Italy awaits milk price change

- Last updated on GMT

Related tags: Parmalat, Milk, European union, Dairy

Uncertainties over milk purchasing levels and payments caused by
the financial crisis at dairy giant Parmalat is forcing southern
European farmers into a race to secure guaranteed sales that may
quickly put pressure on milk prices.

Parmalat, which last month filed for protection from its creditors in order to restore itself to solvency, is Europe's fifth largest dairy company, dominating the fresh milk markets in Italy and much of southern Europe.

In South America, where Parmalat is among the foremost buyers of fresh milk, prices have already started to suffer from the group's financial difficulties. Farmers in Brazil say Parmalat has postponed payments and cut ordering levels by as much as 30 per cent in recent weeks, sparking a 7 per cent fall in fresh milk prices.

In France, Groupe Laitier des Pyrenees (GLP), a milk co-operative supplied by 120 milk producers across four departments, was last week declared insolvent due to non-payments by Parmalat, hitting the milk market in southern France; while other French farmers have withdrawn supplies to the group on the grounds that it has not paid them since October.

However, it is in Italy, where Parmalat buys almost 30 per cent of national milk output, that fears of price pressure are now greatest.

A spokesperson for Assolatte​, the Italian dairy industry association, told DairyReporter.com​ that it was still too early to assess the effects the Parmalat downfall was having on milk prices, but first data would be available later this month.

Parmalat is estimated to owe Italian farmers some €120 million, and the government is now warning that these arrears may never be covered. Italian farmers have called on the government for state aid, and Italy last month urged the European Commission to consider support for the country's dairy industry.

The French government has also declared that the disruption to the region's dairy industry should now be considered a European affair, calling on Italy to include French farmers in any compensation scheme.

But Italy has yet to unveil compensation measures for farmers, concentrating its efforts, instead, on keeping Parmalat afloat as a going concern.

Parmalat is the eighth largest company in Italy and is now in administration as the result of a discovery of a financial hole that commentators believe could amount to €10 billion. The company's activities are spread over 30 countries, across which it has 43 plants and nearly 8,000 employees.

If unsold milk stocks, and efforts by farmers to find alternative milk buyers do put Italian milk prices under pressure, the pain of the Parmalat break-down may extend to all dairy farmers in affected areas. But the Italian dairy group's financial crisis is unlikely to affect milk prices outside Parmalat's core markets.

The price of milk has historically been higher in Italy than in neighbouring countries, says Assolatte, and there is little evidence of a relationship in milk prices across national markets.

Some commentators also suggest that that Parmalat's competitors will be able to expand swiftly enough to counteract the effect on prices of unsold milk and shifting supplier relationships.

"There would be plenty of other suppliers that would be willing step in and buy Italian milk,"​ said Mike Beessey, a UK dairy consultant.

Related topics: Markets, Pricing Pressures, Fresh Milk

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