For years we heard producers complain over industries paying them too little for crude milk. Now, power to set prices is in their own hands.
Farms push crude milk price ever higher
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According to official statistics, 2013 brought over 10 per cent rise to crude milk, in Estonia; the rise was sharpest during the final months of the year. Large dairy industries assess crude milk price rise of up to 25 per cent – this, in turn, putting upward pressure on milk product prices, which is not easy to explain to consumers and grocery store chains.
«For us, all the negative stuff has happened at once – the falling away of one (the Russian – edit) market, and milk price rising globally and regionally,» said Estover Piimatööstus CEO Hannes Prits, according to whom crude price rise started to eat away at dairy industry profits during second half of 2013, already.
As assessed by Mr Prits, this is not a sustainable situation, with one input at European average level while the other parts of the chain are not. «The productions are small, therefore also ineffective; to that, add the wage and retail chains pressures. At some point, domestic processing may start to fall or die out,» thinks Mr Prits.
Domestic deficit
According to Maag Piimatööstus chief Valdis Noppel, producers may dictate the crude milk price for fifth year running.
«That’s from the times when producers, in order to enlarge their options, started to export crude milk. Now, milk market in no longer Estonia-centred, but Baltics-centred, and onwards from there,» noted the man.
Namely, since the extremely hard times of the economic crisis, up to a third of Estonia’s crude milk is daily imported into Lithuania; thus, on domestic market, deficit has developed. Producers, however, claim the processors would not be able to process all of the crude, they having no other option to get rid of it. In Lithuania, however, demand for milk is great and the price good – as the state-of-the-art Polish plants have, in their turn, emptied Lithuania of its milk.
According to Mr Noppel, crude milk price rise will sooner or later show in milk product prices. «As, over the past six months, the price rise has been constant, prices have naturally risen a bit, but largely it hasn’t happened yet,» said he.
In the shops, drinking milk is still sold at 2010 levels, says Mr Noppel.
Both industrialists and milk producers claim that since 2014 various milk producers unanimously ask the EU 28 member states average price, for a kilogram of crude milk. In the lobbies, the talk is even of a possible cartel agreement between milk producing cooperatives.
Quota free, in a year
According to Aavo Mölder, member of commercial association Laeva Piim board, while 97 per cent was asked over these past years, starting this year they have agreed upon 100 per cent of EU average price. At the same time, he denied any cartel agreement.
«Well surely some producers have talked among themselves, but as for me, I do not know how much Tere, for example, has paid its producers, last year,» said he. «Why could we not ask EU average price? We are in a region where milk is much more expensive. There’s demand from Latvia, Lithuania, Finland and Russia alike.»
According to Mr Mölder, dairy industries are just acting mean, having for a long time had no need to review their savings and costs. «Sure they don’t like that,» said he.
Cartel accusations were also rejected by domestic milk producers association EPIKO chairman Märt Riisenberg.
«We do have differing buyers, what then would these agreements help,» said he. «Producers have just become more aware. EPIKO and other associations, under which the producers have gathered, have been searching out knowhow. This, surely, has had an effect on prices.»
According to Competition Authority PR-manager Maarja Uulits, price agreements are generally forbidden pursuant to Competition Act, but EU has special regulations regarding cooperation between agricultural producers, which, under certain conditions, allow for cooperation between producers. Even so, the Authority has not been addressed with cartel accusations, and without knowing the details they are not able to assess the situation with Estonia’s milk producers.
According to Kalev Karisalu, chief specialist at animal products bureau at Ministry of Agriculture, in the entire world milk price has been lifted to near-record heights by the unfavourable weather conditions, at the start of 2013, in most of the main milk producing regions, due to which milk supply decreased while demand remained high.
In the spring of 2015, the EU milk quotas will disappear, probably resulting in increased volumes of milk produced in Europe. According to numerous specialists, this will bring substantial decrease in milk price.
According to Mr Riisenberg, price fall due to increased supply is certainly to come; even so, with more and more milk products consumed the world over, it is not known how these processes will balance out.