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USDA GAIN: Dairy and Products


18 December 2014

USDA GAIN: Canada Dairy and Products December 2014USDA GAIN: Canada Dairy and Products December 2014


USDA Gain Report - Dairy and Products

Milk, cheese, butter and skim milk powder production is forecast to increase in 2015 due to the need to build stocks. Imports of these products will remain close to average levels due to the import controls in place. The need to gain efficiencies through lowering production costs will keep imports of milk protein substances strong (TRQ not applicable to US trade). The CETA has been signed, though not ratified, and there are several elements of the agreement that could affect the competitiveness of U.S. dairy products in the Canadian market.

EXECUTIVE SUMMARY

The Canadian dairy sector functions under a supply management system, based on planned domestic production, administered pricing and dairy product import controls.

Production, trade and consumption trends have stayed relatively stable over time, due to the factors stated above, compiled with the fact that there are not significant changes in GDP or population growth to drive increases in demand.

In 2015, milk production is forecast to increase slightly from 2014 estimated levels to 8.535 million metric tons (MMT) in order to maintain butter stocks and meet demand. The 2014 estimate for milk production (including on farm feed use) is 8.409 million metric tons (MMT). This is marginally below 2013 levels (0.5 percent).

Post forecasts butter production to increase in 2015 to 90 thousand metric tons (TMT) to meet the steady demand and maintain stock levels. Post’s estimate for butter production in 2014 is 85 TMT, 10 percent lower than 2013 levels.

Cheese production has been slowly increasing over time in response to consumer demand. In 2015, cheese production is forecast to reach 390 TMT, a slight increase from 2014 estimated levels of 389 TMT.

Skim milk powder production in 2015 is forecast to rise to 80 TMT in response to increased butter production. Skim milk powder production in 2014, is expected to reach 77 TMT, this represents a 4.5 percent increase over 2013 levels. This increase is the result of a return to more average (lower) levels of butterfat in the milk.

Import controls and export subsidy limitations mean that trade in milk, butter, cheese, and skim milk powder stay relatively stable over time. Trade under certain products (dairy ingredients) not covered under tariff rate quotas has been increasing over time due to Canadian manufacturer’s trying to gain efficiencies through investments in technologies that lower production costs. Exports of milk protein substances to Canada under 3504.00.11 and 3504.00.12 was nearly $129 million in 2013, with US trade accounting for $78 million (60 percent share of the trade). In 2014, the value of trade had already surpassed 2013 levels by the end of October when it reached $142 million, with U.S. exports accounting for $84 million dollars (67 percent share of trade).

In the fall of 2014, Canada submitted its 2011/2012 marketing year export subsidies notification. Canada reported subsidized exports totaling 9.3 TMT ($31.2 million) for skim milk powder, 4.8 TMT ($14.4 million) for cheese, and 22.5 TMT ($6.8 million) for other milk products. Canada reported no subsidized exports of butter.

For 2013, the Canadian dairy trade balance remained at a deficit of over $470 million (CDN$ 490 million), an 11 percent increase over the previous year’s level.

In late September 2014, the Comprehensive Economic Trade Agreement was signed by Canada and the European Union and the draft consolidated text has been made public. The EU has been granted concessions on dairy that will allow the EU even greater cheese access into the Canadian market (expanding of the cheese quota and elimination of in-quota tariffs). There are some elements of the agreement that could impact U.S. competitiveness of cheese and milk protein substances into the Canadian market.

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