<The Japan Agricultural News has asked Nobuhiro Suzuki, professor of the University of Tokyo’s Graduate School of Arts and Sciences, to contribute an article to evaluate a recent recommendation by an agricultural working group of the government’s Regulatory Reform Council. The group proposed abolishing the nation’s raw milk distribution system, in which regional dairy co-operatives designated by the government collect milk from local dairy farmers, then negotiate with and sell the produce to dairy companies.>
It is extremely inefficient to collect and sell raw milk in small units, as it is highly perishable. Such an inefficient system would confuse dairy farmers, distributors, dairy product manufacturers and retailers, and it would become difficult to provide consumers with the necessary amount of safe milk and milk products when necessary. That is why it is inevitable to maintain the system and organizations which can collect, distribute and sell large amount of raw milk. Similar policy measures are taken in many countries worldwide to secure such raw milk distribution.
Deregulation of the raw milk market cannot be justified even from the viewpoint of economics. Deregulation is justified only in cases when market players do not control the market. In markets where buyers have strong negotiating power, deregulation encourages unfair pricing.
Considering that raw milk is already marketed at beaten down prices, discussions on stopping applying antitrust law exemption to cooperative marketing would exarcebate unfair competition. What should be discussed in the scope of antitrust laws are major retailers’ unfair dumping and abuse of superior bargaining positions.
According to our estimates, the degree of dominance for the negotiating power of dairy product firms and supermarkets in Japan is almost zero to one, which means supermarkets have a completely dominant position in the market. As for dairy farmers versus dairy product manufacturers, the ratio is 0.5 to 0.5 at the most for farmers and 0.1 to 0.9 at the least, which indicates the manufacturers’ dominancy over dairy co-operatives.
Producers are suffering from imbalance of bargaining power even under the cooperative sales system. If the system is abolished, the situation will only grow worse. Regarding this issue, we can learn a lesson from what happened in Britain after the dismantling of the Milk Marketing Boards (MMBs), organizations exempt from antitrust laws which played a major role in the nation’s raw milk distribution.
After the boards were disbanded in 1994, dairy farmers’ private marketing co-operative Milk Marque was established, but the British milk market grew more competitive as many farmers left the organization and the co-operative was split. Milk prices in Britain dropped even when prices of milk products soared on the European Continent in 2000. In 2009, dairy companies’ ratio of direct transactions increased to over 70 percent of total raw milk sales in Britain.
The dismantling of MMBs, which was aimed at breaking up the monopoly, in fact encouraged major supermarkets and multinational dairy processing corporations to strengthen their monopoly power, and as a result, led to a decline in milk prices and dairy farmers’ earnings. This case should be reviewed from the viewpoint of competition policymaking.
Meanwhile, it is a matter of course for Western nations’ governments to interfere in the milk market so as not to put dairy farmers at a disadvantage against retailers which are increasing in size and market dominance.
In the United States, the government issues Federal Milk Marketing Orders (FMMOs) to determine minimum national prices for raw milk sold to processors, depending on the end use of the milk, based on market conditions. It also imposes minimum regional purchase prices for processors of drinking milk every month by adding premium prices set for each of the 2,600 counties nationwide.
In Canada, the dairy market, operated under a supply management system, is controlled by the balance of power among provincial milk marketing boards which monopolize collecting and selling of milk, and dominant manufacturers and supermarkets. The system enables producers, processors and retailers to secure sufficient profits, and lets consumers cover the costs.
If producers are put in a situation where they have difficulty maintaining production, it would eventually make it difficult for distributors to continue their business and consumers to buy homemade milk. The Japanese people should be aware that it would be too late when that happens.