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Tens of millions of kilograms of skim milk have been used for animal feed, the lowest-priced market. Some skim milk has been dumped into lagoons or manure pits.

Canada has a dozen processing plants that make skim milk powder in a system that uses dryers. Out of the 12, 10 of the dryers are more than 40 years old, Gould said.

“For all practical purposes, they have outlived their useful life. In fact, any one of those dryers can fail at any time.”

Building new plants to replace the dryers will cost in the hundreds of millions of dollars and would take about three years, he estimated.

Dairy farming is the largest agricultural sector in Ontario with most of the province’s 3,800 dairy farms located in Southwestern Ontario.

The president of the Dairy Processors Association of Canada Jacques Lefebvre agreed with Gould’s bleak evaluation of the situation.

“The way it has been presented is pretty accurate,” Lefebvre said Tuesday.

The limited skim milk processing capacity also constrains Canada’s ability to produce enough butter to meet growing market demand, Gould testified.

Business is being turned away and it is questionable if the industry will ever be able to recapture the lost opportunities, he said.

Lefebvre said the positive part of the challenge facing the dairy sector is that there now is unprecedented co-operation between processors and producers to modernize the system in Canada.

The Dairy Farmers of Ontario moved in April to create a new class of milk with prices designed to encourage processors to invest in new facilities.

“The challenge has been in Canada is we have not created a marketplace that is conducive to domestic processors investing in these modern plants because we price that use of skim at such a high level,” said Graham Lloyd, general counsel, for Dairy Farmers of Ontario.

The new class of milk has created a competitive marketplace, Lloyd said.