ALBERTA ENERGY AND UTILITIES BOARD
Calgary Alberta
SUB-CLASS 1A MILK PRICING FORMULA
DECREASE MINIMUM PRICE OF
SUB-CLASS 1A MILK
1
Order U2003-195
Application No. 1309169
File No. 7025-1
INTRODUCTION AND BACKGROUND
The Alberta dairy industry experienced a major restructuring in the summer of 2002. On August
1, 2002, a new dairy industry organization, Alberta Milk, was established under the Marketing of
Agricultural Products Act. At the same time, the Dairy Board Act and the Dairy Board
Regulation were repealed, and the Dairy Industry Act and the Marketing of Agricultural
Products Act were amended. In addition, in July of 2002, the government approved a new
regulatory framework, including the Alberta Milk Plan Regulation, Alberta Milk Marketing
Regulation, and Alberta Milk Negotiation and Arbitration Regulation, as well as administration
regulations.
Pursuant to section 5(4) of the Alberta Milk Plan Regulation (AR 150/2002), made under the
Marketing of Agricultural Products Act, the Board may prescribe the minimum price to be paid
by processors for sub-class 1a milk. In the past, Board approval of a 98 cents per hectolitre (hl)
change in the minimum price paid by processors for sub-class 1a milk would result in a 1.0 cent
per litre corresponding increase or decrease in the minimum wholesale and/or retail milk price.
Although the Board no longer prescribes the prices of milk sold at the wholesale and/or retail
levels, the Board continues to prescribe the minimum price of sub-class 1a milk that is paid by
processors, approving changes to the minimum price in 98 cents per hl increments (or multiples
thereof).
In exercising its discretion in prescribing the minimum price to be paid by processors for subclass 1a milk, the Board uses formula pricing as a guideline. The formula pricing method was
adopted in Decision E76104 and was later revised in Decision E80072. On a monthly basis, the
Board receives a report from the Economics Unit of Alberta Agriculture, Food and Rural
Development (AAFRD) setting out the minimum price computed by the approved formula.
In a letter to the Board dated February 21, 2002, AAFRD proposed a revised Alberta Fluid Milk
Price Formula (Proposed Formula), recommending that the Proposed Formula be adopted and
used as a replacement for the existing Alberta Fluid Milk Price Formula. The Proposed Formula
has indices that represent different cost of production variables, as well as an index representing
milk demand, similar to the prior Milk Pricing Formula. Based on acceptance of the Proposed
Formula by the Alberta dairy industry, the Board adopted the Proposed Formula on July 2, 2002
for the purpose of prescribing the minimum price of sub-class 1a milk.
Generally, whenever the computed price of sub-class 1a milk, derived as a result of changes in
various supply and demand indices in the formula, deviates from the current Board approved
minimum price by 49 cents per hl or more, the Board considers whether there should be an
increase or decrease of 98 cents per hl (or multiples thereof) in the sub-class 1a milk price.
Order U2003-195 (August 28, 2003) • 1
Decrease Minimum Price Of Sub-Class 1a Milk
EUB
The August 2003 milk formula pricing report presented computed formula prices of $71.74
per hl for July 2003 and $69.10 per hl for August 2003. These prices were respectively $2.27
per hl and $4.91 per hl lower than the currently approved minimum price of $74.01 per hl.
The formula price calculation for July 2003 suggested that the minimum price for sub-class 1a
milk should decrease from $74.01/hl to $72.05/hl, representing a decrease of $1.96/hl. Further,
the formula price calculation for August 2003 suggested that the minimum price for sub-class 1a
milk should decrease from $74.01/hl to $69.11/hl.
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BOARD FINDINGS
The Board considers that the fluid milk pricing formula remains a useful guide to assist the
Board in the exercise of its discretion in prescribing the minimum price of sub-class 1a milk.
The Board has, as usual, monitored changes in the milk price formula supply and demand factors
since June 2003 when the Board last approved a change in the minimum price of sub-class 1a
milk in Order U2003-142 dated June 27, 2003. The Board notes that since the last price
adjustment, three cost factors in the fluid milk pricing formula have contributed to the decrease
in the computed price. Specifically, the Alberta Hay Price, Fuel and Utilities Price, and Alberta
Dairy Feed indices have decreased by 32.8%, 7.5% and 4.5% respectively during the period from
June to August 2003. The Board also observes that the computed price is lower by $2.27 per hl
in July 2003 and $4.91 per hl in August 2003 relative to the minimum price approved by the
Board in Order U2003-142.
The Board notes that the formula price calculation for July 2003 suggested that the minimum
price for sub-class 1a milk should decline from $74.01/hl to $72.05/hl, indicating that the milk
price should decrease by $1.96/hl. The Board further notes that the formula price calculation for
August 2003 suggested that the minimum price for sub-class 1a milk should decrease from
$74.01/hl to $69.11/hl. The Board considers that the suggested milk price for August confirms
that, at minimum, the price has declined to the level of $72.05/hl for the past two consecutive
months. On a related basis, the computed price has been significantly lower than the current
Board approved minimum price of $74.01 per hl for the past two months. As a result, the Board
considers that these changes indicate a trend that warrants a decrease at this time of $1.96 per hl
in the minimum price of sub-class 1a milk.
At the same time, to the extent that the formula price calculation for August 2003 suggests that
the minimum price for sub-class 1a milk should further decrease from $72.05/hl to $69.11/hl,
representing a further potential decrease of $2.94/hl, the Board will monitor the September
formula price for sub-class 1a milk to determine whether a new downward price trend has been
established.
Accordingly, for the above reasons, the Board considers that it is appropriate to exercise its
discretion and accordingly will decrease the minimum price of sub-class 1a milk by $1.96 per hl
to $72.05 per hl, effective September 16, 2003.
Order U2003-195 (August 28, 2003) • 2
Decrease Minimum Price Of Sub-Class 1a Milk
3
EUB
ORDER
THEREFORE IT IS ORDERED THAT:
(1)
The minimum price to be paid by processors for sub-class 1a milk in the Province of
Alberta is $72.05 per hectolitre. This minimum price replaces the minimum price as set
out in Board Order U2003-142 dated June 27, 2003.
(2)
This Order comes into force on September 16, 2003.
Dated in Calgary, Alberta on August 28, 2003
ALBERTA ENERGY AND UTILITIES BOARD
(Original signed “Michael Asgar-Deen”)
Order U2003-195 (August 28, 2003) • 3