Dairy product manufacturing: 2026 FCC Food and Beverage Report

The following information is from the 2026 FCC Food and Beverage Report, which highlights the opportunities and challenges for Canadian food manufacturers by sector. To get the big picture, read the full report.

Navigating rising milk costs and evolving consumer trends

Canada’s dairy processing sector is diverse and dynamic. It spans everything from fluid milk and butter to cheese, milk protein products, specialty powders used in infant formula, beverages and snacks. Downstream markets include retail, foodservice and further manufacturing. Given strong demand for protein, milk proteins are being used as ingredients in other processed food products and seeing rising demand. Of more than 600 processors nationwide, nearly 70% are concentrated in Quebec and Ontario, and most are small operations employing fewer than 100 people.

Dairy product manufacturing sales: 2026 forecast

Processed dairy product sales showed strength again in 2025, rising by 0.9% to reach $19.8 billion. While volumes stagnated as population slowed in the second and third quarter, per capita sales remained above 2024 levels for processed dairy products (that is, yogurt, butter, ice cream and cheese). Slower population growth was a key risk flagged last year, so maintaining per capita gains is a positive sign for the sector. However, given existing immigration plans, the sector will need to continue relying on per capita growth and/or product diversification to keep volumes up.

The volumes (that is, sales adjusted for inflation) outlook is positive for 2026 as continued demand for simple, accessible foods full of nutrients make dairy products appealing to health-conscious and time-strapped consumers. Given the producer price increase announced for unprocessed milk, it is reasonable to expect processors will pass some of this cost on through higher prices.

The combined boost in volumes and prices brings our forecast for dairy product manufacturing sales in 2026 to $20.5 billion, a 3.6% increase over 2025 (Figure 5.1).

Figure 5.1: Dairy product manufacturing sales rise in 2026

Total sales and volumes (in $, billions) are on the vertical axis and shown by the height of each bar. The number above each bar is the year-over-year growth as a percent. Volumes are sales deflated by a price index (January 2020=100).

Sources: FCC Economics, Statistics Canada

Managing to boost sales as population growth slows is still something to watch for this sector, as are upcoming trade negotiations with the U.S. These negotiations are likely to include revisiting the tariff rate quota (TRQ) allocation process for dairy imports, given this process has been a long-standing non-tariff trade irritant stateside. Changes to the allocation process could negatively impact demand for processed Canadian dairy products if it means consumers have more direct access to U.S. processed dairy products through retail channels.

Ingredient insights: Unprocessed milk

The fundamental ingredient to all processed dairy products is unprocessed milk. Unprocessed milk pricing in Canada is supply-managed, and the price paid by processors to producers is determined at the provincial marketing board level. This price varies according to what the processor is going to make (for example, yogurt, ice cream, cheese, fluid milk, cream) and the components they’re buying (that is, butterfat, protein, other solids). Once milk is processed, however, it follows a different pricing method. These processed products are used as an input in further processing, such as butter in baked goods or cream in canned soup.

Dairy manufacturers using unprocessed milk to make yogurt, cheese, fluid milk or cream, for example, benefit from low variability in the supply and price of unprocessed milk. Prices are typically set once per year, creating stability and predictability that helps with annual business planning. Those manufacturers who use dairy products as an ingredient into further processing face prices that are set monthly based on global supply and demand. The result is a less stable cost throughout the year (Figure 5.2).

Milk pricing matters beyond cost: it influences product mix, marketing strategies and investment decisions. Relative component values (protein vs. butterfat vs. other solids) can shift processor priorities, but processing technologies, brands and consumer demands are still significant considerations.

Figure 5.2: Processors utilizing unprocessed milk experience stability in price of key component

Sources: Statistics Canada and FCC Economics

Canadian milk class price changes for 2026

The Canadian Dairy Commission’s (CDC) annual review of the milk price means higher costs in 2026 for processors that use milk for end products within Classes 1-3, 4a butterfat, 4b-d (that is, milk, cream, yogurt, ice cream, cheese). Effective February 1, 2026, the farm gate price of milk rose 2.375%, adding just over 2 cents per litre to the cost of milk used in dairy product manufacturing. After the CDC announced the Canada-wide price change, provincial marketing boards posted applicable prices for each milk class and component (that is, protein, butterfat, other solids). Figure 5.3 summarizes the price increases processors can expect in 2026 for key product categories in western and eastern provinces.

Processors using milk as an ingredient in further manufacturing (Class 5), animal feed (Class 4m) or protein and other solids (Class 4a) face prices set by market forces throughout the year.

Figure 5.3: Canadian milk class price changes for select categories, 2025-2026 % change

Source: Canadian Dairy Commission

Dairy product manufacturing: 2026 margin forecast

Gross margins in dairy manufacturing remain healthy and have shown stability over the past decade compared to other sub-sectors. We forecast margins to remain steady in 2026, though they’ll still trail 2019 levels after the squeeze of 2022-23, when high input costs eroded profitability (Figure 5.4).

In 2026, costs are expected to rise, driven mainly by higher producer prices for unprocessed milk and incremental wage increases, the two largest expense categories. However, strong demand for dairy products, along with dairy’s role as a low-cost protein option, should allow some cost increases to be passed on, helping to protect margins.

Figure 5.4: Dairy product manufacturing margins stable

Sources: FCC Economics, Statistics Canada

Productivity remains a key advantage when assessing dairy product manufacturing margins. Between 2020 and 2024, labour productivity for this sector increased 2.5% compared to an average increase of 0.9% for the overall food manufacturing sector. Maintaining this strength in productivity will be critical to continue managing costs and protecting margins as population growth slows.

Other trends to monitor in 2026

• High-protein dairy remains a growth driver in 2026 but not at the rates seen in previous years. Expect brands to focus on stacked functionalities (for example, protein plus probiotics or creatine) to meet evolving consumer demands.

• As one component of the CDC’s cost of production study, movements in cattle prices are expected to influence future unprocessed milk price adjustments.

• Watch for the diversification and innovation of dairy products as a protein boost in other foods or entirely new formats to target specific dietary trends.

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