Croatian dairy market study for 2018

In November 2018 the CCA started a milk sector market study that involves twelve undertakings engaged in milk processing: Dukat, Vindija, Belje, Meggle Hrvatska, Zdenka-Mliječni proizvodi, PIK Rijeka, Mljekara Sinj, KIM, Novi Domil, Mljekara BIZ, Euro-Milk and Mini Mljekara Veronika. The first five on this list (Dukat, Vindija, Belje, Meggle Hrvatska, Zdenka-Mliječni proizvodi) held a combined market share of 88 per cent in the procurement of raw cow milk in Croatia in 2016. In 2017 the combined market share of the first five amounted to 91 per cent.

The objective of this market study was to collect information and establish the facts about the dairy market structure including the relationships in the market concerned between the producers of raw milk, milk processors and distributors supplying the end consumers.

It is worth mentioning here that in 2017 the Ministry of Agriculture adopted a so called “milk package” – a set of rules defining the raw milk supply chain. With the view to protecting the consumers these rules regulate the relationship between the producer and the buyer and set forth the parameters relating to milk quality at the source, such as protein and milk fat content, the facts that directly affect the farmgate price of raw milk.

The market structure regarding the purchase of raw cow milk in Croatia shows that the market is highly concentrated – the first three market leaders (Dukat, Vindija and Belje) held a combined market share of 82 percent in 2017. For the sake of comparison their combined market share in 2016 was 79 per cent. The concentration of this market clearly rises despite some changes in the structural links between the undertakings concerned.

The highest average farmgate price paid to individual milk producers in 2016 amounted to HRK 2.59 per litre, whereas in 2017 it was HRK 2.56. The lowest average farmgate price in 2016 was HRK 2.06, in 2017 it was HRK 2.22, which indicates the increase in the lowest average farmgate price. The average farmgate price in 2016 amounted to HRK 2.23, in 2017 it was HRK 2.39 per litre. In conclusion, there has been an increase in the average farmgate price by HRK 0.16 per litre of raw cow milk in 2017 compared with the previous year.

The farmgate price of milk depends on the content of milk fat and protein. Corrections are also introduced regarding the number of microorganisms and somatic cells in milk. There are also additional premiums by milk buyers that give incentives to milk producers who produce larger quantities of milk.

For the purpose of the dairy market study the CCA examined the average farmgate prices of cow milk in the EU in 2017 and 2018. The results showed that in August 2017 the average farmgate price of milk was EUR 0.35 or HRK 2.61 per kilogram. Comparing the farmgate prices of milk in December 2108 and December 2017 the CCA draw the conclusion that only in three Member States the farmgate price rose – in Malta, Cyprus and Croatia. This rise was the highest in Croatia and amounted to 4 per cent.

In 2017 Slovakia, Hungary, Estonia and Slovenia had a higher farmgate price than Croatia, only in Romania it was lower. On the other hand, in August 2018 lower farmgate prices than in Croatia were recorded in Spain, Bulgaria, Czech Republic, Estonia, Latvia, Lithuania, Hungary, Poland, Portugal, Romania, Slovenia, Slovakia, whereas other Member States had higher average farmgate prices than Croatia.

The contracts between the buyers (processors) and producers of milk (dairy farmers) that have been analysed for the purpose of the dairy market study show that the contracts that were in effect in 2016 and 2017 were concluded for a time period of six months to one year. This is in line with the above-mentioned milk rules that entered into force on 24 March 2017 and that provide for a minimum duration of such contracts.

Within its regular groceries market study for 2016 the CCA analysed the agreements and supplementary documents of the five leading groceries chain stores in Croatia. In the part where the agreements between the milk processors and groceries chain stores were inspected the CCA detected certain provisions that would today constitute unfair trading practices within the meaning of the Unfair Trading Practices Act, such as the existence of listing and marketing fees, logistics discounts etc. However, the UTPs Act entered into force on 7 December 2018 while the CCA analysis concerned covered the agreements in effect in 2016 and 2017 when the UTPs Act still was not in effect. In line with its scope of duty the CCA will continue to take these concerns into consideration.

Finally, the results of the CCA market survey indicate that there are four milk farmers cooperatives in the territory of the Republic of Croatia carrying out the five-year business plan: Udruga mljekara „Drava-Sava„ from Novo Virje, Poljoprivredna zadruga Uzgojno poslovno obrazovni centar Simentalac iz Kutjeva, PO „Mliječni put Hrvatske“ from Virovitica and Udruga proizvođača mlijeka Međimurja from Čakovec that is made up of 11 family farm holders.

Now, with the “milk package” in place, und unlike before, the milk producers are acquainted with the price of milk in advance, before the delivery. On the other hand, the new rules open the possibility for making the deals with the buyers of milk faster and easier because now the milk framers cooperatives negotiate with the buyers, not the individual farmers like it used to be. This should significantly cut the negotiation process short, simplify it and make it more effective. The farmers joined in producers’ cooperatives should be able to negotiate better purchase terms given the fact that they can now collectively offer larger quantities of milk. The CCA also recommends small producers to team up with the main objective to market their products more successfully.

The complete CCA Market Study in the Dairy Market for 2017 is available in the Croatian language here