Raw milk price decrease to manifest slowly

Milk. Source: Priit Mürk/ERR

The world market price of raw milk, after heading up abruptly in early 2022, has started coming down again, while it will take time to manifest in the prices of dairy products. The dairy industry is waiting for it to hit a balance point where prices would be acceptable both for producers and consumers.

Raw milk prices peaked last December for a 50 percent increased on year. Recently, supermarket chains have lowered the prices of more expensive dairy products, like butter and cheese.

Talis Raak, head of purchasing for supermarket chain Rimi, said that milk suppliers have notified shops of price reductions from some producers. "But price cuts do not match last year's hikes yet," he added.

Maido Solovjov, executive manager of dairy group Valio, said that the price of raw milk is coming down, which process could last until fall. Prices previously moved up from the historical average of 30-32 cents per liter for about a year and a half.

Solovjov does not believe that the price of milk will fall to the pre-war level. "It would be ruinous for farmers," he suggested.

"But there are good cheese and butter offers on the market today, and the price of cream and sour cream has also come down by some margin," he said, adding that goods with a high unit price have become cheaper faster. "It take ten liters of milk to produce a kilogram of cheese, hence the end price difference."

Oliver Risti, purchasing director for Coop Eesti, said that the price of butter has come down due to falling demand for cream in export markets. "Producers have realized that customers are looking for discounted goods more than ever, which is why different products categories are on sale from one week to the next," he said.

Producers awaiting balance point

Solovjov said that a good middle ground price of raw milk that would satisfy both producers and consumers would be 40-42 cents per liter. "We believe that is where the consumer will come back and the dairy industry and farmers survive."

"It's headed there now, while it is very difficult to predict anything for longer than three months. History has shown that prices could head down abruptly as you cannot foresee all economic surprises," Solovjov remarked.

The Valio manager said that prices will likely continue to fall gradually until fall. "The consumer's wallet is empty today in a situation where the consumer determines everything at the end of the day."

Head of Nordic Milk, operating the Tere and Farmi trademarks in Estonia, Ülo Kivine said that the company has lowered some prices in the last two months, while general price advance is still to land.

"Nordic Milk buys its milk at EU prices, which have started to come down. How prices look on the shelves largely depends on supermarkets' policy, while prices have come down a little in shops."

Kivine echoed Solovjov's message that prices will very likely not fall back to where they were.

Dairy products still making the shopping basket

Kivine said that striking the desired balance is difficult as what producers see as a good price of milk is not acceptable to the consumer and vice versa, adding that a carton of milk used to cost not 40-50 cents a few years ago. "If we look at the whole work process, where the farmer makes the silage, which takes a year, we process the milk, transport it to the shops etc. only to end up with a carton price of a few dozen cents –  it is neither sustainable nor normal."

Both Kivine and Solovjov suggested that while dairy products still move off the shelves, people waste less food.

"Price advance has hit less fortunate families. Sale of expensive products is down 7-10 percent," Solovjov said.

However, changes in consumer behavior have not affected dairy production volumes. Solovjov said that products for which there is no room on the Estonian market, such as hard cheeses, are sold abroad.

Estonian consumers still tend to prefer domestic dairy products.


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Editor: Marcus Turovski

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