By Jelena Milicevic

Recent problem in the dairy industry has been sold - the State has reacted and made an agreement with the Commodity Reserves Directorate that should buy out 300 tones of powder milk stored in local diaries. That way has been prevented announced cancellation of purchase from the primary producers who had been in the position to either spill the milk or send the best quality heads to the slaughterhouse. Although the State has reacted the same way the European Commission did a couple of months ago and that way solved the problem for the short period, milk producers agrarian policy of Serbia and the European Union cannot be compared. Maybe the best illustration is the fact that not one milk producer in Serbia exports his products to the EU while even 60 percent of the milk produced does not meet the EU standards.

Although during the recent years the State has invested in the diary industry through market (bonus for milk, export subsidies) and structural measures (support for diary farms construction, equipment purchasing), milk production situation is unsatisfactory since it is obvious that the agrarian policy has been incomprehensive and without clear strategy for years.

Agrarian policy instability is clearly vivid in milk bonuses reducing, introducing and then abolishing support for milking machines and lactofreezers, introducing and then again abolishing construction of facilities on family farms as well as announcing tender for the construction of the National Laboratory for Milk Control and then calling it off.

Goran Zivkov, former Minister of Agriculture and current consultant in the same area, said that, however, the breed composition of the milk cows has been improved during the recent years. On the other hand, he emphasises that this was not the result of the Government clear policy, scientific and technological development or establishment of the efficient system of breed composition improvement but the consequence of heifers with calves import and significant reduce of heads during previous years through the selection of better quality heads.

"However, prevailing breed composition in Serbia on average lags to a great extent behind those countries where this sector represents important production branch. There is no economic reason for hampering the import of high-quality breeding material, either in the form of live animal or semen. In addition, the State should not be deciding through its commission on which breeds can and cannot be imported if producers are investing their resources. The import should be limited just by the health safety," points out Zivkov adding that also necessary are important market measures that could make investments profitable.

According to him, in Serbia necessary are structural measures that could increase investments and improve knowledge in this area.

"Producers should be encouraged through the agrarian policy measures in order to decrease production expenses by introduction of most optimal feed for breeding," says Zivkov.

Although the breed composition of the milk cows has been improved, almost every year Serbian cattle breeders express their dissatisfaction by milk spilling because "this is more worth while than doing business with processing industry".

In comparison with the surrounding countries, Serbia has the lowest milk purchasing price and the biggest difference between the lowest and the highest purchasing prices. Milk purchasing price is between 18 and 28 dinars, while in neighbouring Croatia it goes from 38.11 to 41.15; Bosnia from 31 to 33; and in Montenegro milk purchasing price is between 21.17 and 31.50 dinars.

On the other hand, milk retail prices are the highest if compared with the ones in other countries. This obviously influences the fact that the 2007 total milk consumption per citizen in Serbia was among the lowest in Europe - just 207 litres. The proof of such a low consumption is the comparison with Denmark that has 897 litres milk consumption per citizen and even the neighbouring Bulgaria whose citizens, on average, drink 283 litres of milk yearly.

Beside low milk consumption, in relation to the other European countries Serbia is also different thanks to its great consumption of long-lasting sterilised milk. In other countries, primary consumption of milk refers to the so-called short-lived pasteurised milk while just a couple of percentage measures the consumption of the long-lasting one. However, in Serbia the situation is opposite - 38 percent of consumption, and constantly growing, makes the long lasting milk.

"The reasons for such a structure can probably be found in the business strategy of the company that has 47 percent share in the milk purchasing and 85 percent in production and promotion of the long-lasting milk. It is therefore obvious it has the monopoly," explains Zivkov.

The Commission for the Protection of Competition has recognised monopolistic behaviour but thanks to legal deficiencies and courts inefficiency, no efficient measures have been undertaken until now.

Although the representatives of the milk dominant producer on the market admit they are producing more sterilised milk since they are not able to make efficient distribution of pasteurised one, it is obvious that in Serbia more often sterilised milk is consumed regardless its lower quality. Namely, the European Union citizens prefer pasteurised milk because it is processed the least and therefore more natural.

To the complete mess in the milk production contributes the fact that in the EU supermarkets Serbian milk cannot be found in spite of the Ministry of Agriculture 2009 decision for the milk exports stimulus of 15 percent to the value of exported goods.

As a country with great potential in this sector, Serbia could be an important exporter of milk to the EU. However, the exports have been limited for the time being to the CEFTA countries since the Serbian producers do not fulfil strict standards of food quality and safety needed for the export on the Union market.

Having in mind in Serbia sterilised milk is more expensive than the pasteurised one, a question could be raised on whether, maybe, big diary industries currently do not find it profitable to invest in milk production standardisation by investing in farmers since they have been selling their products at higher prices in Serbia than in the region.

According to Goran Zivkov, the EU export absence can be also explained by the insufficient diaries` interest for exports since they have achieved better prices on the local market.

"Serbia has significant potential for further development of this sector but this area is the most demanding when the standards that should be fulfilled when joining the European Union are concerned. Currently nothing is promising Serbia will be on the list of important milk and diary products producers. All the more so, thanks to the EU high standards this could be one of the biggest obstacles," explains Zivkov.

As long as something important is changed within the agrarian policy, there will be no significant export. In addition, new problems may occur between producers and diaries. Although Serbia has great potentials in the diary industry this is not enough since correct strategy is needed.