Confrontations on Milk Price

Tension between milk producers and the manufacturers they supply has reached new height: the inter-professional negotiations begun in September were not successful, each party sticking to its positions. And for a very good reason: if milk production costs have risen by 20% during the past 12 months, dairy executives argue that they cannot pass the cost increase on the front margins imposed by large retailers.

“The 11% increase (…) passed on to large retailers during the 2008 first half does not cover recorded losses on powdered milk and butter exports” explained Christian Mazuray1, CEO of the Entremont Alliance Group. Not surprisingly, Europe’s largest producer of Emmenthaler cheese has infuriated producers with its announcement, late last week, of a cut of €70/1,000 liters on milk price in October, translating in a 15% decline.

If the current situation we are monitoring in the dairy industry is far from being an exception in the agricultural sector, it stands out because of its scope and the fact that the entire “value chain” is affected, from producers to manufacturers to final consumers. However, the front margins and yearly listing fees crisis in the dairy industry must not cover up the fact that it is tied to problems related to the hyper-volatility of agricultural prices in a globalized world. Without appropriate regulation mechanisms, these agricultural prices can crush the entire system from one day to the next.

1 Les Echos, « Entremont et ses producteurs de lait se quittent sans accord », 30/09/2008