Eastern Europe: Falling prices puts dairy sector at risk

Recently, Poland’s largest supermarket chains have started offering butter at a PLN3 (US$0.68) per package, which is the lowest level seen in years. In 2022, the Polish dairy market saw a 20% rise in butter price, and in some product categories, the price exceeded PLN10 (US$2.26) per package. By lowering retail prices, supermarkets hamper margins along the entire supply chain, dairy companies warned.

“Nobody thinks about how such prices will affect farmers,” Waldemar Broś, president of the National Association of Dairy Cooperatives, told the local news outlet, Money. “For the past 2 years, the price has been at a good European average level. Now, however, not only the price of butter has dropped.”

Despite the skyrocketing production costs, last year was relatively good for Lithuanian dairy companies, Dalius Trumpa, head of the Lithuanian dairy manufacturer Rokiškio Sūris, said. “Unfortunately, it is already behind us. This year, prices for dairy products are not simply falling. They are collapsing.”

On 24 January, a group of dairy companies sent an open letter to Henryk Kowalczyk at the Polish Agricultural Ministry asking authorities to intervene in the market. The authors warned that the industry might be heading into a collapse due to a drastic deterioration of market conditions in Poland, as well as in other markets of Central and Eastern Europe.

Another Polish dairy business union, Dairy Forum, reported that in January, small dairy companies felt increasing pressure from the retail chains to reduce prices. It is believed that retailers, in turn, are worried about a steady drop in sales of the most popular dairy products in the past several months.

Exports are under pressure

In general, the drop in prices is a global trend. During the past several months, the price of exported cheese dropped from €5 to €4 per kg in key foreign markets.

Polish dairy companies also warned about a drop in the global price of a broad range of dairy products, including powdered milk, butter, powdered whey, and cheese. Broś expressed concerns that the “prices are falling every day” and that this factor could weaken Polish dairy exports.

To some extent, the drop in global prices could be attributed to lower Chinese dairy imports in the past several months, Polish dairy companies said, explaining that China is the largest purchaser of dairy products and is largely determining the price dynamics on the world’s market.