The surge in demand for protein and milk ingredients has created discussion about how milk could be measured and priced into the future.
The structural surplus of dairy products that has been managed due to historic higher demand for butterfat has been turned on its head as protein demand increases.
WHY IT MATTERS
The growth in demand for protein is good news for most farmers, but will require some structural change in how products are valued for farmers to get the most advantage from the trend.
“It’s not that we don’t need butterfat,” said Benoît Basillais, director of the Canadian Dairy Commission at Lactanet’s Dairy Open Industry Forum recently in Toronto. Cream continues to see four and five per cent annual growth.
“Cream is a healthy, natural product,” he said. “If you look at the label of a dairy product, it’s milk, very simple. I don’t know who is using all that cream.”
But with the growing market for protein, there could conceivably be a day when there’s a surplus of butterfat.
The Canadian market saw a surge in demand for butterfat between 2014 and 2023, as consumers turned to butter, cream, yogurt and cheese in increasing volumes.
Dairy farmers responded, as butterfat percentage in milk can be influenced by feed and management, and Holstein cows, which usually produce around four per cent butterfat, were hitting five per cent and above.
That meant the ratio between butterfat and solids not fat (called SNF in the industry) widened. SNF includes protein. By 2022 and 2023, the ratio had fallen to 2.11.
Then, in 2025, demand for protein spiked and products like high-protein yogurt and cottage cheese jumped, as did demand for dairy protein ingredients.
“Consumers woke up that protein is cheap and good for your health. For a long time we knew this. Consumers figured it out,” said Basillais.
That meant farmers then needed to produce more protein in milk compared to butterfat, and dairy producer organizations, which set the milk pricing ratios in the supply management system, made several changes in milk pricing to favour protein earlier this year.
The challenge for farmers is that they can’t influence protein production much through nutrition and management. They changed feeding strategies to reduce butterfat in a ratio to protein, but the only major way to change protein production is through genetics.
“We don’t change genetics in six months. We don’t change a trend in place for 30 to 40 years in six months.”
All of those factors have led to a new reality in milk market management.
“The structural surplus has been reduced,” said Basillais. “In five years, we have a market that is balanced. Things happened very quickly. We had to accept it, and this is our new reality. It’s a new and very different dynamic. It is a major change in the industry.”
What does this mean for the dairy market?
Basillais said he’s hearing from more processors looking to invest in the Canadian market, compared to five years ago. Many of them are looking at milk ingredients.
The dryers for milk solids in the country are old, mostly out of date and focused on old demands from processors and consumers, so new investment is needed.
In fact, it’s the milk ingredients — nutrients like calcium, proteins and amino acids that have made milk products healthy — where focus is now coming.
Saputo announced a restructuring of its business at the same time as the dairy producer groups were discussing protein and ingredients at the forum.
The Montreal-based global processor of dairy products is creating a new ingredients division to help it focus on execution to meet growing demand for dairy ingredients.
Basillais said he could see a breaking up of SNF so that individual components, like protein, can be emphasized.
What does this mean for producer payments?
A unit of dairy quota is based on one kilogram of butterfat produced per day. Some farms now average two kilograms of butterfat per day per cow, a testament to the improvement in genetics and management over the past decade.
What if protein becomes more important than butterfat? Basillais said he doesn’t see a day when quota will be based on protein demand, but the industry will have to spend time examining the implications of the increase in protein and demand for other milk ingredients.
Sugars in milk, when they end up as whey permeate, have low market demand and will continue to be a challenge, said Basillais.
Basillais pointed to lactoferrin, which makes up about one per cent of milk protein, but has been identified as a healthy protein, as an example of a protein partition that could be of great value if more of it could be produced.
Lactoferrin has been connected to improved immunity, iron regulation and gut and skin health.
Filippo Miglior, an adjunct professor at the Centre for the Genetic Improvement of Livestock at the University of Guelph, who was at the forum, said that research done 15 years ago showed livestock can be selected for higher lactoferrin content.
Opportunities are changing quickly. Basillais said he doesn’t see a decline in the demand for protein.
“U.S., EU, it’s the whole world. The value added for protein is very good, and I don’t see that going away.”
