Cheap milk a headache for farmers of the world

Kadri Hansalu
, majandustoimetuse juhataja
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Today in Toompea, Tallinn, farmers convene to protest and to demand that the state grant them extra support as milk prices very low for years are steadily thinning their ranks. The same problem is plaguing colleagues the world over.  

Take the leading milk exporter New Zealand where just a few years ago they were talking about «while gold rush» as farmers en masse were switching specialty to gain from the good milk price. Now, they are deep in trouble with the milk price down at decade’s record, as reported by The Economist last month.

In August, their giant milk exports society Fonterra said they’d be able, in the next half year, to only pay producers a half of the sum of two years ago. For many of the farmers, that’ll be below production price.

Cooperation lacking

As pointed out by The Economist, there are three reasons why it went bad with milk business: cooling of the leading milk importer China’s economy, the abolishing of the EU milk quotas at the beginning of this year due to which lands like Germany and Holland – large producers as they were already – have ratcheted it up even further, and Russia’s import ban on EU foodstuffs.

To alleviate the situation, Fonterra is buying up the milk at slightly higher prices and treats this as a loan – interest-free for two years. The farmers will only have to pay it back if the price rises nearly twice as high as it currently stands.

Üllas Hunt, head of a leading Estonian milk cooperative EPIKO is all for an approach like that, but Estonia lacks such large and well capitalised cooperation. «This is a fantastic example of how sustainable farm-level operation can be reached by consolidated activity,» he said.

Mr Hunt said there has been the talk in Estonia, these past years, about boosting cooperation.

«We are blowing in the winds of the whole wide world, very vulnerable. On the one hand we are small, and on the other the capitalisation is low,» he said. «This might be the aim and the vision, and these past years there have indeed been the talks to achieve such a large joint enterprise to begin to accumulate reserves and enhance out market power.»

Several other Estonian dairy businesses agree that price rise is nowhere to be seen and the only way out would be producers and even industries uniting, while admitting that the stubborn Estonians will never do that until all other means have been exhausted.

In New Zealand, the hopes are that demand for milk will be restored within a year. It has to be taken into account, however, that China itself has begun to produce increasing amounts of milk to meet the demand in Russia. But as Chinese and European milk production increase, the world market price may drop even further.

General index falling

In Estonia, the low crude milk price has reached the grocery store counters: a litre of milk in plastic has dropped to 43–45 cents.

At the beginning of September, Selver’s PR chief Erkki Erilaid told Postimees that milk prices at stores depend on wholesale prices from suppliers, and the competition on retail market. «Milk is a product in great demand and thus the stores are trying to keep the mark-up as low as possible with popular products,» he said.

By the way, milk is not the only food cheapening in the whole world right now. In August, the UN food index reflecting price movements of 73 foodstuffs fell 5.2 percent – the steepest drop since December 2008. The index has been falling for ten months running which is the longest decline from 1998.