Chamber presents proposal to set lower price limit of retail milk

Bags of milk.
Bags of milk. Source: Anna Aurelia Minev/ERR

The Chamber of Agriculture and Commerce has made a proposal to establish a lower limit on the price of retail milk, which would depend on how much the merchant pays to the supplier. The Traders Association does not approve of the idea.

The purchase price of milk per kilogram has stayed around €0.3 for years and the price is currently at €0.31. Chamber of Agriculture and Commerce head Roomet Sõrmus told ERR that the cost of milk has also remained around €0.3 in that time.

"But the last year has brought a large increase in the cost of production. Feed costs in particular have risen. And as in other sectors, labor costs is the agriculture sector have increased. So we are speaking of production costs being around €0.32-0.34 nowadays," Sõrmus said.

Meaning each liter of milk comes at a loss for producers. While looking for a solution, the chamber presented multiple proposals. Sõrmus noted that the state could support milk producers financially, but regulation amendments would also help. He added that labor costs could be managed with the help of foreign labor. But only if the worker does not need to be paid the average wage, but instead a wage 30 percent lower than the sector average.

"We believe this would take the sector's actual opportunities into consideration and would also consider the capabilities when paying wages. Most people working in the sector are local anyway. And the average wage that has developed is actually the wage the agricultural sector can pay their workers," Sõrmus noted.

The chamber head considers low purchase prices to be almost as big a problem as high input prices. Milk producers are paid €0.36 per kilogram in the EU, the support is at €0.31 in Estonia. Sõrmus sees that purchase prices are being forced low by the final link in the chain - the low price of milk in stores. One retail chain is asking €0.34 for a liter of milk, two chains are asking for €0.35. Including VAT, Sõrmus emphasized.

"This retail price is not consistent with purchase prices and production costs whatsoever," he noted.

Estonian Traders Association CEO Nele Peil said there are retail chains that ask for more per liter. She said milk has an important role in most companies' pricing strategy.

"Milk is one of the strategic product groups, such as bananas. People generally know the prices of these items in different retail chains and this develops the image of a cheap or expensive chain. So if we are talking about retail chains that want to cultivate the image of being a price leader, those are the categories they want to offer lower prices in," Peil noted.

Retailers receive an average price of €0.38 per kilogram from processors. For the trade sector to not force the price of milk down too much, the Chamber of Agriculture and Commerce has made a proposal to ban sales of milk at lower prices than what is being paid to suppliers. An exemption could only be made with a written permit from the supplier or if the expiration date is coming up.

"We do not see that it would be justified to sell milk cheaper than the retail chain acquires it from suppliers. This is certainly not honest trading practice," Sõrmus said.

The chamber thinks the restriction could be added into the unfair commercial practices prevention act, which will soon head to the Riigikogu for a third reading. The act would introduce an EU directive and the Ministry of Rural Affairs noted that they do not consider such an amendment necessary at this point. The ministry said the establishment of the law should be considered first and if it needs to be amended, it can be done in the future.

Nele Peil does not support the Chamber of Agriculture and Commerce's idea. "If we begin regulating the price of one product, there is a very long line of other sectors, certainly the food industry and other sectors, who think their products could be regulated by the state, as well. And then we are really diverging from a free market and are heading back to a planned economy," Peil said.


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Editor: Kristjan Kallaste

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