The Technical Regulation on Milk

The Federal Act "The technical regulation on milk" was passed by the State Duma in late-May 2008 and promulgated within six months after its official publication. Since that moment, a product made from powdered milk may not bear the name of "milk", but it should be named just "milk drink".

Theoretically, the introduction of a technical regulation engenders the rise in demand and, consequently, the price rise for domestically produced natural milk. But because of an unjustifiably high price for products made from import powdered milk, in the event of transition to natural one, the prices should not have risen as dramatically as they did in Russia, for in the conditions of the current crisis they faced the population’s declining effective demand.

In February 2008, the average purchasing prices for milk nationwide suddenly plunged, then rose between March and April and sharply bounced downwards in April again. The fall was noted through August. Then the prices have been on the rise again, but even in the early-2009 they fell short of hitting the early-2008 level.

The fall in purchasing prices for milk in summertime is a regular phenomenon. In Russia, the milk production on month-to-month basis appears uneven, because most agents have not so far switched to a system that secures an even distribution of parturition and, consequently, of monthly yields.

Prior to adoption of the Technical Regulation, the proportion of the agrarian producer’s price in the retail price for a package of 3.2% milk was 54%, while in two months after the regulation was introduced it fell to 34%. It means that in the period of transition to the Technical Regulation agrarian producers were put in worse, rather than better, conditions.

Tracking down the dates of passage of the Act and the price dynamics shows that the purchasing prices plummeted when it had become clear that the regulation would be adopted. Meanwhile, the retail prices and those by manufacturers were on the rise. The manufacturers and stores explain the price rise by growing costs. Indeed, costs of resources are soaring, but so are the costs of resources for the agrarian sector. The distinction is, individual milk producers cannot dictate prices.

After the regulation was introduced, the manufacturers were granted a 6-month "grace period" (which is the maximum allowed length of storage of already produced milk). During that time, they can sell their final products made from powdered milk. It means that milk-processing plants can reduce volumes of procurement of natural milk, without diminishing their general volumes over for the upcoming 4 months.

The milk manufacturers attribute the downfall in prices for natural milk to its low quality. Indeed, agrarian milk producers, as a rule, have primitive laboratories, while milk plants run tests on the supplied milk by numerous characteristics. There are no alternative laboratories which would run quick and inexpensive tests of milk at the moment a milk tanker leaves a milk farm.

In such conditions, this may result in dairy cows being supplied to slaughtering and meat-processing plants. The longer this situation persists, the more the livestock will plunge. And this will happen even regardless the fact that measures on support of the dairy cattle are stipulated in the State Program of development of agriculture and regulation of markets for agrarian products, raw materials and food products for 2008-2012, as well as in the respective programs adopted by the RF Subjects. Hence, a paradoxical situation: the government promotes the dairy breeding and spends funds, while numerous scattered agrarian producers are helpless in the face of monopolized (as a rule) processors. After the livestock has fallen, the nation will have to import powdered milk to manufacture the final produce. The population will consume it, even if the package carries an inscription “the dairy product", as there will be too small a volume of supply of other milk. This is not a projection, but a bitter experience from the early 1990s.

That said, it cannot be argued that the problem of agricultural producers’ prices is neglected – the media is full of accounts of meetings, intents and plans of getting out of today’s situation. But it is already now that the nation is in need for introduction of protectionist measures, including restricting importation of natural milk from the Near- Abroad countries; raising customs duties on imported powdered milk; introducing the practice of negotiations between the RF Ministry of Agriculture with dairy producer unions, milk farms and monopolistic milk processors, which constitutes a standard international practice.

N. Shagaida, Dr. in economics