THE MAXIMUM price, or ‘plafond’ as we like to call it, will be imposed on the retail price of milk from Monday after an order issued by the commerce minister on Wednesday. This would set the price at €1.41, supposedly 10 cents lower than it would have been had all parts of the supply chain imposed price rises.
But what happens after the 45 days for which the plafond will be in force? Will the retail price just rise to €1.55 with the government powerless to do anything? Commerce Minister Neoclis Sylikiotis hoped that in this period some compromise would be reached and both cattle-farmers and pasteurisers would agree to smaller price hikes.
It is difficult to understand his optimism which is based on the assumption the producers would show good will.
The fact is the problem of high prices cannot be tackled by plafond or by shows of good will by suppliers. There must be competition, which in the case of the supply of milk there is not. The cattle farmers have organised themselves into a monopoly – a limited liability company represents 90 per cent of milk producers – which sets prices while the pasteurisers are a duopoly that also sets prices.
There can be no price competition in such market conditions and therefore no incentive for producers to become more efficient as they simply pass the additional costs onto the consumer. Cattle farmers raised the price of a litre of milk by four cents at the beginning of the month, because of the increased cost of animal feed, while pasteurisers announced they would increase the price of a litre by nine cents. They argued that apart from paying more for the milk, the price of electricity and the price of petrol which affected distribution costs had also gone up this year, which was true.
It is also true however, that we are dealing with price-setting monopolies that the Commission for the Protection of Competition has been unable to bring into line. Investigations have been in progress but these are never concluded. But do we need an investigation to tell us that the company representing 90 per cent of milk producers was a monopoly that needed to be broken up? As regards the pasteurisers’ duopoly, it is difficult to do anything because the Cyprus market is too small to sustain more than two companies; there were three but two of them merged.
The Commission could ensure there was no price collusion between the two pasteurisers, but the biggest problem are the cattle-farmers, who have organised themselves into a monopoly and the politicians are afraid to touch it. It was no surprise that Sylikiotis wanted the pasteurisers to absorb most of the extra cost of milk production, while the price hike imposed by the cattle-farmers was left untouched.
