Low price, high costs hurt dairy farmers

It is time for China to accelerate the transformation of the dairy industry, an industry insider said Sunday, after reports that dairy farmers in Heilongjiang Province are killing cows to avoid losses in the wake of a new round of cost inflation and price cuts by dairy firms.

"Some (dairy farmers) should be encouraged to abandon dairy farms and engage in other businesses, while others should be offered more technology and financial support to realize economies of scale," Chen Lianfang, a dairy analyst at Beijing Orient Agribusiness Consultants, told the Global Times Sunday.

Heilongjiang Wondersun Dairy Co, which has 40 branches in China, lowered the price of fresh milk collected from farmers to 2.8 yuan ($0.4) per liter recently. The price is much lower than 2.94 yuan per liter suggested by the local government, China Youth Daily reported Sunday.

Besides lower prices, rising costs of feeds like corn and higher salaries of workers created more pressure on the farmers, who had to kill cows to prevent losses if they didn't want to sell their milk at a low price to Wondersun, which has monopoly over local milk procurement, the report said.

The price of corn has been increasing recently. It has rose 8.25 percent over the past three months, according to bulk commodity data provider 100pp1.com.

Wondersun could not be reached Sunday for comment.

Dairy farmers in Heilongjiang are at a disadvantage when it comes to price bargaining, due to the monopoly.

Wang Xinhao, a milk farmer from Yantai, East China's Shandong Province, said that monopoly is "not unique to Heilongjiang in Northeast China" and is "getting increasingly serious," noting that farmers in his area have also been informed by the dairy producers that their prices will drop to 2.8 yuan from 3.1 yuan per liter.

China completed last March a long campaign to reform the dairy sector, with over 1,000 small and medium-sized dairy farms being eliminated from the sector, said Wang Dingmian, a dairy expert.

However, an unexpected outcome of the campaign, farmer Wang said, is that "some big companies are taking opportunities to strengthen their monopoly over buying milk from farmers."

Besides making little profits or suffering losses, farmers also face the problem of late payment, which leads to crimes in some cases. "When the due payment accumulates into a huge sum, some dairy producer staff run away with the money, causing huge losses to farmers," he noted.

China has been pushing the transformation of the dairy sector from scattered to concentrated farming in a move to better ensure the safety of milk over the past years, especially after the 2008 milk powder scandal.

Dairy farmers should work together to form cooperation agencies featuring better management and higher bargaining power over prices, analyst Chen said.