simple average of Dubai, Brent and West Texas Intermediate crudes, expects the oil price to decline to $102.40/b this year and to $101/b in 2014 and 2015 from $105/b in It currently bases its long-term oil price assumptions on an estimated $80/b for Canadian oil sands output. However, "there are a number of risks to the baseline forecasts," the Bank said. "Downside risks include weak oil demand if growth prospects deteriorate sharply, especially in emerging economies where most of the demand growth is taking place," it said. "Over the longer term, oil demand could be dampened further if the substitution between crude oil and other types of energy accelerates." VULNERABLE The economies of oil-exporting countries are particularly vulnerable to shifts in oil prices, the Bank said. "In such an instance government revenues and current account balances would come under pressure," it said. The bank expects growth in the Middle East and North Africa region to slow to 2.5% this year from 3.5% in 2012, reflecting a second year of recession in Iran, subdued growth in Egypt and a "modest pickup" in Algeria. But if real oil prices were to fall to $80/b by the middle of next year -- the faster decline coming from "a shift in expectations about future prices" resulting from rising production and reserves in the US and other non-opec countries -- oil exporters in the Middle East and North Africa would see GDP fall by 1.4% relative to the baseline and current account balances deteriorate by 3.5% in "In the current environment, regional oil exporters will no longer be able to rely on high and rising prices, but will increasingly need to rely on increased output. This in turn necessitates reforms that would allow them to invest heavily in infrastructure, and exploration to raise current production levels which have stagnated or been steadily declining in recent years," the bank said. "However, private capital and FDI inflows may fail to materialize because of security risks, poor legal environments for investment and political uncertainty to varying degrees in Algeria, Iraq, Libya and Yemen and international sanctions in the case of Iran." Iraq, according to government estimates, needs capital spending of $30 billion annually on energy infrastructure to meet its oil production targets, the bank said. But it added that progress on this front was likely to be slow because of payment disputes with the Kurdish Regional Government and delays in passing a law governing oil and gas development. Algeria's efforts to raise private investment for upstream exploration, including shale gas, and refining, may also prove challenging given the political uncertainty generated by the presidential election scheduled for spring 2014 and reversals in investor-friendly provisions in investment laws, the bank said. The response of OPEC, and of Saudi Arabia in particular, will be key to the outlook for prices, the Bank said. "A key uncertainty in the outlook is how OPEC (notably, Saudi Arabia) reacts to changing global demand and non-opec supply conditions. Since 2004 when crude oil prices started rising, OPEC has responded to subsequent price weakness by cutting supply, but has not been as willing to intervene when prices increase. However, as non-opec supplies continue to come on stream and demand moderates in response to higher prices, the sustainability of this approach may come under pressure," it said.

14 Farm land Values - source Farm Credit Canada Ontario Farmland values in Ontario increased an average of 11.9% in the second half of 2012, following gains of 16.3% and 7.2% in the previous two reporting periods. Farmland values in Ontario have risen for the past 20 years. Some cash crop producers leveraged their current land holdings to purchase less expensive land in other locations, such as in Northern Ontario, yet the resulting impact on farmland values was relatively modest. The southwestern, central and southern regions saw significant increases in the second half of Most areas experienced a high number of private transactions as well as those occurring through the tendering process or property auctions. In most areas, the demand for farmland outweighed available supply, driving prices higher. Demand was strong from the dairy industry and large intensive livestock enterprises that need land to meet nutrient management and cropping requirements. Cash crop operators also wanted to grow their land base due to higher commodity prices and good crop yields. With the current strong demand and prices for land, some producers planning to exit the industry chose to liquidate their land holdings instead of collecting rental income.

15 Farmland Values Nationally The average value of Canadian farmland increased 10.0% during the second half of 2012, following average increases of 8.6% and 6.9% in the previous two six-month reporting periods. Farmland values remained stable or increased in all provinces. Quebec experienced the highest average increase at 19.4%, followed by Manitoba at 13.9% and Ontario at 11.9%. Saskatchewan and Alberta experienced 9.7% and 7.2% average increases respectively, followed by Nova Scotia at 6.8%, Prince Edward Island at 5.7% and British Columbia at 0.4%. Average farmland values were unchanged in New Brunswick and Newfoundland and Labrador. Canadian farmland values have continued to rise over the last decade. The current average national increase of 10.0% is the highest since FCC began reporting on farmland values in The second highest increase occurred in the first half of 2012, at 8.6%. The last time the average value decreased was by 0.6% in 2000.

