Analysis of the market for milk stuff processing

For the research purposes, the product boundaries of the market are determined as the activities on milk processing.



The sellers on the above market would be agricultural undertakings, farm enterprises and agricultural households, while the buyers would be processing companies (such as milk-processing plants and other economic agents) involved in the output of dairy products.



Taking into account the main characteristics of the product - fresh milk, - that can affect its transportation as well as location of dairy plants and fresh milk suppliers, the market infrastructure and some other factors, the geographic boundaries of the market are determined as administrative boundaries of the subjects of the Russian Federation.



Concentration ratios of the milk market illustrate heterogeneous distribution of economic agents on the market - companies that buy milk for processing, - or non-uniformly scaled activity of the market agents.



On the basis of concentration ratios (СR3) or Herfindal-Hirshman indices (HH1), the regional markets for milk processing can be divided into oligopsonic (Stavropol' Territory, Volgograd, Orel and Chita Regions), highly-concentrated (Astrakhan', Kaliningrad, and Smolensk Regions), moderately-concentrated (Mordoviya Republic, Altai Territory and Voronezh Region) and low-concentrated (Saratov, Vladimir and Ryazan Regions).



Analysis of quantitative attributes that describe the structure of the market in question, leads to a conclusion that regional milk processing markets show different level of monopolization.



At the same time, regional milk processing markets display a clear trend towards growing economic concentration.



Increasing integration and co-operation between milk producers and processing plants in a single technological chain and formation of big vertically integrated groups is especially important for improving financial stability of agricultural commodity producers.



It is expected that in the near future integration on the federal and regional milk processing markets will increase; the most widespread form of it is purchasing the controlling block of shares of processing companies as well as agricultural producers of milk stuff.



Production relations between milk suppliers and dairy products producers on the milk processing market are built on the contractual basis. The main criteria for negotiating the contract price are the quality and the scope of supply, means of delivery and seasonal influence.



As milk belongs to a group of perishable goods and its processing requires financial investments that virtually all agricultural producers lack, the milk producers do not have a possibility to influence the pricing of the supplied milk. The price for the milk is fixed by the processing companies rather than by the milk suppliers.



Analysis of the milk processing market has revealed economic and administrative restrictions of the market entry, including ineffective state and regional policy on supporting small businesses (no credit access for small businesses (agricultural commodity producers) due to their low paying capacity) and low average industry rate of return.



Besides, there are market entry barriers related to considerable capital investment in production management as well as barriers based on the absolute cost level advantage: big market agents have technical superiority over smaller economic entities that, in particular, give them certain advantages at the cost level as well as for market development and promoting new dairy products on the market.



Milk stuff market is fully opened to interregional trade. The openness of the market is confirmed by the absence of administrative barriers for interregional movement of milk stuff.



In general, analysis of the wholesale trading on the regional milk processing markets has revealed no violations of the antimonopoly legislation, which can be explained, in particular, by the keen interest of the milk processing plants towards milk supplies at a considerably higher level than is currently purchased.