MULTIPLE COMPONENT PRICING

Introduction:

Multiple Component Pricing (MCP) was implemented in Manitoba on January 1, 1993.

In all, 9 provinces have all introduced MCP into their system of invoicing processors and paying producers, with the exception being Newfoundland.

Rationale for MCP:

The primary reason for moving to MCP was to put in place a more market-responsive or market oriented pricing system. Because of the growing pressures on butterfat consumption, as evidenced by the increasing trend to low-fat dairy products, there was a need to move away from a system driven by butterfat alone. MCP gives us the opportunity to get a full return from the market place, where the relative importance of butterfat is declining. It allows for the flexibility to de-emphasize the butterfat value in milk and concentrate on the more valuable components.

Secondly, MCP will bring about greater equity in milk pricing for both producers and processors in the Manitoba Dairy Industry. Producers are more accurately rewarded for the true value of the solids in the milk they supply. Conversely, processors pay according to all of the components in the milk they receive. For example, more protein (casein) in the milk enables processors to obtain a higher yield of cheese. Thus, the milk is more valuable and should be priced accordingly.

Under the payment system, producers recognize that protein and other solids are being valued in the pricing system. Expectations are that protein will continue to increase in value over time, particularly in relation to butterfat.

Invoicing the Processor on the Basis of Multiple Component Pricing

The MCP system prices based on the actual composition of butterfat, protein and other solids (lactose and minerals) utilized to make the product marketed. It can be concluded that all components in milk have a value, some more than others, and all contribute to making milk a wholesome and nutritious product.

The federal support prices for butter and skim milk powder are used as the basis for setting the value of components.

Invoicing to the plants:

1. Fluid milks and creams

• i) Invoicing is carried out on the basis of butterfat (at the same price for all classes), protein and other solids.
• ii) Protein and other solids will be priced at the same value per kilogram.
• iii) The MB composition of the protein and other solids will be fixed by dairy year and not be based on the actual composition of milk delivered. The chosen fixed composition will be reviewed annually with consideration given to the average composition of the preceding year's deliveries, without affecting the money supply of the class.


2. For the non-cheese industrial milk classes, each kilogram of protein and other solids has the same value.
3. The cheese classes have the protein price higher with other solids having the same value throughout these classes.
4. Support Price changes within the cheese classes which pertain to protein and other solids will be applied using the ratio of 90/10.

Producer Payment:

Producers are paid on the kilograms of butterfat, protein and other solids in the milk shipped. The content is calculated from milk samples taken on the farm and analyzed at the milk testing lab (MFC Testing and Research Inc.).

The producer cheque revenue is divided between domestic revenue and world market revenue. Producers are paid for the market value of the milk.

Long Term Situation:

MCP will take some of the emphasis off of butterfat and begin to recognize the other components in milk. For the longer term, it sets the stage for further adjustments in the relative values of components. As well it should send a signal to producers about the value of components in the marketplace. Overall, MCP should provide a mechanism for the dairy industry to be more market responsive as the demand for various components continues to evolve in the future.