Canadian Food Business
Text by Art Hill
I developed a love for the dairy industry growing up on my parents’ dairy farm on Manitoulin Island. We started shipping cream in 1961 when I was five. My parents were grateful when the Ontario Milk Marketing Board (OMMB) was formed in 1966 and soon thereafter they received market sharing quota and began shipping milk to a local creamery. Along with thousands of farmers across Canada they became the beneficiaries of a stable pricing and policy environment associated with milk supply management. Since that time, the OMMB became the Dairy Farmers of Ontario (DFO), and dairy policies have taken many twists and turns. Recent new challenges are Canada’s participation in the Comprehensive Economic and Trade Agreement (CETA) and the Trans-Pacific Partnership. DFC (Dairy Farmers of Canada)1 estimate that the CETA agreement will allow access to additional cheese imports equivalent to 4% of the Canadian cheese market or about 32% of the Canadian fine cheese market. This is certainly substantial but other market forces such as imported dairy proteins in the form of protein powders are also challenging the dairy status quo.
In this article I make some tentative suggestions that may help the industry adjust to changing international and domestic market conditions. My comments are biased toward the cheese sector because that’s what I know best, but it is also the sector most affected by CETA.
Size Matters
It’s instructive at the outset to understand the structure of the Canadian cheese industry in historical perspective. Canadian Cheddar exports to the UK were a major economic driver in Canada beginning around 1860 and peaking at 79 M Kg in 1918. For comparison, total cheese exports and imports in 2014 were 8.6 and 24.4 M Kg2, respectively. With the beginning of mechanization and the decline of Cheddar exports during 1920 – 1950, the industry underwent consolidation and diversification to produce more varieties for domestic markets. Consolidation continued into the late 1900s, but with simultaneous emergence of small plants filling niche markets for artisan, organic, raw, local, and ethnic cheeses, and also a steady growth in quantity and diversity of fermented milk products. How many Canadians heard of Haloumi cheese or Greek yoghurt before 2000?
Move forward to 2016 and Canadian supermarkets now have a wide assortment of yogurts and at least two cheese cases. The premium or fine cheese case includes imports, specialty cheeses from medium and large cheese companies, and terroir rich products of local and artisan cheese makers. The economy or industrial cheese case contains 450 g bars of Cheddar and Americanized versions of mozzarella which frequently contain liquid or dried milk protein concentrates (MPCs). We’ll come back to MPCs, but for now please don’t assume MPCs mean poor quality. Also in the economy case and more so on pizzas are non-standardized cheese-products that contain non-dairy ingredients such as starch or do not meet the federally prescribed minimum content of fresh milk.
This view of the current dairy cases in historical perspective suggests that any consideration of how to support the cheese industry needs to understand and address the needs of the different sectors, namely: (1) microdairies (<10 employees); (2) small companies (<30 employees); (3) medium and large companies; and (4) extra-large and mostly international companies. This sense of scale is important. Sometimes amidst the buzz about local, artisan, organic (add your favourite descriptor) products, we overlook which sector processes most of the milk. In 2014, four companies – Saputo, Agropur Co-op, Kraft Canada, and Parmalat Canada – had a combined cheese value share of 85%.3 Most of the rest of the milk is processed by medium and large companies and a relatively negligible amount by very small micro-processors. That’s not to minimize the importance of an expanded microdairy sector (more on this below), but even if all the expansion was for new markets it would not replace the cheese markets that may be displaced by CETA.
Direct Financial Support
The former Conservative government proposed to compensate farmers with $3.9 B for income support and loss of quota value due to CETA.4 In my view this approach at best would be partial and temporary relief for a long-term problem. That problem fundamentally is that it costs more, to make cheese in Canada than it does in Europe, not to mention European farm subsidies. Accordingly if ROI to farmers is to remain unchanged by CETA and other factors, one or more of the following will be necessary: (1) improved production efficiencies; (2) improved processing efficiencies; and (3) more added value and less price-sensitive dairy products. Accordingly, if the new Liberal government decides to provide direct financial support it should be used to incentivise product innovation to diversify and grow the domestic market for value added Canadian dairy products, and process innovations to enhance cost efficiency, quality, shelf life, and safety of Canadian dairy products.
Facilitative Policies and Regulations
Production Efficiency. Unfortunately, increased competition for the domestic market will bring pressure to lower the price of raw milk, which in turn will make smaller and remote dairy farms less economical. One way to ease the transition to more economical farms is to use public funding to gradually purchase small and remote dairy farms as they become available by attrition and distribute the quota to larger and better located operations.
