Argentina’s Milk Producer Price Lagged Industry Value by 21.4 Points

The development of prices across Argentina’s dairy chain showed a widening difference between the amount received by farmers for raw milk and the value at which dairy companies sold processed products. According to an analysis cited by Revista Chacra, the producer price ended 21.4 points below the industrial value during the period under review.

The gap reflected different movements at the farm and industrial stages. The price of milk paid to producers was updated more slowly than the value created after processing, leaving the industrial stage with a higher increase in its output value than the raw-material price.

Part of that improvement was offset by the rise in the cost of conversion. This measure includes the expenditure required to turn raw milk into finished goods. The items placing the greatest pressure on processors included wages, electricity, gas and logistics associated with milk collection and product distribution.

As operating expenses increased, the higher factory-gate value did not pass in full either into industrial margins or into the price paid for milk. A portion of the change was absorbed by the additional costs of running processing and distribution operations.

Domestic demand also restricted the ability of dairy companies to raise selling prices. The loss of consumers’ purchasing power reduced the room for higher prices in the domestic market. Exports provided revenue that helped companies maintain their overall balance, although returns from foreign sales were affected during the same period by exchange-rate and tax variables.

For producers, the outcome was a milk price that advanced at a slower pace than the value generated by the industrial stage. The analysis stated that maintaining this difference could restrict farms’ ability to invest and affect the expansion of production. It also identified industrial wages, energy tariffs, logistics and other inputs as factors relevant to whether the difference between the producer price and the factory-gate value narrows or continues to increase.