Milk production quota in five eastern Canadian provinces will be rolled back effective May 1 over fears of rising butter stocks.
“Production is above current and projected market growth and the P5 provinces are currently skimming significant [milk] volumes,” according to an announcement posted on several provincial dairy producer organization websites. “Going forward, the large number of underproduction credits held by P5 producers could increase the production and market imbalance.”
Quota adjustments are recommended by the P5 Quota Committee, made up of quota board representatives from five eastern Canadian provinces: Prince Edward Island, New Brunswick, Nova Scotia, Quebec and Ontario. Those provinces produce about 75 percent of Canada’s total milk output annually, according to statistics from the Canadian Dairy Information Centre.
March butter stocks were estimated above 37,000 tonnes, up from about 29,385 tonnes in January. Butter stocks are expected to exceed 40,000 tonnes by July, well above a 35,000-tonne target.
As a result, milk production quota issued to dairy producers will be reduced 1.5 percent.
In addition, fall 2018 “incentive days” for conventional milk producers will be reduced to: August – zero days; September – two days; October – two days; and November – two days. An incentive day is a temporary increase allotted for milk production to fulfill short-term peak industry needs. Incentive days are generally instituted in fall, as processors start building product supplies for the holidays. When the incentive days are over, producers must go back to their allotted quota.
In March, with butter stocks building, the P5 boards decided not to extend the incentive days. The boards also agreed there will be no further quota issuance in the 2017-18 dairy year.
The announcement marks the first quota rollback in quota in some time. With growing butter demand, P5 quotas were increased 5 percent last July, the largest one-time quota increase since the system was implemented nearly two decades ago. Previously implemented incremental quota increases totaled 7 percent between August-December 2016.
While the higher P5 quota met the goal of increasing butterfat supplies, the increased milk production resulted in surplus protein output in the form of skim milk powder (SMP).
To deal with the excess protein, Canada changed dairy ingredient policies, lowering domestic prices on milk protein isolates used in the production of cheese.
That made U.S. exports of ultrafiltered (UF) milk and milk protein concentrates uneconomical, essentially slamming the door on shipments to Canada and forcing some U.S. companies to shut down UF milk processing operations. That has further hampered U.S. dairy processing capacity already stretched by large milk supplies, leading to U.S. demands that the Canadian policies be changed under ongoing North American Free Trade Agreement (NAFTA) negotiations.
The situation has also prompted some U.S. dairy organization to explore Canada’s milk supply management policies for potential application in the U.S. (Read also: Wisconsin farmers look to Canada for industry stabilization option.) 
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