Microdairies. A major goal and benefit of supply management has always been to protect family farms. A strategy to help do that is to help dairy farms transition to micro-processors including farmstead processors, and farmer co-ops. Any dairy product including fluid milk (maybe unhomogenized, grass fed, organic…) could be produced, but ice cream, and cheese and other fermented dairy products are most likely to be successful. The principal value added components are unique artisan products with their associated terroir, and increasing preference for local products. For example, in tourist areas such as northern Ontario, microdairies could take advantage of efficiencies associated with seasonal milk production, producing more fresh cheeses such as Cheddar curds and cottage cheese, and soft ripened cheeses in the spring and summer, and firm ripened cheese in the fall. Of course, the by-products of cheese are cream, which can be converted to butter or ice cream, and whey, which can be fed to nearby livestock.
If that scenario sounds familiar, you’re probably old. If it sounds unrealistic, consider this anecdotal example. Manitoulin Island in northern Lake Huron (my childhood home) with a permanent population of 12,600, hosts at least four micro meat processing operations and two microbreweries with a third on the way, but there are no dairies and some of the milk is trucked 200 km to Sudbury. Why not cheese? Why not grass-fed probiotic yogurt and cultured butter? Consider also that while dairy operations are relatively more complex, turnkey micro processing systems and digital logistical support are readily available. Having said that, growth of the microdairy processing sector will depend on: (1) a flexible policy environment; (2) education and training, especially in the areas of safety, quality, and business management; (3) technical support similar to extensions programs formerly delivered by provincial ministries of agriculture; and (4) product development facilities for scale up and short term incubation.
Regarding the policy environment, while acknowledging the need for proper risk assessment for particular operations, plant design, and safety management systems, policies should be as flexible as possible to facilitate easy entrance into the microdairy industry. For example, current regulations require any dairy that receives raw milk, no matter how small, to construct a milk truck receiving bay. Fortunately as the value of micro-processors to local economies becomes more evident, policies are becoming more flexible.
‘Contraband Ingredients.’ Let’s take another look in the economy cheese case. What you see there are high-volume, price-sensitive items supplied mostly by highly competitive companies in the extra-large category. These products mostly do not compete directly with imports and will probably not be greatly affected by CETA and TPP. From the farmer perspective the continuing challenge in this high volume category is to reduce the use of imported protein (SMP, MPC). That may be achieved by lower milk prices, and perhaps by increased processing efficiencies and formulation flexibility.
For example, I have seen research projects rejected because they proposed processing innovations that would increase the retention of whey proteins in cheese. That was perceived negatively because it would increase cheese yield efficiency, that is, more cheese per liter of milk. That backwards thinking is the reason we have regulations limiting the amount of dried dairy ingredients and the amount of whey protein that can be included in cheese.5 In contrast, it seems reasonable to present skim milk powder (SMP), MPCs, and whey protein concentrates (WPCs) as nutritionally and structurally functional Blue-Cow dairy ingredients, provided, of course, that they’re produced from Canadian milk and the resulting products are of good quality.
In this regard, in an unpublished experiment in our lab, we made Cheddar cheese from skim milk powder reconstituted in water and fresh cream; Agriculture Canada cheese graders were able to detect the difference in young cheese, but not after six months of aging. It seems odd that this cheese made with 100% Canadian milk would not be legal under Food and Drug Regulation B.08.033 (1) [S]. Further, recent work in our lab6 demonstrated that we can make quality cheese using recombined cream made by emulsifying butter with whey proteins. Among other potential applications, the recombined cream can be used as a carrier for fat soluble nutrients such as Vitamin D and Omega-3 fatty acids. Unfortunately, at the moment, this process would require a change or exemption to F & D Regulation B.08.033 (1) [S] because recombined cream is not cream.
New Products and Ingredients
One of the challenges of CETA is that it will further restrict the use of European cheese identities, so cheese names such as Gorgonzola, Feta, and Munster will no longer be used by Canadian cheese makers. In discussions with cheese makers, one suggested strategy was to focus on developing new varieties or identifiable ethnic properties. So, in my view, if there is public money to be invested in meeting the CETA challenge, some should be spent on marketing to help the industry determine the types of products most likely to: (1) successfully compete directly with European imports; (2) open up new domestic markets; or (3) open up new international markets. The following are some ideas for starters.
Cheese. In my view the categories of cheese varieties most likely to succeed in Canada include: (1) Soft mold ripened cheese, particularly mould ripened lactic varieties such as Valençay and Chaource; (2) Fresh lactic cheeses such as cottage cheese; (3) Ethnic cheeses including grilling cheeses, which are really ‘hot’ right now; and (4) Processed cheese. Yes, I said processed cheese; I think a line of rich-textured, full-flavoured processed cheese slices and spreads could be successful.
Cheese making kits to promote simple cheese making in homes and restaurants would raise awareness of cheese making and encourage consumers to pay more attention to the cheese case in the supermarket.
Fermentations will certainly be a fruitful area of development for the foreseeable future, including traditional fermented products from other countries, probiotics, bioactives and so on. Dairy fermentations is the research area for the recently filled Dairy Farmers of Ontario Research Chair in Dairy Microbiology. This Chair is integrating well into a large group at Guelph working on gut health and generating knowledge to support the health benefits of good microbes.
