THE PRICE ROSE, BUT SO DID COSTS

Statistics show that compared to last year, purchase prices for milk across Ukraine increased by 30.7 percent. Considering inflation, which last year was 11.7 percent, the real price of raw milk increased by 12-15 percent. Why then are villagers so dissatisfied? Primarily because the costs of keeping livestock are growing every day. Moreover, the farmer must now pay over 15 hryvnias for a passport for his cow, and take care of artificial insemination, which costs 35 hryvnias.

In general, last year was quite favorable for the dairy industry, so many milk processing enterprises that had previously not operated resumed production in 2004 and began competing with each other for raw materials, resorting to various methods. Because of this, villagers have many questions. Why, for example, can a plant initially pay 1 hryvnia 50 kopecks for the same milk, then – a hryvnia or less, even though the quality of the milk does not change? That is why rural farmers write letters both to the editorial office and to government bodies asking them to explain why this happens and how the price of milk is actually formed. Recently, an open letter signed by 145 residents of the village of Bobly in the Turiisk district arrived at the address of "Volyn." The villagers appeal to the authorities with a request to develop a substantiated cost scheme for the production of dairy products and to bring it to the public's attention.

The issue of the purchase price for milk has been considered more than once at meetings in the regional state administration, to which participants from all sides were invited. But such negotiations resembled a conversation between a "mute" and a "deaf" person, because processors present arguments and thereby explain their position, while villagers demand their own – the establishment of a minimum purchase price for raw milk, which should be no less than one hryvnia. Why a hryvnia? Because, in their opinion, it is precisely at such a price that milk can be profitable.

First Deputy Executive Director of the dairy business of the agrarian department "Kontynium-Ukr-Resource" (the largest milk procurer in Volyn – 58 percent) Mykola Momchev says:

- If a purchase price is to be established, then the state must necessarily regulate prices for finished products as well, because it turns out that it simultaneously saves some and ruins others.

As for competition between processors, Mykola Momchev explains that all milk processing plants want to be supplied with raw materials. When a milk deficit appears, competition arises. At the same time, no one can forbid "KOMO" from "climbing" into the zone of the Novovolynsk plant and vice versa. Such are the realities of competition. Each enterprise works for its own profit, but to a certain extent villagers also benefit from this, because as a result of competition the price of milk does rise.

The other matter is that in summer it becomes much lower. Such fluctuations (in winter the purchase price reached 1 hryvnia 50 kopecks, in summer – 60 kopecks) worry villagers, which is why they seek some stability. That is why deputies of the regional council at the twentieth session adopted an appeal to the prime minister regarding the problem of pricing in the milk market. A similar appeal to Yulia Tymoshenko was also sent by the Volyn association of rural leaders. In the response that village elders received to their appeal, it is stated that the draft resolution of the Cabinet of Ministers "On Approval of the Procedure for Establishing Minimum Purchase Prices for Milk and Raw Milk" has already been developed and is awaiting adoption by the government. The head of the council of the Volyn association of rural leaders, Oleh Savchuk, believes that government officials are deliberately delaying the resolution of this problem, evidently lobbying the interests of milk processors. In turn, processors, having familiarized themselves with the draft resolution, also remained dissatisfied, primarily because they see no economic justification in the price calculation presented in it.

- We have already tried regulating prices for fuel and meat by administrative methods. What came of it? – notes Mykola Momchev.

COUNTERCLAIMS REGARDING QUALITY

When the conversation turns to the price of milk, processors unanimously begin talking about its quality. And if they have no claims against large-scale producers, then they are extremely dissatisfied with the milk that comes into production from individual producers. Mykola Momchev explained that when setting the purchase price, they are primarily guided by industry recommendations, according to which the procedure for payment for milk depends on its grade and basic indicators (that is, the protein content in milk should be 3 percent, fat content – 3.4 percent). The milk that processors buy from villagers has no shortage of fat, but protein is sufficient in milk only in autumn, when there is full-value feed. In addition, the price is also affected by the requirements specified in DSTU 3662, which include acidity, degree of purity, total bacteria content, milk temperature, mass fraction of dry substances, and the number of somatic cells. The quantity of all these in milk determines its grade and accordingly the price (in the overall structure of Volyn's milk, 30 percent of raw milk is produced in large-scale enterprises, 70 – in individual households; at the same time, of all milk that enters production, only 7 percent is higher-grade milk, 90.5 percent is non-grade milk). The most important indicator, according to processors, is the bacteria content in milk. In first-grade milk there should be no more than 300 thousand bacteria per cubic centimeter, second – 500 thousand, third – 3 million. In milk produced in peasant households – 20 million bacteria. Such milk does not reach store shelves. It is used to make processed cheese, butter, and powdered milk.

- When we are reproached, saying that a package of milk in a store costs 2 hryvnias while you buy it for 60-70 kopecks, I reply that pasteurized milk with a shelf life of 3-7 days can only be made from higher-grade milk, the purchase price of which is 1.32-1.50 hryvnias, otherwise it would not keep, so making such comparisons is at the very least inappropriate, - asserts Mykola Momchev.

