It’s not really complicated at all. I’m pretty sure farmers don’t make any more than they used to on the butter they produce, so it’s definitely someone in the middle that’s claiming a higher margin on it that’s making it go up.
It starts with the dairy farmers themselves. Their input costs vary wildly but variable costs are primarily feed,fuel, and labour. The cost of each of these has gone up outside their control.
Then there is the diary processors. Their input costs are primarily raw milk(see above), labour, and fuel(transportation). Again each of these has gone up outside their control.
Then there is distribution(sometimes part of the same organization as above). Input costs are fuel and labour. See where this is going?
Finally there is retail. Their input are the finished goods(including the transportation costs) and labour.
The last piece of the puzzle is the Canadian Dairy Council and the Dairy Farmers of Ontario(who is the entity that actually sells raw milk to the dairy processors). Together they set the price of raw milk to ensure that diary producers(farmers) maintain a healthy profit and cannot be played against one another in a race to the bottom(AKA Supply Chain Management).
At each of these levels I believe the profit margins have gone up slightly since COVID. However as the increases are compounded from one level to another the end results is a large price increase to the consumer.
Who is to blame? We would need to see the actual profit margin increases of each of the entities in the supply chain. I suspect that in terms of increased profit margin the order is something like 1. Retailers, 2. Dairy Producers(Farmers), 3.Dairy Processors, 4.Transportation/Distribution. I choose this order because of the competition at each level.
It’s not really complicated at all. I’m pretty sure farmers don’t make any more than they used to on the butter they produce, so it’s definitely someone in the middle that’s claiming a higher margin on it that’s making it go up.
I wonder who that could be?
We can roughly follow the supply chain.
It starts with the dairy farmers themselves. Their input costs vary wildly but variable costs are primarily feed,fuel, and labour. The cost of each of these has gone up outside their control.
Then there is the diary processors. Their input costs are primarily raw milk(see above), labour, and fuel(transportation). Again each of these has gone up outside their control.
Then there is distribution(sometimes part of the same organization as above). Input costs are fuel and labour. See where this is going?
Finally there is retail. Their input are the finished goods(including the transportation costs) and labour.
The last piece of the puzzle is the Canadian Dairy Council and the Dairy Farmers of Ontario(who is the entity that actually sells raw milk to the dairy processors). Together they set the price of raw milk to ensure that diary producers(farmers) maintain a healthy profit and cannot be played against one another in a race to the bottom(AKA Supply Chain Management).
At each of these levels I believe the profit margins have gone up slightly since COVID. However as the increases are compounded from one level to another the end results is a large price increase to the consumer.
Who is to blame? We would need to see the actual profit margin increases of each of the entities in the supply chain. I suspect that in terms of increased profit margin the order is something like 1. Retailers, 2. Dairy Producers(Farmers), 3.Dairy Processors, 4.Transportation/Distribution. I choose this order because of the competition at each level.