Small on-farm dairy processors raise concerns about systemic inequities

KAMLOOPS – Two small dairies are hoping there’s room in supply management for an alternative way of doing business that will keep on-farm processors viable into the future.

Laura Hunter of Blackwell Dairy in Kamloops and Erin Harris of Kootenay Meadows Farm in the Creston Valley reached out on Facebook recently seeking support for ideas to make supply management more equitable for small on-farm processors. They also presented their proposal to the BC Dairy Association and BC Milk Marketing Board.

Each of the farms produce and process 12,000 to 15,000 litres of milk each week, with the bulk of it going into fluid product.

Blackwell Dairy has processed its own milk since 1983 and Kootenay Meadows started about 15 years ago.

As part of the supply management system, they are required to sell their milk to the BCMMB, then purchase it back for processing.

“The supply management system works really well for producers but being a small processor, when we’re buying our milk back, it’s costing a significant amount. It’s about a 35.5% mark-up on milk from our tank to our processing facility,” says Harris. “On milk that doesn’t ever leave the farm; nobody touches it but ourselves.”

The farms also incur producer fees on one end, processing costs on the other plus farming costs faced by all farmers, leaving a slim profit margin.

“I think why we’re affected the most and why this hits us pretty hard is both of our plants produce 75% fluid milk product and fluid milk is priced the highest. So, we’re putting the most money back into the pool but we’re getting it as a farm at the pooled price,” notes Hunter. “It wasn’t always like this. When we first opened the plant here, the margins weren’t that far apart. If those margins get further apart, it just puts us in a position where we’ve got to make financial business decisions.”

The farms appreciate and understand the importance of supply management but think there are other ways for small on-farm processors to fit into the system.

One idea is to create an on-farm processing class with different pricing.

“Our proposal would be that any milk that’s end use is processing on-farm, regardless of what you’re making with it, should be priced at the same price as the farmer gets paid. So that, basically, we’re producing within our quota and we’re accounting for where our milk is and where it’s going, but we’re not paying to buy our milk back,” explains Hunter. “That way it doesn’t harm the pooled milk price at all but it means that we as small businesses can keep going.”

The other idea is to increase the volume cap on milk processing under a cottage industry licence and include these processors in the supply management system.

Unique issues

BCMMB director David Janssens says the board understands small on-farm processors face unique issues that require unique solutions.

“It’s in our strategic planning agenda and we’re certainly aware of the challenges they face. It’s a question of working through what can we do,” Janssens says. “The problem is that the proposed ideas are contrary to the board’s founding principle of fairness for all producers and processors.”

Harris says a recent BC Dairy Industry Development Council plebiscite prompted them to explore their options. She says the plebiscite is effectively asking them to subsidize large processors – their competition.

BCDA general manager Jeremy Dunn says the plebiscite was held to approve a new plan for the DIDC, which includes enabling the DIDC directors to consider investing in processing initiatives on behalf of BC producers.

“Investments would be made according to a set of strict criteria and all processing-related projects, large or small, would have an opportunity to be considered,” he explains. “Eighty-nine per cent of dairy producers who participated in the plebiscite voted yes.

Important role

Harris wants to see more support for small on-farm processors because they have a key role to play, too.

“We’re an important part in a resilient food system if and when we have another situation like COVID,” she says. “It is easier for a small plant to pivot quicker than it is for some of the large processors so we really filled in a gap when they could not service the market.”

The farms were able to continuing supplying their customers, including large grocery stores and boutique stores, throughout the COVID-19 outbreak and even provided product to areas running short.

“With the system right now, it doesn’t encourage or support the fluid milk. In a time like this, especially, we can see how small processors such as ourselves are super important to the industry because there is a need for fluid milk,” adds Hunter.

Harris says they are committed to lobbying for change because their future, and the future of small on-farm processing in BC, depends on ensuring their bottom line doesn’t get smaller.

“Right now, it’s sort of just our two farms working together but it would impact anyone that wants to start on-farm processing. It really disincentivizes local, on-farm processing of milk,” she says.

Tough gig

Janssens says BCMMB’s cottage industry program is designed to give a start to small on-farm processors but admits there has been little interest.

“There hasn’t been a lot of uptake on it, to be perfectly honest, because it’s a lot of work milking cows all day and then processing it and trying to sell it,” he says. “The fluid milk racket is a tough gig.”

Morningstar Farm completed its 15-year run in the cottage industry program in 2016.

Co-owner Ray Gourlay says the 20-year-old farm is now part of the supply management system, producing and processing 1,500-1,800 litres of milk on farm per day. Gourlay says the BCDA and BCMMB provide invaluable contributions to the industry that he is happy to help fund.

But he also sees the need for the organizations to be creative about diversifying the industry by encouraging more on-farm processors and agri-tourism.

“It’s fantastic marketing and education for customers and consumers. It helps make our whole processing infrastructure, our whole processing systems, more resilient, particularly when we have massive disruptions in our supply chain,” Gourlay adds.

Agriculture minister Lana Popham says dairy producers and processors of every size are key to vibrant local food systems.

“I look forward to continuing to work with dairies and dairy producers of all sizes and scales to ensure that the industry continues to grow, thrive and provide food security for all British Columbians,” she says.

The ideas presented by the two farms were on the agenda for discussion at the BCDA’s June 17 meeting.

The farms stress that they are not seeking a hand-out.

“We don’t want anyone supporting or putting money into our plant. We just want the pricing and licensing structure to be equitable enough that we can compete on our own,” says Harris. “We want to not have a system that’s creating this massive financial burden that could ruin our businesses.”