Speaking about milk suppliers – dairy processors relationship we have to consider two types of suppliers. There are, generally speaking, two types: large farms, which produce every day from 4-5 to 100 tons of milk, and rural households that own cows.

Dairy enterprises are always interested in getting quality raw milk in the right amount, so they value stable relationship with large modern farms. Their partnership is very important. Unfortunately, in our dairy industry there is still no practice of concluding long-term milk supply contracts, at least for a year term. The existing forms of the contracts do not comprise all possible cases of market changes that affect relations of milk producers and processors. The factor of general impact is the crisis in the economy, instability and uncertainty. There are also purely sectoral impact factors such as seasonality in milk production, which determine the price of milk which might be changing in the range from 5-10% to 30-40% depending on the market conditions. In addition, because of the imperfection of contracts there is always the possibility of their breach and no one can be sure of compliance with the contract terms.

Dairy processors are always feel insecure because of the shortage of quality raw milk. There are certain requirements to be met for the proper compliance of milk quality compliance. Unfortunately, for our dairy farming seasonality is still a problem: in summer we have a surplus of milk and in winter its deficit. So, finding a balance between seasons and make manufacturers provide only high-quality milk is a big problem. First of all, dairy processors themselves should be interested in high quality raw milk procurement. There are only a few processors who adhere to this philosophy – these are major multinational companies and several Ukrainian companies. They tightly cooperate with suppliers and their relationships are based not only on contract conditions, but also on partnership.

Of course, for processors it is easier to control the quality of raw milk in a farm that produces 20 tons of milk than to collect these 20 tons from several villages with three thousand private producers. I believe that it is necessary to create proper conditions for production of quiality milk to make the share of this milk in total production bigger.

Here, in my opinion, there is a need for the government intervention that would, in particular, adjust the rules for land use, I mean the land owned by large agrarian holdings. This could be either compulsory withdrawal of certain land areas belonging to such holdings for livestock business, or, if such approach does not appeal, the holdings must pay certain fees to a state fund from which the money are directed to the development of animal husbandry. I do not mean redistribution of money by government officials, but creating the rules that would automatically reroute the money through the banks to target recipients. Such schemes exist in the world, they are working.

Regarding the idea of ​business relationship ​optimization by creating of vertical structures that would embrace cooperatives consisting of big dairy farms and processing enterprises, this approach is not viable in our environment. Large dairy farms have the owners, management, and just with these people dairy processors negotiate directly. These farms do not need belonging to any association/cooperative, because this does not give them, in fact, any benefits.

One can understand the desire of milk producers to get the most for high-quality milk, it is quite logical. But their demand of immediate payment for the milk supplied or payment in a week or two put the processor in a difficult position, because retailers will return him the money for the sold dairy products only in 40 days. There is another point: the end user. If the price of milk increases, the price of dairy products also grow. But Ukrainian consumer is not ready for such changes. the result is that sales volume falls, processor shrinks production and, therefore, reduces purchases of milk.

Ukraine also has another type of milk suppliers – private households, just rural people that keep cows. Their share in milk production is still big and this group of suppliers will contiexist for a long tim . For people in the countryside keeping cows is not a business but a means of survival. And there is no doubt that this segment of suppliers can not be neglected, it is a must to think about their well-being. And here, indeed, we can talk about cooperatives. But not the “service type” or some other associations with a bunch of restrictions that thwart leading effective business and provoke bypassing the imperfect rules. There must be a legitimate form of the association of legal entity (dairy plant) and individuals (private households keeping cows) in a co-op. The organization of such cooperatives should be of interest to local authorities, because, firstly, it means an increase in tax revenues to the local budget, and secondly – the solution of social problems in the village, better employment rate, rural area development, etc.

Without participation of a dairy enterprise such cooperatives will not be able to establish full operation: to organize collection points on a proper level: setting of the laboratory, organizing milk storage and delivery, consulting, communication with banks and providing personnel training. 20% VAT on this scheme should remain in the co-op. The dairy plant interest in this scheme is a guaranteed supply of raw milk of controlled quality.

I believe that at this point, given the real situation in Ukraine, the best is direct business links of dairy enterprises with their suppliers, large dairy farms. These links should be based on partnership. At the same time, the supply of milk produced in private rural househols should be arranged into a more civilized framework. And to reach this goal the relevant laws concerning the forms of cooperation should be adopted. People, who are starting dairy business should not be enforced to breaching laws just from the moment thay establish the dairy cooperatove. They should not waste their time and energy to get around the rules to run the right business.

I would like to emphasize the role of professional unions and civil society organizations working in the dairy sector. It is just their role: to collect information on the state of the industry, to listen to the needs of both milk producers and processors, consult, coordinate positions, deliver opinion of the industry experts and insisrt on prompt modernization of laws and regulations to develop the dairy industry of Ukraine to the proper level.