In one city, the cost of milk is double! Buyers are outraged.
And sellers set the prices they want.
Yet the law prohibits making a trade markup on milk of more than 10 per cent.
All this happens not only because of violation of the law.
Another reason is the lack of a food consumption culture.
Price chaos on dairy shelves
During the war, the retail market changes monstrously. An example of this is milk, which in one city can be sold at double the price. From a moral point of view, such behaviour of sellers is not clear. And buyers’ agreement to pay twice as much seems inexplicably stupid. This is not possible in peacetime. But in the military this becomes a common situation that no one cares about. There are several reasons why dairy retail became like this.
First reason. Supply shortage. The Ukrainian dairy industry is experiencing a long crisis. From 1996 to 2020, the number of cows decreased from 6.97 million to 1.67 million.1 From 1996 to 2022, milk production decreased from 13.09 million tons1 to 7.7 million tons.2 As a result, the milk shortage in Ukraine is 1 million tons per year!3
The second reason. Milk prices are rising almost 3 times faster than inflation. The reason for this is the supply shortage that we talked about earlier. From March 2023 to March 2024, the national average price of milk in Ukraine increased by 8.8 per cent.4 Over the same period, inflation was only 3.2 per cent.5
Left: Dairy products on display in Ukrainian stores. Very often sellers write prices on the packaging. If the buyer buys the last package, then it is the package with the price written. Sometimes, instead of real products, dummies are used in display cases. This is what sellers do when the refrigerator in the display case does not work. In this case, dairy products are stored in another refrigerator, which is located in the store’s utility rooms. Centre and right: Villagers sell milk, cottage cheese, sour cream and cheese at the market in the city of Kramatorsk. Trading is done on the sidewalk. No refrigerators. Milk is poured into used plastic bottles from various drinks. If the bottle is not washed well, the milk may smell like beer or Coca-Cola. Nobody knows where this used plastic bottle was found. However, this milk is the cheapest and freshest. This milk is sold within one day. Yesterday’s milk is in weak demand. Usually “yesterday’s” milk is used to make cheese or sour cream.
Photos: Kuliuk Pavel.
Third reason. Previous logistics chains for milk delivery have become ineffective. The war changed population density. Due to refugees and military personnel in some areas, the population has increased several times. Therefore, suppliers cannot provide the required volume of goods.
Fourth reason. The state does not have the ability to enforce laws. Despite the fact that the trade markup for milk with a fat content of 2.5 per cent is limited to 10 per cent,6 this is not done by many sellers.
As a result, price chaos appeared in some regional markets. In the city of Kramatorsk, Donetsk region, the minimum price for milk sold by local villagers is 27 hryvnia or US$0.67 per litre. A large local producer, the “Kramnyam” company, sells milk on tap at a price of 30 hryvnia or US$0.75 per litre. Packaged milk from this manufacturer in branded kiosks and stores costs 31 hryvnia or US$0.78 per 900 grams. But this milk is not enough. Therefore, the city sells milk produced by companies from other regions of Ukraine. The price of this milk ranges from 34 hryvnia ($0.85) to 55 hryvnia ($1.38) per 900 grams! That is, the minimum and maximum prices in one city differ by more than 2 times!** At the same time, most milk is sold at a price of 38 hryvnia (US$0.95) – 40 hryvnia (US$1) per litre. This is 25-33 per cent more expensive than milk from local villagers and producers. In all cases, this is milk with a fat content of 2.5 per cent. That is, in fact, the same milk. Despite such price differences, all milk is sold!
Who lost and who benefited from chaos
It is not known how much manufacturers, suppliers and retailers earn from this. But there is data on the average purchase price of milk for enterprises in Ukraine. In 2023, dairies purchased quality milk from farms at an average price of US$0.29 per litre.7 This figure decreased slightly compared to 2022. Then the purchase price of milk in Ukraine was US$0.308 That is, milk becomes 2-4 times more expensive on its way to the buyer!
In the current situation, the losers are farmers who sell milk to dairies at a low price. Buyers also lose. They are forced to purchase expensive milk. The main profits come from milk processors and retailers.
Most farmers cannot process their own milk. This prevents farmers from selling milk at retail. Farmers cannot process milk themselves due to the small volume of milk production. In Ukraine, small dairy farms are most common. A third of enterprises have less than 50 cows! This produces small volumes of milk. Therefore, own dairies are not available to farmers. Farmers sell milk in bulk to dairies. As a result, in 2020, there were 1,881 dairy farms9 and only 192 dairy factories in Ukraine.10 That is, at least 90 per cent of farmers were forced to sell their milk wholesale and not retail. The example of Kramatorsk shows that milk from a local producer can be almost a third cheaper than from producers from other regions. And the price for local milk is the same almost everywhere.
