Competition in Alberta's Dairy Supply Chain

US - The livestock sector in Alberta is in transition as it responds to increased labour costs, fluctuating currency exchange rates, increased feed grain costs, as well as a range of new costs relating to food safety and handling.
calendar icon 16 January 2009
clock icon 2 minute read
Alberta Agriculture, Food and Rural Development

The dairy industry in Alberta, while somewhat protected from some of the factors through supply management, is confronted by a range of different challenges. These include increased market penetration by imported dairy ingredients, prospective increases in domestic market access under a WTO-Doha agreement, and sluggish growth in domestic dairy product sales.

To gain a better understanding of these issues and to enhance sustainable growth of the Alberta dairy industry, Alberta Agriculture and Rural Development commissioned a report from the George Morris Centre (GMC) titled Cost Competitiveness Analysis of the Alberta Dairy Supply Chain. Funding for the project was provided through Agricultural Policy Framework Renewal. The report was presented at the Alberta Milk Annual General Meeting on November 19, 2008, in Red Deer.

The objectives of the study were:

  • to determine the cost competitiveness of the dairy farm segment in Alberta relative to competing regions
  • to determine the cost competitiveness in dairy processing of Alberta relative to competing regions
  • to assess Alberta cost competitiveness relative to specific changes in the pricing of the milk component "solid not fat" (SNF), and its impact on the utilization of all milk components (butter fat, SNF) and on milk revenues
To meet the study objectives, the following were undertaken:
  • models of 250-cow and 500-cow dairy farm facilities were constructed - the models were replicated with input price data from Alberta and from competing regions
  • models of processing facilities (a fluid bottling operation and a butter-powder plant) were developed - these included prices representing key inputs and the resulting costs compared across regions
  • future milk pricing scenarios were developed - these served as a basis upon which to interpret production costs
"The findings of both the farm and processor analyses indicate that the Alberta dairy supply chain is in the lower cost range among competing jurisdictions," says Richard Heikkila, senior economic analyst with Alberta Agriculture and Rural Development's economics branch, Edmonton.

Alberta occupies the mid-low range of competing regions in milk production cost with average costs at the 500-cow scale of approximately $0.55 per litre. Wisconsin had slightly lower production costs, but Alberta was the low-cost producer among western jurisdictions. Alberta had a comparative advantage in terms of low-cost feed and replacement heifers, however labour cost is a clear disadvantage that mitigated some advantages.

"With regard to milk products, Alberta was generally observed to be a relatively low-cost processor," says Heikkila. "This was especially the case in fluid bottling, where high relative labour costs in Alberta were less of a disadvantage."

The final section of the report addressed milk component pricing. The report concludes that component pricing could be adjusted within the supply management system to facilitate growth in dairy protein products.


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