Retail prices of milk after April are a matter of great concern for the dairy industry. As the dairy farmers’ association and major dairy manufacturers agreed on raising the price of raw milk for beverage use by JPY3 per kilogram starting in April, they are wondering whether the retail prices will rise along with it. However, although the price of premium brand milk offered by major dairy manufacturers rose by roughly JPY10 per a one-liter bottle, prices of many other brands remained the same. If retail prices do not properly reflect the rise in raw milk prices, it could threaten dairy farmers to lower the raw milk price again. The dairy industry should work on setting the right prices that reflect the value and the costs, while making efforts to gain understanding of consumers over the harsh situation of dairy farmers.
Dairy farmers and dairy product manufacturers are in the same boat amid serious decline in nationwide raw milk production. While agreeing on raising raw milk prices, major dairy manufacturers have raised retail prices in supermarkets at the same time to cover rising supply costs. This implies the fact that if they don’t continue raising retail prices, they will lack the source of revenue to pay for raw milk, which could have a grave impact on price negotiations between farmers and manufacturers to take place in fiscal 2015. This is why dairy farmers’ associations say a hike in milk prices “can be seen as complete only after retail prices increase along with the increase in raw milk prices.”
The latest increase in milk prices is the first in 18 months. It is the fourth hike in a decade, reflecting farmers’ severe situation. The first and second price increases were agreed on in April 2008 and March 2009, both within the same fiscal year, an unusual decision made amid soaring world market prices for grains. Consumers’ purchases of milk dropped some 10 percent from the previous year, pressuring dairy manufacturers to eventually cut retail prices. When the industry raised the price again in October 2013, the impact was limited thanks to the industry’s campaigns asking consumers to accept price hikes. Now the question is what will happen this time.
Currently, retail prices for some milk brands have shown an increase while those for other brands remain the same. This is because supermarkets are keeping prices of their private label products low under their “price freezing” policy. It is the consumers with understanding for the dairy industry who purchase high-priced milk. The dairy industry must make more efforts to convey the real situation of dairy farmers and urge retailers to adopt a pricing policy that reflect the real value of milk.
Satoshi Hasegawa, who heads Japan Federation of Milk Processors’ Co-operatives, a federation of small and medium-size processors, said in an interview with Japanese media including The Japan Agricultural News that retail prices should properly reflect the value and the costs in order to maintain a sound business foundation of the regional dairy industry and secure sustainable milk production. We totally agree.
Consumers tend to be more price-sensitive regarding daily necessities like milk. Supermarkets are carefully setting prices for national brands and for private-label products and smaller makers’ products, while watching the moves of rival stores in the neighborhood. As for private-label products, supermarkets maintain their retail prices low by shouldering the costs of the rise in raw milk prices. Such a situation cannot last long. Price competition between national brands and private brands will adversely affect milk processors and dairy farmers.
In order to maintain sustainable management of dairy farming and stable supply of domestically-produced milk indispensable for Japanese people’s lives, it is necessary for retailers to set prices that reflect the costs.
(April 15, 2015)