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The CC takes a Close Look at the Dairy Market



The Competition Council (CC) of Latvia has recently concluded market study and sector inquiry into the dairy market in Latvia. Both researches provided the CC with an in-depth insight into the price changes within all phases of the market, as well as with knowledge of common factors that affect dairy market situation as whole. Data of both researches did not show any indications on possible competition law infringements.

The market study in cooperation with the Bank of Latvia, allowed for the CC to carry out econometric analysis of price changes, as well as to gain understanding on dynamics of pricing that are substantial to all market participants of the dairy market. The study confirmed that phase most sensitive to price changes and most exposed to greatest fluctuations in the value chain is production of raw milk.

Meanwhile, price changes of raw milk sales affect processors four times less than farmers. At retail level the price reaction is less than one percentage point from the original increase of the raw milk price. However, retailers as well as producers, rely on the raw milk purchase market trends. In general, retailers are flexible with the final shelf price.

Furthermore, the second market inquiry was initiated after the CC received two applications with a request to assess the sharp price reduction of raw milk in 2014 and 2015. While analysing data, the CC stated that price changes carried out by milk processors have not occurred simultaneously, although there are similar trends. The CC explains such observations with intelligent adaptation where dairy processors evaluate freely available information and follow the market situation to maximize profits.

Concerning the analysed period, the CC concludes that sharp price reduction was related to both cyclicality of the industry and consequences of negative economic processes globally because of Russia’s trade embargo.

Overall, prices of raw milk in Latvia are among the lowest within the EU, which is explained with a number of factors – overproduction of raw milk both in Latvia and wider, fragmentation of farms, as well as quite expensive processing of dairy products and lack of export markets.

To increase the purchase price of raw milk, the CC sees a necessity for farmers to consolidate farms, while for processors of dairy products – to stimulate demand while producing products of a high added value.

 

For media inquiries

Paula Vilsone

Communications Officer of the

Competition Council of Latvia

E-mail: paula.vilsone@kp.gov.lv

Phone: 00 371 67365210