Milk prices soar
23 September, 2010
Milk prices soar

Prices for milk products at Georgian market increased by 15% starting this September. The sector pundits say the drought and crop failure jacked prices on natural milk and milk powder up at international market that affected Georgian local market, plus seasonal effect of lactation period coupled with the currency fluctuations and oil price hike.

The first tide of price hike on milk and milk product started in this past August increasing prices by 6% initially

at Georgian market. Price hike at international milk market was named as the key reason caused by crop failure and inauspicious weather conditions this year. Commensurately prices on milk powder increased by 100% from USD 2 thousand per ton of milk powder to USD 4 thousand. As a result price on milk powder stood at GEL 7 per kilo of milk powder in Georgia. All dairies except of Eco-food, one of the leading Georgian dairies that has a network of its own milk collector-units in regions, increased prices. The second tide of price hike was predicted in September due to seasonal effect – the milking volume reduces starting fall usually and companies prepare for extra expenses. Eco-food producing was mainly based on natural milk in summer and did not increase price likewise its competitors. It has sufficient reserves of milk powder and planned not to increase prices in September if the price for milk powder will be maintained at GEL 7 per kilo; however the company could not resist the second tide of price hike and increased prices on its products starting September 20, 2010, Shalva Alavaidze, Marketing Manager of Eco-Food, informed Georgian Journal.


The second tide of price hike poised prices up by another 6%-10%, totally prices on milk and milk product increased by 15%, Kakha Koniashvili, Head of Sakrdze [Georgian Milk], association of Georgian dairies, informed Georgian Journal.  
Since cattle farming is not developed in Georgia and no dairy can procure 1-2 tons of natural milk at once at farms, they fully depend on dry milk that is also fully import-dependent product due to similar reasons – underdeveloped farming.   During reduced milking season Georgian dairies by 80-85% depend on dry milk starting November to April,however the percentage changes in April till November in favor of natural milk. Natural milk is much cheaper: its price is negotiable and dairies need not extra outlays for storing milk at warehouses like dry milk. However another problem is that the bigger part of natural milk is diverted to cheese producing, Georgia ranks nearly number 5th cheese consumer country worldwide. All these factors affect prices on milk product in Georgia irrespective that Georgian milk market is by nearly 100% provided by locally produced goods. The problem is that its key ingredient – milk powder is by 100% imported. 
“Georgia does not produce milk powder, it fully depends on dry milk during fall-and-winter till April when the milking season resumes, and therefore we are tied to the international market trends where the price on dry milk increased by 100% due to droughts and crop failure that directly affects cattle breeding and milking. The international giants like Danon could not resist this trend and increased prices either, ” Koniahsvili explained. He thinks that the price has already reached its peak actually, although cannot exclude any further slipping of prices upward. Neither did dairies.

“I cannot say for sure that the prices will not change any more, it depends whether or not any of components [that defines the pricing policy] changes,” Erekle  Gamkrelidze, Deputy Director General of Sante, one of the biggest market players that shares the market along with Eco-food by approximately 40-40%, told Georgian Journal. “The first tide of price hike was determined by currency fluctuation risks plus price hike on fuel. We have not increased prices on our product starting 2007 but could not maintain any more.”
Wimm Bill Dan Georgia, a part of the Russian-based Wimm-Bill-Dan Group [one of the biggest dairies of Europe],  also expected 15% price hike by September due to reduced volumes of natural milk and price hike on milk powder.
Whether or not prices will go high on milk depends on companies’ policy as well, Koniashvili believes. The point is that sales on milk and milk product increase in fall and winter usually, and price hike may cause slump in demand and affect sales. Koniahsvili thinks that it is quite possible to detain current prices at the expense of enhanced sales till spring when the milking will resume. But none of dairies complains of reduced sales and shun guaranteeing fixed prices.

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