Government and producers beef over LE 100-million bailout for dairy farmers
Government intervention could soon end the dispute between dairy farmers and processors over fresh milk prices. According to stakeholders involved in the negotiations, the Ministry of Agriculture has agreed in principle to spend LE 100 million in subsidies over three months in response to farmers' claims they cannot afford to reduce milk prices below the current LE 2.7 per kilograms.
Chamber of Food Industries Chairman Tarek Zakari Tawfik says the government plans to give dairy farmers about LE 1 per kg of milk they sell to processors, lowering the price for processors to LE 1.7 per kg to keep them using fresh, rather than powdered, milk. The subsidies haven't been finalized because questions remain about which farms will receive money and how much, but the decision could come "any day now," Tawfik says.
"[Deciding who gets subsidies is] a bit tricky. You don't want to be prejudiced and you want to invite smaller farmers to be integrated in the mainstream systems, so you have to decide what are the specifications of the milk [] and make sure you're giving the subsidy to the right people without having any hanky-panky business in the middle," says Tawfik, adding that the program will likely be reevaluated after three months.
"There is a sense of urgency over here," he says.
The clash between farmers and processors began in December when farmers refused to drop milk prices from around LE 3.15 per kilo to LE 1.5-1.7the price of imported milk powder.
Early last year, farmers lobbied the committee of Ministry of Agriculture officials, farmers and processors that set the price of milk to increase prices about 45% in light of the huge jump in global commodity prices, including animal feed. Price increases were compounded by the nation's ballooning inflation rate, which hit a record high of 23.6% last August.
Juhayna Food Industries, the nation's largest fresh milk processor, was paying up to LE 3.35 per kg of milk last year, says Juhayna Chairman Safwan Thabet. Juhayna supported the earlier price hike for milk, he says, but with food prices dropping around the world, including in Egypt, so too should the value of milk. "As we accepted the increase in price, [farmers] must now be prepared to drop their prices, as the cost of animal food has gone down," he says.
Juhayna's plant processes about 500 tons of milk daily, which comes from 73 dairy farms, each with an average of 600-700 cows. With 95% of its milk products made from fresh milk, Thabet says his company is under pressure to negotiate a better deal before competitors switch to cheaper powdered milk, potentially leaving Juhayna unable to compete. Thabet says Juhayna supports the subsidy program because it will help farmers improve facilities and produce better quality milk.
Abdel Latif Shash owns a small dairy farm in Sharqiyya where his 250 cows produce about three tons of milk per day. Shash says it costs LE 2.30-2.40 to produce each kg of milk and that without subsidies, he won't be able to expand operations or upgrade equipment.
"All around the worldgovernments subsidize their dairy farmers. And now we need a subsidy. The cost of food is still high for us," says Shash. The delay of an official subsidy agreement could hurt his business if the company he sells most of his milk to, Arab Dairy, switches to milk powder to save money. Because milk is difficult to store, a drop in demand means Shash will be forced to scramble to find other buyers quickly to avoid wasting product and losing much-needed revenue.
A spokesperson for Dina Farms, one of the largest dairy producers in the country, declined to comment on subsidies until the government makes an official announcement.
Tawfik says discussions about bailing out ailing dairy farmers has been going on for more than a year and that subsidies will help modernize the sector. Industry experts first suggested subsidizing the dairy sector about six months ago.
Local dairy farms produce about 5 million tons of milk per year, according to the chamber. Approximately 4 million tons make it into the marketplace; however, only 15% of drinking milk and 30% of cheese available are properly treated and stored, according to a chamber study conducted in partnership with the University of Alexandria. Much of the unbranded milk and milk-based products made here in Egypt are of substandard quality and can contain harmful additives, which pose a serious health threat.
"The quality and health aspects of this circulated milk [on the informal market] is very questionable when it comes to its integrity and healthiness. The general culture of the country is that fresh is good and packed is not good. The reality is that it's the other way around," says Tawfik, adding that the informal market's cheaper milk products promote unfair competition and hurt farms and processors that spend a lot of money to properly treat their milk.
Subsidies could allow small dairy farms to improve their operations as well as promote partnerships with milk processors.
By Jessica Gray Business Today Egypt 2009