16 The US milk market milk alternatives and new/developing categories/trends (Mintel Global New Products Database (GNPD) (2011)) The overall decline in milk consumption can be seen as a result of growing ethnic populations, who are less reliant on dairy products as a diet staple. Couples in both countries are having fewer children than previous generations, possibly affecting the volume of fluid milk consumed per household. The increasing popularity surrounding milk products enriched with extra calcium, omega-3 fatty acids or probiotics also serve to play a role. New Products 209 milk and milk alternatives were introduced in the U.S. market between December 2010 and November Of these products, 71% consisted of chilled products; the remainder was shelf stable (Mintel 2011). The consumption of milk and milk products plays a prominent role in a nutritious diet and is recognized as a good source of several essential nutrients. However, a large segment of the population is not able to digest them properly as a result of allergies or sensitivities. As a result, there is a growing market for milk alternatives made from rice, nuts, grains, or seeds. According to Mintel GNPD (2011), the number of new rice/nut/grain and seed based drinks more than doubled from 18 introduced between December 2006 to November 2007, to 45 introduced between December 2010 to November Over these same time periods, flavoured milk product introductions declined from 75 to 37, while new white milk products grew from 82 to 93 introductions; total new milk and milk alternative product introductions declined slightly from 218 to 209 products. Traditional flavours, such as plain/unflavoured, chocolate, and vanilla, were the most popular among new products introduced in this report period. Product Positioning of Alternatives From December 2010 to November 2011, "kosher," "low/no/reduced fat," and "vitamin/mineral fortified" were the most popular specified claims for milk and milk alternatives launched in the U.S., according to Mintel (2012). The top 5 claim categories are summarized in the following chart:

17 5 Claim Categories New products (53%), new packaging (30%), and variety/range extensions (13%) accounted for virtually all of the product launches from December 2010 to November This is summarized below. Product Launches

18 Trends U.S. schools are removing carbonated beverages from their vending machines and other beverages are taking their place, including single-serving flavoured milk drinks. Dairy producers have begun to introduce shelf-stable varieties of flavoured milk drinks. As more and more Americans become lactose intolerant, traditional milk sales are declining. However, this has provided an area of growth for soy milk products. Soy milk sales are continuing to grow at mid-single-digit rates. Private labels dominate milk products Market Opportunities Key Markets to Retain (currently reporting high consumption rates) Young children are the core consumers of plain fluid milk, and by extension, this market includes families with young children. Larger households, and low-income households are also key consumers of plain fluid milk. Packaging designed to appeal to children, in addition to providing nutrient fortification, portability and convenience features in a healthy beverage, are key to maintaining this consumer group. Asian consumers, whose natural lactose intolerance is higher, have a long tradition of consuming soy-based foods and beverages, so it is not surprising that they are major consumers of milk alternatives, particularly soy milk. While traditional flavours remain popular overall, offering more exotic flavour choices, such as mango, would appeal to this consumer group. Extentions to the Market (currently reporting mid-range consumption rates) Today's time-pressed homemaker is also looking for portability and convenience, health attributes and value. New milk alternatives are of increasing interest with the growing number of allergic or food-sensitive consumers who seek the nutritional benefits often found in milk products, but in an alternative beverage. Product messaging geared towards specific health targets, such as prevention of osteoporosis for women, weight reduction or maintenance, healthier lifestyles, ease of digestion, or cardiovascular health, will continue to resonate with healthconscious consumers. Addressing environmental or sustainability concerns may provide opportunities to retain or extend current markets, and may lie in innovative packaging that is environmentally friendly or made from sustainable product sources, or which address concerns regarding the ethical treatment or well-being of animals in the production of milk. Possible New Opportunities (currently reporting low consumption rates) Education of adult consumers regarding the contributions of milk towards their daily nutrient intakes, particularly for those on special diets, may provide an

19 added incentive to consume more milk. Research by MilkPEP indicates opportunities for adults who no longer drink milk by highlighting chocolate milk as a great refuel beverage after exercise. According to MilkPEP, "There is strong scientific evidence from research with athletes that chocolate milk is the ideal recovery beverage if consumed within two hours of vigorous exercise."