Canadian dairy farmers are expected to increase milk production this year by 4 percent, to 21.6 billion pounds. This follows three consecutive years of growth in Canadian milk production. In fact, since 2014, Canada’s milk production has grown by more than 16 percent, more than any other major dairy-exporting region. For comparison, from 2014 to 2018, U.S. milk production will grow 6 percent, the European Union is expected to grow 4 percent and New Zealand milk production is expected to remain flat.
Spurred by increasing demand for butter and higher milkfat-containing products, the growth in Canadian milk production does have a downside: increased supplies of less desirable skim milk solids, i.e. nonfat dry milk powder. During 2015, nonfat dry milk powder inventories in Canada reached a 38-year high of 60,000 metric tons. Partially in response to these growing inventory levels, as well as imports of competitively priced U.S.-produced ultra-filtered milk proteins, Canada introduced a national ingredients pricing scheme designed to lower the price of skim milk solids and reduce dairy product imports from the U.S. The scheme was fully implemented in 2017. Equally trade-distorting, the lower prices for Canadian-produced skim milk solids allowed Canada to engage in the export market in a significant way.