Nutritional functionalities and nutraceuticals. In this area I think it’s important to continue the type of research and communication that the DFC and provincial agencies are doing to identify and promote nutritionally functional components inherent in milk. For example, grass-fed milk contains higher levels of omega and rumenic fatty acids.
Grass-fed. Speaking of grass fed, my animal science colleagues may think I’m dreaming in technicolor, but I wonder if some of the thousands of abandoned farmsteads in the near north regions of Canada could be reclaimed as grazing land for seasonal production of grass-fed milk and milk products for the seasonal tourist market. Imagine a herd of dual purpose cattle managed a lot like a traditional beef operation, with most cows calving in the spring. Steers are sold as grass-fed beef at the local meat co-op. The high fat milk is standardized and pasteurized and the excess cream is converted to ice cream. Can you feel the terroir? Even better, the grass-fed beef and milk products both have increased levels of polyunsaturated and rumenic fatty acids. And, with a little help from climate change, the grazing season in these regions may get longer.
Milk fractions and dairy derived ingredients. This high value added category includes everything from milk fat and milk fat fractions to MPCs and WPCs, to Alpha-lactalbumin enriched isolates, to lysozyme etc. Economies of scale generally put these products, especially dried products in the domain of larger companies, but I want to cite one example to illustrate that even small companies may benefit from separation processes.
One of our PhD candidates at Guelph, Isis Renhe, is using microfiltration to separate whey proteins, which are normally lost in cheese whey, from caseins, which are the principal proteins in cheese. To illustrate how this could be useful, consider cottage cheese making which produces highly acidic whey which has little value because acid whey proteins have poor functionality. Microfiltration could be used to remove most of the whey proteins before cheese making, thus preserving their functionality for a wide range of uses. It gets better because microfiltration is not sensitive to economies of scale, meaning that it’s economical to use in small operations. So, a large processor may choose to convert the whey protein fraction to a protein powder, while a small processor may choose to convert it to ricotta cheese or blend it with cream to make mascarpone.
Education, Training, and Technical Services
I would be remiss in any discussion of the future of the Canadian industry to not remind stakeholders that there is a dearth of education, training and technical support. Several universities (Laval, Guelph, Manitoba and maybe others offer some dairy content as part of Food Science programs. Cheese short courses are offered annually at the University of Guelph and the Centre D’expertise Fromagère du Québec, and occasionally at other centres. A really positive development is the Cheesemaker Skills Development project led by the Ontario Dairy Council (ODC). This project is measuring the demand for cheesemakers in Ontario and determining the types of training required. Here in Guelph we’re developing a Cheese Technology Education and Training program consisting of a series of online and hands-on training modules. We’re also planning a pilot plant upgrade to obtain a provincial license to process dairy products. This will allow us to scale up new products and processes, and host short term incubation projects.
Summary
Economic and political developments such as CETA, TPP, non-standardized dairy products, and import of dairy ingredients are challenging the Canadian dairy industry. While structural changes to the supply management system are probably necessary, this article suggests more modest strategies that I believe can be implemented with or without major changes to producer quota policies. In my view, the key words are diversity and flexibility. Smaller or remote family farms pressured by lower raw milk prices, which I think are inevitable, could diversify to form farmstead microdairies or larger dairy co-ops. Larger companies would benefit from a systematic review of legislation to identify and remove redundant regulations such as many food composition and quality standards that are expensive to enforce and inhibit process and product development. For example, legislation limiting the amount of whey proteins in cheese makes it impossible to optimize yield efficiency for some cheeses. Finally, the industry, especially smaller manufactures, really needs technical support and training; we can do much of that economically via online programs and social media.
Art Hill is Chair, Department of Food Science,
University of Guelph, Guelph, ON.
(*Corresponding author email: arhill@uoguelph.ca)
References
[1] Dairy Farmers of Canada, 2014. Written submission for the House of Commons Standing Committee on Agriculture and Agri-food regarding their report on CETA and its effects on agriculture – December 3rd, 2014. Online: https://www.dairyfarmers.ca/news-centre/document-library/lobbying [2] Canadian Dairy Information Centre, Online: http://www.dairyinfo.gc.ca/index_e.php?s1=dff-fcil&s2=proc-trans&s3=sup-app [3] Canadian Dairy Information Centre, 2015. Online:http://www.dairyinfo.gc.ca/index_e.php?s1=dff-fcil&s2=proc-trans&s3=kp-pc [4] Yakabuski, K. 2015. TPP a missed opportunity for truly freer dairy trade, Globe and Mail, Oct 16, 2015. Online; Accessed Jan 11, 2016. [5] Food and Drug Regulations: B.08.033 (1) [S] [6] Kaur, Pritty. 2016. Cheddar made from whey protein stabilized and vitamin fortified recombined cream, MSc Thesis. University of Guelph.
