Will We Experience a Milk Shortage?

World milk prices have risen by almost 28 percent year-on-year. Do you expect them to rise further?
Based on published forecasts and my own experience, I estimate that raw cow's milk prices will continue to rise for several more months. Historical overviews of milk price developments that we have confirm that prices move in a sinusoidal pattern; after each increase, a decline follows, and vice versa.

Price increases usually have two main causes: low production and low prices in the previous period. In summer 2016, milk prices were record low. What happened?
We had record low prices in 2009. In 2015, the European Union decided to abolish one of the regulatory tools affecting milk production, namely milk quotas. Production increased, which pushed prices down. In 2016, we had low milk prices, especially in summer. In summer, more milk is produced and less consumed. This creates a surplus in the market, which pushes prices down. If selling prices do not cover production costs, producers – farmers reduce herds. This inevitably results in reduced production and price increases in the following period.

Reuters quoted the head of ARLA (Arla Foods Peder Tuborgh represents almost 12,500 farmers from several Western European countries, including the Netherlands, Belgium, Germany, and the United Kingdom) saying that milk stocks worldwide are so low that especially before Christmas, it will be impossible to meet demand under any circumstances. Do you consider such statements exaggerated?
I do not have as much insight as the mentioned gentleman, but milk prices are indeed rising due to lower production, and especially the fat component of milk is becoming a "scarce commodity." It is common that at the end of the year, with increased demand, butter stocks decrease and prices rise. This year it will be even more pronounced, but butter will still be available in sufficient quantities on our store shelves.

You have sufficient insight into milk production in Slovakia. In 1989, you joined Milk-Agro as a milk buyer...
During my tenure, we had a very wide range of milk purchases. In 1990, we purchased nearly 50 million liters, and a few years later, we dropped to the lowest purchase, only 11.5 million liters of milk. That was in 1997. At that time, I already thought that the dairy in Sabinov was finished...

Did milk consumption fall that much, or was the competition that strong?
Competition, market developments, all those changes, privatization, cooperatives went bankrupt, dairies went bankrupt. In 1989, when I started, there were eleven dairies in eastern Slovakia. Now we have three: Michalovce, Kežmarok, and us. Previously, there were Košice, Bardejov, Spišská Nová Ves, Kráľovský Chlmec, Rožňava, Trebišov, and others. Gradually, they fell. Regarding agricultural cooperatives, there were more than 40 then; now we have a third of that. Of course, quantities changed, productivity changed.

At that time, Milk-Agro was mainly building trade.
Yes, at the beginning of Milk-Agro's history, the trade section was in the foreground. It developed at an incredible pace; we now have 182 stores, and back then, we started from zero. In the first years, 10–15 stores opened per year. One of the basic pillars of our company was built; milk purchase was contractually secured and there were no worries about it.

But the network of stores must have something others don't have that attracts people to the store...
Development has shown that not only the trade section with its activities and other goods but also our own products attract people to the stores. Enormous effort was made to build the SABI brand. Positions of importance in the company's overall development strategy were balanced. The old saying applies: In unity there is strength.

How did you handle fluctuations in milk production and consumption?
Our production oscillated within a certain range. But there were milk surpluses, and these were handled by drying. Drying is demanding within commercial activities: 5 years are totally bad, 4 years are average, and 1 year is good. Based on these evaluations and assessments of production economics, it was decided that we would dry less, and drying would only optimize milk surplus. Therefore, we cooperate with other dairies. Gradually, we gave up cooperation with those cooperatives that could not optimize milk deliveries according to requirements. So we optimized milk stocks. Now we still have a milk reserve, but we dry less. The trade section is stabilized; our stores are not expanding, people do not double their stomachs, people do not drink more milk. So we know that unless we expand activities beyond Slovakia's borders or enter other networks, the current purchase is sufficient for our production and our products.

So the strategy is not to grow but to optimize.
Exactly. Within Slovakia, when we compare the volume of processed liters, we are not the largest. But we do not want to be. We want to create a sufficient reserve in milk purchase for increased activities of our trade section and to increase production volume through innovations and improving the quality of SABI products.

Less milk is consumed in summer, but more is milked. What is the annual milk production curve of your suppliers?
That is another big plus we have achieved in the region. When I started, 60% of milk was produced in summer, 40% in winter, so the seasonality curve was significant. In summer, we were drowning in milk, sales of dairy products decreased, schools, kindergartens, hospitals dropped out, but milk production increased. Then there was drying and subsequently a problem with selling dried milk. Gradually, through our milk purchase policy, we began to stimulate cooperatives to address seasonality. Deliver more in winter and less in summer, and you will be paid extra in winter. This was also an incentive.

... the financial incentive does not apply to cows...
... but it does to farmers. They address it, for example, by breeding stock composition, insemination, and nutrition measures. And the financial incentive increases the quantity and overall quality level of production.

For example?
When I started, the level of hygiene on farms was extremely varied. There were farms with top-level hygiene, but also such that first a swarm of flies had to be driven out of the milking parlor before one could enter and take a sample. For example, barns. It should be realized that these were cooperatives from the 1950s to 1960s, and conditions were inadequate for modern quality requirements. Hence the selection. Cooperatives with inadequate production conditions dropped out, and those that remained, with state support and incentives from dairies, were better paid for milk and survived. The quality of milk production on farms has changed incomparably. Thanks to investments in new technological equipment, production processes in dairies and on farms have significantly improved, resulting in increased quality of both the basic raw material – milk – and of course SABI products.

But even with the most modern technologies, it is still the cow that gives milk. Have the cows been "modernized" as well? Of course. Previously, mostly Slovak spotted cattle were bred in Slovakia with productivity of 4.5–6 thousand liters, and in smaller numbers, Pinzgau cattle, a typical mountain breed, with top productivity of 3.5 to 4 thousand liters, and the rest were Holstein cattle. Systematic breeding with dairy breeds began, and herds started to change. So Slovak spotted cattle began to be bred with Holstein, whether black or red, with productivity of 9–10 thousand liters. By crossing with top breeds, production traits in dairy cows increased.

So even though there are fewer cows, they milk more. Is this not at the expense of something else?
Partly yes. For example, some have 90% Holstein. But we are slowly going back, crossing again with meat or combined breeds. High-production dairy breeds are demanding in terms of breeding conditions. A small mistake, something missing in the feed ration, and they are so sensitive that their metabolism is disturbed to the extent that they reduce their milk yield and are more susceptible to environmental influences. It turns out that in our conditions – we are in a temperate zone, conditions are not balanced, sometimes extreme cold in winter, extreme heat in summer – in these conditions, an appropriate breed must be found. It turns out that our top Slovak spotted breed, properly bred, when well cared for, also produces 7–8 thousand liters.

Does high milk yield mean fewer lactation cycles?
Certainly. There were "record holders" that lived up to ten years, but towards the end of life, they milked only a fraction of their potential. High-yield cows last about three to four lactations and then are culled – sent for slaughter. The organism must cope with enormous physical stress associated with high lactation.

Constantly seeking balance...
A never-ending process in constantly changing conditions. And very interesting. But I want to assure consumers of our products that we manage this process well, we have it quite under control, so they need not fear that before Christmas our tasty and healthy dairy products will not be on the market.