Milk producers argue about price of milk and Valio’s market leader position
Rivals have asked Competition Authority to look into Valio’s pricing policy
Discontent is mounting among competing milk producers over Valio’s strong market position. According to information obtained by Helsingin Sanomat, the competitors have filed an investigation request with the Competition Authority with regard to the milk-pricing conduct of the dairy cooperative Valio, the most significant milk processor in Finland.
Valio is suspected of misusing its market leader position by dumping the wholesale price of its liquid milk. According to the competitors, because of Valio’s pricing policy, the price of regular milk cartons has in places gone below the production cost. Hence milk is now being sold partly at a loss.
The Finnish Competition Authority admits that there is a pending case that involves Valio but refuses to elaborate on an ongoing process.
Valio is by far the largest milk producer in the Finnish market. According to various estimates its market share of the basic sales of milk cartons is between 50 and 60 per cent. Arla Ingman estimates its own market share at 28%. On top of that there are several regional milk producers in the market, such as Maitomaa, Satamaito, and Maitokolmio.
Valio’s pricing policy is widely criticised but few seem willing to comment publicly on the issue.
Arla Ingman managing director Reijo Kiskola believes that the aim of Valio’s policy is to push other players out of the market. “Everything points out to their determination to maintain the monopoly position”, he says.
Kiskola reckons that the company is able to keep the prices low because for Valio the selling of packed liquid milk is not a crucial business operation.
According to Valio, around eight per cent of its net sales come from the sales of liquid milk. For Arla Ingman, the corresponding figure is a third of its net sales. Currently the firm is selling milk at a loss. In the long run this will be a problem, he adds.
Valio managing director Pekka Laaksonen does not wish to comment on the Competition Authority’s pending case. According to Laaksonen the competitors’ claims that Valio is dumping prices are illogical.
Last year Valio’s operating profit from the basic milk sales was around EUR 11 million, which - according to Laaksonen - indicated a drop by a couple of million from the year before. "Perhaps the competitors’ production structure is so weak that whereas our profits went down slightly, theirs dropped into negative territory. I can only say that for us the selling of packed basic milk is still a profitable business", said Laaksonen.
In his estimation, in Southern Finland Valio’s market share has become clearly smaller and stands currently at around 35 per cent. “How is it possible that our market share keeps shrinking and the clients complain that the prices are too high, and yet others still claim that we’re selling milk for too low a price?”
Valio’s competitors are also dissatisfied by the pricing of the so-called “kivi-milk”. Kivi-milk (from the Finnish term Kilpailuvirasto - the Competition Authority) refers to a certain amount of raw milk that Valio is obligated to sell to its competitors owing to its strong market position.
According to the rivals, the price of this raw milk has risen in relation to the wholesale price of milk, which puts the purchasers of kivi-milk in a disadvantaged market position.
Previously in HS International Edition:
Finnish customers demand that regular Valio milk stays in grocery stores (9.3.2010)
Valio cutting producer prices of milk (23.6.2009)
Arla Foods director surprised by strong reactions over selling of Swedish milk in Finnish grocery stores (8.3.2010)
HOK-Elanto retail chain chooses Swedish-Danish Arla Ingman dairy goods over domestic Valio (5.3.2010)