Written by: Enkhtuya Boldbaatar, Dairy Specialist, EMIRGE Mongolia
As a dairy sector specialist, I see that current chaotic competition for fresh milk at the sourcing stage is not helping anyone, including milk producers and dairy processors. Therefore I want to discuss this issue with you. I have been working as the EMIRGE program dairy specialist for 5 years now. Our program works with rural dairy cooperatives and groups as well as relevant organizations in the sector to build mutually beneficial relationships between dairy value chain actors. We are working towards improving opportunity for dairy cooperatives and farmers, to produce and supply the market with quality milk at favorable prices.
Experts and researchers point out that milk production in the dairy producing region of Mongolia is limited, it produces 45 million liter tons of milk annually. On the other hand, 5 large dairy processors in UB, with combined processing capacity of 450 tons per day, compete in this region to source milk, each of them following different competitive strategies. This competition has been increasing since 2014 and has intensified even further in 2017. The reason is declining milk production at the farm level.
Milk production in the main milk producing region declined by half in 2017 due to extremely dry summer and poor vegetation growth. Consequently, dairy processors pursuing high price strategy in their competition for scarce resources. Scarcity and fierce competition for milk resulted in the following: 1) price of fresh milk increased by 45%; 2) quality of milk declined; 3) dairy processors’ profit declined.
Furthermore, milk producers’ income did not increase and in fact it saw a decline. For example, a farmer used to make income of MNT20,000 per day in the summer of 2016 by producing 40 liters and selling at MNT500 per liter. Whereas, in 2017 the farmer is making MNT18,000 per day by being able to produce only 20 liters a day and selling at MNT900 per liter, making MNT2000 per day less than previous year.
Moreover, there seems to be a declining trend in fresh milk quality. For instance, in 2016 Suu JSC used to collect and test milk samples from its’ suppliers on a weekly basis, whereas, in 2017 the company is performing milk sample testing only once a month. APU JSC used to procure milk through its’ milk collection centers upon testing quality using lactoscans, rejecting low quality milk and performing somatic cell testing with milk samples at their processing plant.
Whereas in 2017, the company started to send its’ laboratory workers from milk cooling centers directly to dairy farm collection centers to procure milk. Additionally, the company is using 75% alcohol (previously 82% alcohol was used) to perform quick testing of milk quality. This shows that competition for fresh milk is forcing processors to apply lower quality standards in the procurement of milk and therefore creating conditions for a decline in milk quality.
Deterioration of milk quality, despite higher prices, is creating higher risk of quality decline in final dairy products; increased return of dairy products by sellers; lower sale; and consequently lower profits. These conditions have negative consequences such as increased use of milk powder by processors, reduced consumption of dairy products by consumers, and lower income generation by farmers.
The EMIRGE team believes that, during this age of increasingly frequent droughts and extremely harsh winters (dzud) due to global warming, Mongolian dairy sector participants need to work towards ensuring and increasing stable milk production. This can be achieved by jointly developing and implementing risk management programs, and starting irrigated pasture and hay farming, with the collaborative participation of local milk producers, processors and local government; as well as towards the introduction of good practices among milk producers to protect milk quality and development of quality based pricing system.
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