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Greek dairy farmers cut out middlemen

By Lefteris Papadimas & Deepa Babington

Grassroots movements to cut out middlemen have been on the increase since Greece’s debt crisis exposed the country’s Achilles’ heel – a bureaucratic system which stifles innovation and encourages corruption.

One of the most successful is based in Larissa, near the demi-God’s legendary birthplace. The town’s new vending machines, have, on a small scale, solved a problem Greece’s leaders and their international backers have tried and failed to tackle.

They dispense not snacks or soda, but milk, supporting farmers while undercutting prices that have defied economic logic to remain some of the highest in the European Union.

Greeks, whose average incomes fell by 30 percent since the crisis hit in late 2009, have been flooding in – bringing their own bottles or buying plastic or glass ones from the machines.

The supermarkets have denied accusations they are exploitative middlemen, saying the crisis has hit them too. Greek dairy firm Olympos, which buys milk in bulk from small producers, says it is not threatened by movements like ThesGala and welcome initiatives like the milk vending machines.

It dismisses criticism that companies like it are to blame for high milk prices, saying Greece’s high transport costs and regulations make it impossible to compare to other EU nations

Failed reform

The European Union and International Monetary Fund bailing out Greece have long pressed Athens to cut out restrictive licensing procedures and excessive regulation, which they blame for driving up prices in Greece and choking the economy.

Milk was among the industries that the EU and IMF have cited as in need of liberalization. But it has also proven to be a sector stubbornly resistant to change – indeed, milk prices have risen more than 12 percent in four years even as the deepest post-war recession drove prices down over the past 16 months.

Among the reasons, economists say, are high mark-ups by retailers and high transport and distribution costs in a nation of mountains and islands, all factors that leave farmers with little benefit.

According to a report released by the Organization for Economic Cooperation and Development last year, the difference between retail and producer prices for milk in Greece is 35 percent higher than the EU average.

The OECD also blamed milk labeling restrictions aimed at protecting Greek farmers. Whereas EU rules leave the shelf life of pasteurized milk to the discretion of producers across the bloc, in Greece until recently “fresh,” pasteurised milk could have a maximum shelf life of five days.

The OECD’s recommendations, urged upon Greece by its international lenders, argued that the five-day rule should be scrapped since it made cheaper imports next to impossible and raised production costs, because a lot of milk went unsold, returned by supermarkets to the producers.

In response, Prime Minister Antonis Samaras’s ruling coalition this year tried to liberalize the milk market by lengthening the “fresh milk” period to 11 days. The reform was met with protests from farmers fearing a wave of cheap imports and prompted a deputy agriculture minister to quit.

Forced to row back, the government instead introduced two new milk categories – one with a shelf life of two days and another with seven days and scrapped the “fresh” milk label.

But the two-day extension has so far done little to boost imports, and retail prices have yet to come down.

“So what was the result? The prices did not fall, not even by a cent,” Maximos Harakopoulos, the former deputy agriculture minister who quit in protest at the reform told the Eleftheros Typos daily last month, calling the episode a “fiasco.”

ThesGala, on the other hand, is counting its successes. The cooperative’s 130 tons of daily milk production accounts for only about 10 percent of milk produced in Greece, and only 7 percent of it is sold from machines, but members of the cooperative expect that to grow fast.

Even if the group’s primary objective was to ensure stable prices for producers, it also “wanted to prove that quality milk can be sold cheaply in Greece,” said the cooperative’s president, Thanassis Vakalis, 40, asserting they had outdone the European Commission, European Central Bank and International Monetary Fund “troika” supervising Greek reforms.

Success

“It appears that we succeeded where the troika and the government failed even though we are just a few people,” he said.

ThesGala’s success is a boost to small dairy farmers like Andreas Karafyllis, a former software developer who returned home from Germany in 2006 to start a farm. He nearly went out of business in 2009 when the prices paid to producers fell at least 6 cents a liter below the cost of production.

Karafyllis says retailers were squeezing out consumers with high prices and producers with low prices.

“The blame isn’t with producers – it’s on everyone above them,” he said one afternoon as he walked through his farm near Larissa, in central Greece, as cows munched on hay near oleander blooms.

ThesGala pays farmers 45 cents a liter, giving Karfyllis a more stable and lucrative income from his 120 cows and 80 small calves. Unlike other ad-hoc farm movements, the cooperative publishes yearly financial statements and is taxed beforehand on milk delivered, meaning it does not contribute to Greece’s vibrant black market economy. [Reuters]

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