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Drop in the price of milk on the European market will affect Serbia

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The drop in the price of milk on the European market will further worsen the already difficult situation of our milk producers, which will reduce the number of dairy cows. There is so much illogic in the production-processing-trade chain where the retail price of milk is almost three times higher than the purchase price. That is why the state must make some serious cuts by the summer.

Sputnik interlocutors, agroeconomist Žarko Galetin and secretary of the Livestock Association in the Serbian Chamber of Commerce (PKS) Nenad Budimović agree in this assessment, commenting on the latest situation on the European and world markets, which will inevitably affect ours as well.

Import of cheap milk

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One of the main reasons for the current drop in milk prices on the international market is the increase in production among the world’s largest exporters of dairy products. This increase in production was due to the relatively high profitability of that production. Higher supply, however, led to a drop in prices.

The first quarter of this year was marked by a drop in the price of milk, even higher than forecast, so, for example, the purchase price of milk in Poland, when seasonal factors are eliminated, decreased by around 7.8 percent in January, which is its biggest monthly drop In history.

It was from Poland and Germany that Serbia imported the most milk and dairy products last year, and they were also imported from Bosnia and Herzegovina, Croatia, Hungary, France, Italy, and even from Belarus, statistical data show.

In the first two months of this year, according to the chairman of the Agriculture Committee of the Serbian Parliament, Marijan Risticevic, we imported 40 percent more milk and milk products. Last week, the producers again asked for help from the state because the dairies began to drastically lower their purchase prices.

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Term protection is not the solution

Surcharges, practically taxes on imported milk, which the Serbian government introduced at the end of February, according to our interlocutors, will hardly be of much help.

“It will solve the problem in the short term, but not in the long term, and those taxes must be removed one day.” Europe is following that and you cannot indefinitely protect domestic production by keeping taxes. All in all, a very unenviable situation. “In some areas, as far as I’ve heard, the purchase price of milk has dropped to 35-40 dinars, which is completely unacceptable,” Galetin said for Sputnik.

That, he points out, is beyond all calculation. The producers are asking for about 70 dinars, plus a premium of 15 dinars per liter of milk, which, he says, would keep them alive. He believes, however, that producers would be satisfied with a purchase price of 60-65 dinars per liter.

A paradoxical situation

“When you look at the amount of illogicality and paradoxical situations in that production and trade chain, when you have a retail price of 150-160 dinars, and the purchase price is more than twice as low, something is disturbed, the system is not functioning properly,” this agro-economist is clear.

He has no doubt that with the latest reduction in milk prices, the EU will be even more competitive with our producers who, he is convinced, will reduce the number of dairy cows in that situation.

It Is a demanding production that requires absolute dedication 365 days a year, and we are already on the verge of meeting domestic needs. It will be problematic if that number continues to decrease and only then will we need to import milk and milk products.

Serious cuts needed

“There, the state must make some serious cuts,” says Galetin, assessing that the entire concept of production of milk and dairy products has collapsed for several years.
Budimović was even more specific, assessing that we are “squeaking badly” in the production of milk and dairy products.

The state did what it could, it increased the premium for milk, introduced surcharges, but it seems that it is not only a matter of money, but of an organized market.

“All three links should be involved in the solution. Both producers and processors, dairies and traders. If we have a surplus, as they say, then why is the price in stores so high. You don’t have milk below 150 dinars per liter. And we assume that the average price of milk is 50-55 dinars per liter in purchase,” says Budimović for Sputnik.

A valid analysis and a decision by the summer

When it is so much on average, it means that the purchase price is somewhere around 40 dinars, he states, emphasizing, like Galeta, that solutions should be sought between all actors in the chain who should agree on the minimum purchase price of milk.

According to our interlocutor, such a decision requires a valid analysis. We need to see how much milk is produced on a daily basis, how much on a monthly basis, how much enters the processing capacities, how much it is compared to last year, in order to find out what is the cause of the price drop. That, he believes, should be done as soon as possible.

“By the beginning of the summer, a good, realistic analysis should first be made and, based on that, systemic measures should be applied that could mitigate further decline, and then production should be stabilized.” This is how small households will give up three cows, five cows. It will disappear, they are irresistible,” warns our interlocutor.

He reminds that Serbia has about 180,000 dairy cows that “enter” the premium system that still meet our needs. The year before last, we produced 1.47 billion liters of milk, while the data for last year are still awaited, he says.

What and how to proceed

At the same time, we need to look at the strategy for the future – how much milk do we need for domestic consumption, how much surplus can we achieve and what is the optimal number of animals that will enter that process. Finally, whether farmers should turn to meat production and market it according to the cow-calf system to Turkey, China, Saudi Arabia, with whom we have good trade relations and good trade arrangements, says Budimović.

What creates an additional problem for Serbia and prevents it from leading an independent policy of producer protection through interventions in the market is that we are signatories to the Stabilization and Association Agreement (SAA) with the European Union, noted Galetin. That is why we have to conform to the standards and criteria of the EU and the free market of Europe.

This means that for every step we would take in order to protect the domestic producer, such as the recent introduction of levy, we have to give a thorough explanation to the European Commission, in order for it to approve it.


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