As it is always the case in spring, on the eve of the period of “big milk” the dairy market of Ukraine is turbulent. Processors are tired of the months of work at a loss, and consumers do not have money to pay for expensive dairy products. Accordingly, dairies are cutting production. They cannot earn in exports business either, because the export prices have long stopped growing, and in some commodity positions even significantly decreased.
What have the dairies do in such circumstances? They reduce the purchase price for milk. For dairies this is not a whim, but response to the real market situation and the way to survive and stay on the market.
Since Ukraine still does not practice the civilized ways of business co-operation between milk producers and processors (not to mention the trade networks), farmers perceive the refusal to pay much for milk supply very emotionally. For example, the Association of Milk Producers is actively pursuing media events, conducting press conferences, accusing the dairy processors who decided to reduce production costs at the expense of poor farmers. The argument used is very simplified: “they make profit by paying less for the milk purchased, but for consumers the prices for dairy products continue to go up.” The argument is a win in fight for consumers’ sympathy and it works perfectly: AMP enjoys wide public applaud and promotes the thought that dairies are greedy “bourgeois” who are robbing both dairy farmers and consumers. As it always happens, the press and television are happy to pick up the topic. Politicians and officials smell out the scent of opportunity to gain political dividends from this traditional theme of milk, and join the choir.
No one seems to go deep into the dairy economy. Those advocating the farmers seem to simply make use of this winning media topic, because it is hardly possible that they do not understand the basics dairy economy.
In fact, the case looks like this: farmers raised milk prices in autumn, and they did it quickly and sharply. Dairy processors, given the slim purse of Ukrainian consumers, were unable to increase prices for finished products the same way. They deal with the trade and the consumers, and they had to increase the prices very gradually, working all winter months at a loss. And even now, when the purchase prices are lower, they are a third higher that those paid to farmers a year ago. But the price of the dairy products is not higher even the same 30%.
Now it is also impossible to earn on export operations. On the global market the prices are low, and dairies cannot get much selling export oriented products. For example, the importers’ of Ukrainian milk powder offers are only 10-15% higher than a year ago.
The laws of economics do not depend on media activity and no one can work long at a loss. Therefore, the purchase prices for milk will have been further decreased and the prices on milk, yogurt or ryazhanka will hardly drop even in summer.
What would really help dairy farmers to make their business easier is taking direct efforts to fight the officials who simply deceived them, promising direct subsidies to compensate for the losses from the abolition of preferences on VAT. Just them, and not dairies dependent on the economic situation of the market, are the point of impact, which may work in favor of farmers provided constant and persistent pressing made by professional associations of farmers. Now, judging by the developments on the new regulations, the promised subsidies will soon be received only those working in poultry, because the mechanism of the subsidies distribution is too devious.
Here is the way that may help dairy farmers: the extensive use of media events to press those responsible for the deceitful legislation and involvement of all those interested – farmers, dairies and the legislators in meaningful, grounded discussions. Because just driving media waves will not help dairies make more money to pay for expensive milk.