Expert Opinion
Oleksandr Nazarko
Global Agro Finance

Summer camps for keeping cows in winter - advantages and disadvantages

Many farmers keep animals in summer camps, and many do so in winter. Exercise for cows. Fresh air. Reduced care costs? Is it really that…

Gеorgiі Kukhaіleshvili
Association of Milk Producers

Between proficit and deficit: an overview of the global dairy market

Despite the decrease in prices for milk raw materials in Europe, too much export supply for dairy products and weak demand on foreign markets, attractive…

Processors are interested in reducing raw milk prices

Raw milk prices in Ukraine as of March 27 remained unchanged since the Association of Milk Producers conducted preliminary monitoring on March 13. But on the spot market, milk still became cheaper by 19 kopecks.

The analyst of the Association of Milk Producers Giorgii Kukhaleishvili reports.

The average purchase price of extra grade milk was UAH 12.18/kg excluding VAT. The price range for this variety in farms varies from UAH 10.84/kg to UAH 12.80/kg. Prices for extra grade milk have not changed over the past six weeks.

The average price for the higher grade remains unchanged - UAH 12.18/kg without VAT. In farms, the order of prices for such milk ranges from UAH 10.00/kg to UAH 12.10/kg, as per the results of the previous monitoring.

For the third month in a row, the average price of first grade milk has remained at the achieved levels - UAH 11.67/kg without VAT. The minimum price in farms was UAH 10.00/kg, and the maximum was UAH 11.90/kg. The price range for the first grade also remained unchanged.

The weighted average price of the three varieties remained at the level of UAH 12.01/kg, the same as three weeks ago.

The weighted average price of the three varieties remained at UAH 12.01/kg, as it was three weeks ago. However, as reported by market operators, the price of raw milk on the spot market as of March 27 dropped by 19 kopecks. From April 1, processors plan to lower purchase prices for extra and higher quality milk so much that the maximum value is UAH 12.00 - 12.10/kg without VAT.

Giorgii Kukhaleishvili suggests that the interest of Ukrainian processors in reducing prices for raw milk is related to the limitation of demand for dairy products on foreign markets. Currently, there is a fairly large supply of dairy products in the world, including milk powder, butter and cheese, amid weak demand in China, Southeast Asia and Europe. The supply of raw milk in the USA and Great Britain remains high, and there are surpluses of raw milk on the EU market. Spot prices for dairy products in Europe continue to fall. At the last GDT auction, there was a decrease in prices for all exchange commodities. Dairy futures are down in the EU, the US and Oceania.

Probably, this situation is due to the fact that the balance of supply and demand on the European market has not yet returned to normal after the "overheating" of last year. In the first half of 2022, European companies significantly raised the purchase prices for raw milk in connection with the reduction of its production due to the drought in Europe and floods in Oceania. They were counting on the traditionally high demand from China, but their forecasts did not come true due to a reduction in purchases by Chinese customers after the country was closed for quarantine due to another outbreak of the coronavirus.

Milk in Europe began to become cheaper and local processors used it for the production of milk powder, butter and cheese. Stocks of exchange goods accumulated in warehouses and now their quantity does not correspond to the real demand in the sales markets. Even after the lifting of quarantine restrictions, demand for dairy products in China remains modest. During the lockdown period, many Chinese reduced their milk consumption in order to save money, and local processors used surplus raw materials for the production of milk powder, which was previously imported from New Zealand and Europe. In the conditions of recession and consumer inflation, companies from Southeast Asia buy less dairy products. The process of returning the price of milk and milk products to the values ​​that existed before the abnormal increase in 2022 is now underway.

According to Georgіі Kukhaleishvili, a certain decrease in the price of raw milk is most likely beneficial to dairies that seek to maintain the competitiveness of domestically produced dairy products in the domestic market compared to European imports. For comparison, in the week from March 20 to 26, the difference in the price of raw milk produced in Ukraine on the spot market against the EU was more than 22%. Back in February, raw milk was cheaper on the secondary market in Poland than in Ukraine. Milk prices have dropped significantly in Lithuania. In such conditions, it is more profitable for Ukrainians to buy European cheeses and butter in supermarkets, rather than products of domestic production.

Prices in Ukraine are pressured not only by the limited demand for dairy products in foreign markets, but also by the reduction in the number of consumers in the domestic market. As a result of military operations, about 9 million Ukrainians left the country. In Ukraine, dry milk and butter are becoming cheaper on the wholesale market. In such conditions, it became unprofitable for dairies to buy raw milk with a certain markup from wholesalers and intermediaries on the secondary market. The number of operations on the spot market is decreasing in the country.

Most likely, the reduction of prices for raw milk in Ukraine will be limited and controlled, and their fluctuations will be insignificant in the short term, and we can count on a sideways trend. The fact is that there is not too much supply of raw milk in Ukraine due to the reduction in the number of cows, the number of dairy farms and dairies due to the war, which should prevent a significant decrease in prices in the future. Therefore, the reduction in prices, which processors are interested in, can most likely affect only large batches of milk with the maximum price.

But it should be remembered that even an insignificant reduction in the price of milk is not an easy decision for producers. During the war, the cost of raw milk production increased due to additional costs associated with the use of diesel generators, losses due to water supply interruptions, deterioration of cow nutrition and logistical problems.

Therefore, the Association of Milk Producers supports and advocates changes to the Tax Code of Ukraine regarding the reduction of the VAT rate for producers and processors of milk from 20% to at least 10%, which as a result will contribute to lower prices for raw materials in the interests of processors and for dairy products in the interests of Ukrainian consumers.

Press service of the Association of Milk Producers