Este informe no está disponible en español.
Dairy Producers And Indulac At Odds About Price Of Raw Milk
Producers promote equal prices for all; Indulac warns change would lead it to bankruptcy
By TAINA ROSA
August 12, 2004
Fresh-milk producers Tres Monjitas and Suiza Dairy Corp. have accused Indulac (the Puerto Rico Milk Industry) of paying chicken feed for raw milk. Claiming annual losses of $10 million, they are pushing the government to fix the price at 52 cents a liter. Indulac is fighting the move.
At the moment, Tres Monjitas and Suiza Dairy must pay 62 cents per liter for the raw milk they receive from dairy farmers. Indulac, which produces Ultra High Temperature (UHT) milk and other dairy byproducts such as cheese and butter from the raw milk not needed by the producers, pays only 10 cents a liter, prompting fresh-milk producers to complain of unfair competition. The Milk Industry Regulation Office (ORIL by its Spanish acronym) regulates fresh milks wholesale and retail price, but doesnt do so with UHT milk.
Indulac has said the price hike would not only soon leave the company bankrupt, but would destabilize the islands milk industry, the most important within the agricultural sector. Indulac, which was created to support dairy farmers by buying their surplus raw milk, doesnt produce fresh milk.
"Dairy farmers would rather sell Indulac the surplus milk at a very low price than throw it away," said Indulac President Jose Benitez. "Indulacs existence guarantees to dairy farmers that all the milk they produce will be bought."
The presidents of the only two fresh-milk producers left on the island, Carmen Laura Marrero of Suiza Dairy and Juan Corrada del Rio of Tres Monjitas, have concerns of their own. Local sales of fresh milk have decreased in the past few years; its market share has dipped from more than 90% in the 1980s to its current 80%, and it appears the trend will continue.
Meanwhile, Indulacs UHT milk, introduced in the early 1980s, already has 76% of the local UHT market, competing against foreign and U.S.-based UHT brands such as Parmalat, Borden, and Grand Pre, which are sold cheaper than Indulacs UHT milk.
Marrero and Corrada del Rio attribute the decrease in fresh milks market share to what they believe is an unfair pricing scheme that gives Indulacs UHT milk a competitive advantage. The higher prices fresh-milk producers must pay for raw milk ultimately hinder their capacity to cover production costs, they said. A liter of fresh milk costs $1.00; until this month, UHT milk cost between 90 cents and $1.00.
Benitez and Jose Aulet, a Farmers Association dairy farmer representative, told CARIBBEAN BUSINESS the price of Indulacs UHT milk has increased three times this year, and now costs more than $1.00 a liter, leaving it no cheaper than fresh milk.
Dairy producers have also conceded to Indulac that the production of UHT milk is costlier than that of fresh milk.
But fresh-milk producers still consider the price disparity unfair. "[Indulac pays such low prices] because it buys what is known incorrectly as surplus milk, meaning it purchases the milk that manufacturers dont need," said Corrada del Rio. He and Marrero said it shouldnt be called surplus because the raw milk manufacturers and Indulac buy is exactly the same. Indulac and dairy farmers disagree with producers definition.
Corrada del Rio added that about 20% of all raw milk the manufacturers receive ends up as surplus. Corrada del Rio and Marrero believe fixing the price of raw milk at 52 cents a liter would balance the competition. "We would never ask to pay less than 52 cents. That would be detrimental to dairy farmers operations," said Marrero.
However, Indulacs Benitez disagrees. "They say we pay 10 cents a liter, but it comes out to 26 cents when you factor in [all our expenses]."
"Dairy producers only buy the amount of raw milk they know they can sell," said Aulet. "Indulac must buy the surplus...no matter how much." If none remains, Indulac buys nothing.
"[Indulac] has to shut down four months a year when cows produce less milk. During those months, dairy producers buy up all the raw milk and Indulac cant produce anything," added Benitez.
According to Indulac, its mission is to respond to the interests of dairy farmers involved in milk production. As such, it prefers dairy producers to buy all the milk at 62 cents a liter than to see the surplus sold at a fraction of the cost. "It isnt our intention to compete against fresh milk," said Benitez, "It is in our best interest that the sales of fresh milk increase."
Aulet believes if consumers prefer UHT milk to fresh milk, it has nothing to do with price. "If it did, consumers would buy the imported UHT, which is cheaper," he said, conjecturing that consumers have switched to UHT milk for its durability and convenience.
Suiza Dairy and Tres Monjitas proposal to equalize prices for the three companies isnt the only one on the table. Some have suggested that Suiza Dairy and Tres Monjitas alone pay 52 cents a liter, an option Benitez has rejected. "[Dairy farmers] would immediately lose about $30 million," he said.
Raising the retail price of fresh milk to ensure a healthy profit margin, meanwhile, would further erode its market share, according to dairy producers. Anyway, it is up to ORIL to decide if the price of fresh milk should increase.
"Increasing the retail price of UHT milk doesnt solve the crisis the milk industry is experiencing and doesnt improve raw-milk market conditions either," said Tres Monjitas and Suiza Dairy in a written statement. They added that the increase in Indulacs UHT price would only guarantee higher profits for Indulac.
Meanwhile, Aulet has pointed out that the adoption of Suiza Dairy and Tres Monjitas proposal would leave these two companies with an annual profit of $27 million.
"We dont believe our UHT milk competes against fresh milk because each has its own market," said Benitez. "Older people tend to prefer UHT; children and younger adults prefer fresh milk."
Tres Monjitas and Suiza Dairy have taken the matter to the U.S. District Court, but cant comment on this action as it is ongoing.
This Caribbean Business article appears courtesy of Casiano Communications.