Milk price reductions may not reach stores until summer
The price of raw milk has begun to decrease, whereas the price of dairy products has remained unchanged since the raw milk price peak.
Valio's managing director, Maido Solovjov, said that the decrease in costs could be passed on to customers only if dairies were able to recuperate the losses incurred as a result of record high raw material prices.
In December, the milk buying-in price reached an all-time high of €544 per ton. Afterwards, however, the price continued to fall, and by February it had gone down to €492. However, the cheapest carton milk remains priced at 75 cents per liter, as it was priced last December.
Rivo Veski, head of communications at Selver, told ERR that the price of milk remains high for reasons beyond the store's control. "No one has lowered their purchase price from the larger milk producers. The prices that were fixed last year remain," he said.
Maido Solovjov, managing director of Valio, one of the largest dairy companies in Estonia, said that in the 10 years preceding the war in Ukraine, the average price of raw milk, excluding VAT, was 30 cents per liter. But, the price has nearly doubled in the past year and a half, and since the second part of last year, when it hit 45 cents, all dairies have been incurring enormous losses.
"Since the 45 cents raw milk price, the industries have not been able to pass this price on to the consumer and consumers have not been ready to accept it either," he said.
According to Solovjov, the industries are still in trouble for the time being because, despite minor price corrections, raw milk prices remain at record highs. Dairy industries are waiting for the first half of the year to hit zero and the third quarter to turn a small profit before the price drop could actually hit the shelves.
"I can tell you that the major price corrections in the trade will begin when raw milk reaches 40 cents per liter. All of the recent price increases have resulted in significant losses for the dairy industry, which they are attempting to recover now," the manager explained.
"When the price reaches 40 cents, we can talk about the dairy industries having recovered their losses, being ready to make a broader decreases in pricing."
Nonetheless, some product prices have already begun to shift. Solovjov said that there is more butter and cheese available on the market than a quarter or two months ago.
In January, a liter of raw milk was still a few cents under 60, but by the end of the year, the price could stabilize between 40 and 45 cents.
"We don't know how the summer will be in Europe, whether there will be a drought, how much dairy products will be exported from Europe, and what will happen to demand, whether it will recover. With the price of raw milk at the level we have reached in the meantime, it was clear that demand fell sharply in both Estonia and Europe," he said.
Solovjov predicted that by the end of the third quarter of this year, the price of drinking milk on store shelves will have decreased slightly and promotional offers for all product categories will have increased.
He said it is too early to expect milk prices to fall in the coming months; the price peak of the previous year and a half was also reached over a longer period of time, so the price decline will take longer. "Prices will undoubtedly reach a new equilibrium point, but let us not get too far ahead of ourselves."
The milk buying-in price fell below €300 per ton in 2020, and it increased month by month from the middle of 2021 to the end of the year, reaching €544 in December. After a lengthy decline, the price fell to €522 per ton in January.
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Editor: Kristina Kersa