And processors also often complain that people have recently begun adding various pills to milk that stabilize it and make it possible to store it longer. In addition, villagers submit milk from a cow being treated with antibiotics. As a result, this creates a mass of problems for processors, because the presence of inhibitors (foreign substances) in milk complicates processing technology. For instance, most of the powdered milk produced by "Kontynium-Ukr-Resource" goes for export. The first analysis done abroad is for the presence of inhibitors.

The price of milk also depends on the distance from the milk processing plant where the milk is procured: the farther the farm – the more time it takes to deliver the milk to the plant, and therefore the likelihood of its quality deteriorating increases. Of course, the villager is not to blame for this. The problem would not be so acute if refrigeration equipment were installed locally, but doing this at their own expense is not always profitable for processors either, and village councils are in no hurry to "throw away" money from their own budgets. As a result, milk from remote districts is valued at a lower price.

WILL AGREEMENTS SAVE THE SITUATION?

One of the demands that village community leaders place on processors is the conclusion of agreements with milk suppliers. This, supposedly, will better protect villagers from price jumps for milk. Processors have their own opinion on this matter. They distinguish between agreements concluded with legal entities and individuals. Because, as Mykola Momchev asserts, no complaints come to them from agricultural enterprises; after all, an agreement is signed by two parties, which means it suits them. As for agreements with villagers, only "Kontynium-Ukr-Resource" in Volyn will have to conclude 115 thousand such agreements.

- What kind of staff would I need to keep to carry out such work? – asks Mykola Momchev.

In addition, he assures that in not a single region of Ukraine does any processor conclude such agreements with individual producers; there is no such practice, so he does not properly know how this could be done. After all, if such an agreement is concluded, it must provide for the responsibility not only of processors but also of suppliers, for example, for shortfalls in milk delivery. But what responsibility could then be provided for the villager, and most importantly – what measure of punishment? By the way, the development of a model agreement was supposed to be carried out by the main department of agriculture and food.

- Unfortunately, - says Mykola Momchev, - we processors were not even invited to participate in this development. And the agreement that is proposed is far from perfect even from a legal point of view, so we will not agree to take it as a model. After all, as of today, the agreements we concluded on January 1, 2005, are in effect. What grounds are there for terminating them and re-concluding them in a new format?

THE GOVERNOR'S ANGRY SUMMARY

Public hearings urgently convened on June 9 in the premises of the regional state administration with the participation of its head Volodymyr Bondar were intended to settle the situation on the eve of the strike and find a reasonable compromise. The head of the regional department of agriculture and food, Anatolii Arshulik, noted that, according to the Ministry of Agrarian Policy, we continue to have the lowest minimum purchase prices for milk in Ukraine – 600 hryvnias per ton. At the same time, in terms of average purchase prices, Volyn moved from 20th to 21st place over the past month, having worse indicators than all neighboring regions. Lower average purchase prices today exist only in Chernihiv, Ivano-Frankivsk, Odesa, and Zakarpattia regions.

Milk processors were accused of not adhering to the April agreements, according to which average purchase prices should be no lower than those of neighbors. Supposedly, outside the region procurers pay more for collected milk. Processors disagreed with this, asserting that they currently maintain the same prices for raw materials procured both in Volyn and in neighboring regions. They constantly monitor prices and watch for balance. However, no processor can take responsibility for the average statistical prices that develop in individual regions, since they are formed by the market.

Having listened to the arguments of the parties, Volodymyr Bondar unexpectedly asked the processors to stand up. After which he addressed them with the words:

- You are saboteurs! You are not patriots of your region and your state. You are doing things for which I am personally ashamed today... I will go to the President, to the government, I will listen to what is hard for me to listen to. But I guarantee you that there will be no normal life for you here, in this region, if you behave like this... I will not act by non-economic methods, but I will apply all economic ones to make it very bad for you to work...

On this minor note, Mr. Bondar left the hall. Such a demarche did not add constructiveness to the conversation. Processors stated that under current conditions they cannot raise the price for lower-grade raw milk by more than 5 kopecks per liter. Otherwise, products made from such raw materials will be unprofitable or will not meet European standards. Such concessions did not satisfy the milk suppliers. Deputy head of the Coordination Council of Village Elders of Volyn Yurii Khomiak stated that the villagers would not retreat and would indeed hold a warning strike on June 14.

In turn, the chairman of the board of OJSC "Rozhyshchenskyi Cheese Plant" Vasyl Muzychuk noted that in such situations one must act by more civilized methods. Because disregarding the laws of the market will lead to a reduction in milk processing, loss of previous achievements of processors, and decline of the dairy industry in the region. And this at a time when, according to the Ministry of Agrarian Policy, Volyn ranks second in Ukraine in terms of milk production growth.

- Otherwise we will be forced to stop procuring milk in remote villages, – explains his position Vasyl Muzychuk. – No one will drive 200-300 liters over broken Polissia roads as they do now! Who will benefit from this? The domestic producer or the consumer? Milk processing will fall, the industry will stop developing, we will consume foreign dairy products...

Concluding the meeting, deputy head of the regional state administration Vitalii Zaremba, assessing the demands of the strike initiators, remarked that "the fellows are doing some PR in a certain way, because they will not protect the interests of the village in this way, but this opinion must be heeded." At the same time, the situation that has arisen forces the regional executive authority to prepare a special directive that will protect the Volyn villager.

Olena DUDKEVYCH Oleksandr PYROZHYK