Unfortunately, the Ukrainian government does not stimulate the development of milk processing by farmers. Therefore, a sales scheme involving intermediaries between farmers and buyers will be in effect in the near future.
Ukrainian buyers are outraged by what is happening.
“The sellers have become arrogant. 55 hryvnia for a carton of milk is very expensive. Before the war, prices in all stores were almost the same. However, now the difference in prices is very large. Every store owner does what he wants,” says Svetlana Khromova, a gardener from Kramatorsk.
“For many goods, the prices in stores are crazy. It is surprising that people buy it. If buyers did not pay, then sellers would not sell the goods at a high price. People allow store owners to behave this way. Businessmen think that if a person buys a product, then the price means the person is satisfied. But in fact, very often people buy expensive goods under pressure from circumstances. For example, there is no cheap alternative. But then, having overpaid for the purchase, people deny themselves other goods or limit consumption,” says junior nurse Oksana Pitchenko from Rivne.
“Sellers do what they want. Before the war, prices were not so different. Unfortunately, it is almost impossible to punish sellers for inflated prices. I worked as a seller and I know this,” says pensioner Elena Sklyarova from Kramatorsk.
But buyers are not ready to protest against inflated prices. This behavior of buyers only encourages sellers to create price chaos. Many store owners get rich during wartime by selling goods at inflated prices. Although it is immoral, the motto “Money has no smell” turns out to be more important for many people.
Unexpected conclusion from what happened
When the economic situation is difficult, laws are not respected, people must be constrained by ethical standards of behaviour. The reason for such actions by buyers and sellers is the lack of food consumption culture. This term includes not only traditions, but also the mutual respect of buyers and sellers for each other and many other concepts. In other words, selling food is more than a purchase and sale transaction. This is behaviour that does not violate the sense of respect for oneself and others. That is, making money is primarily about morality, not profit. To find out, Australian Rural & Regional News asked four indirect questions to a businessman who has achieved perfection in selling food to people.
This person is Floor Manager at Babbo Ristorante e Enoteca (New York, USA), Stephen Thomas Kirschner. At Babbo Ristorante, selling food has been turned into an art, which is confirmed by the 3-star review by Ruth Reichl of the New York Times.11
Stephen Thomas Kirschner knows how to earn the maximum. He considers price increases due to inflation, interruption of supplies or other objective reasons justified. But in his opinion, greed is not the reason for rising prices. And the most important thing is working with a client is equal communication that does not offend each other. “Communication is the key to a successful relationship,” says Stephen Thomas Kirschner.
The way we see business in Manhattan in New York is “relationship”. But business in Ukraine is “arrogant”. This difference explains what is happening in Ukrainian dairy retail, contrary to the law and the indignation of customers.
At first glance, comparing the situation in the restaurant business and retail may seem strange. But this is only at first glance. Both businesses are selling food to people. Only the restaurant business stands at the top of this industry, characterised by the greatest skill. And retail is the lowest level of food sales. It will be good if retail learns something from restaurants. But it will be bad if restaurants become like retail.
Trade can be improved in an unconventional way by developing a culture of food consumption. However Ukrainians themselves must initiate this. For now, they are very far from this. And perhaps this is the main problem of dairy retail in Ukraine.
*Here and further at the official exchange rate of 39.73 hryvnia per 1 US dollar
**Personal research by the author
References
1. https://dairynews.today/news/ukraina-molochnyy-rynok-faza-padeniya.html
2. https://agroportal.ua/ru/news/zhivotnovodstvo/derzhstat-pidbiv-pidsumki-2022-roku-po-moloku
3. https://latifundist.com/novosti/52157-v-realnosti-ukraina-po-proizvodstvu-moloka-v-mire-zanimaet-32-mesto-a-ne-18–chagarovskij
4. https://www.ukrstat.gov.ua/operativ/operativ2024/ct/is_c/isc2024mpr_ue.xls
5. https://buh.ligazakon.net/ru/news/226891_kakoy-uroven-inflyatsii-v-ukraine-v-marte-2024-goda–gosstat
6. https://www.epravda.com.ua/rus/news/2023/07/3/701819/
7. https://ukragroconsult.com/ru/news/obemy-proizvodstva-moloka-v-ukraine-sokrashhayutsya/
8. https://infagro.com.ua/ua/2023/02/06/v-2022-rotsi-v-ukrayini-virobleno-7-7-mln-t-moloka/
9. https://www.seeds.org.ua/na-kazhdoj-tretej-molochnoj-ferme-ukrainy-uderzhivayut-menee-50-korov/
10. https://agroportal.ua/ru/news/zhivotnovodstvo/ekspert-ozvuchil-skolko-na-samom-dele-v-ukraine-proizvoditsya-moloka
11. https://www.babbonyc.com/about/
