Jan. 11 - Brazil has seen three different facts in 2007 that changed remarkably the scene of its milk market: the spread of informality in the industry, the increase in the price of milk in most dairy products and the recent milk adulteration scandal.
Introduction and Market Characteristics
Important changes for the agro-industrial milk sector in Brazil were introduced in the early 90s. The most remarkable ones were as follows: economic opening (market opening for international competitors), price modifications and inflation reduction. All the aforementioned increased investments in the milk sector, further strengthened by the implementation of the Real Plan in 1994, which boosted domestic consumption and made production increases possible.
Demand increases were a direct consequence of diverse factors such as population increases, disposable income growth, price reductions, and changes in alimentary habits.
Another significant change that occurred in the milk market was the importance assumed by the supermarkets as distribution points; this importance was mainly impelled by the entry of the ultra-high temperature (UHT) milk into the market. This milk came to attend the consumer's comfort and convenience requirements, since it has a shelf life longer than the normal ones (milk that is not submitted to high temperatures).
Informality
One factor that aggravates the situation of the milk market in Brazil is the informality. With a production of 29 billion liters per annum, almost 9 billion liters of the produced milk is not supervised, that is, they do not follow the quality standards recommended by the Agriculture, Cattle and Supplying Ministry (MAPA). As a result, milk produced in the informal market is not submitted to inspection.
The most important concern for the government is the risk for the consumer's health. Milk that is not submitted to inspection is sold raw (natural, not being submitted to any previous treatment), into plastic bottles and it is not pasteurized as well. Pasteurization guarantees the death of microorganisms before the milk is consumed. Additionally, the absence of refrigeration collaborates for the proliferation of bacteria.
Generally, milk produced in the informal market is not found at the supermarkets; instead, it is sold in free fairs and road stalls. Producers sell milk informally in order to increase their profits. They avoid paying government taxes and avoid selling their products to supermarkets that have high bargaining power.
Price Increase
An important trend throughout 2007 was the rise in the milk price. The retail price of UHT milk has increased by around 67 percent, attracting the attention of the consumers as well as the government.
As a result of increasing milk prices, producers increased supply. Companies that did not have an export channel concentrated their sales in the domestic market.
All the aforementioned were trends seen in the market before the milk fraud scandal. However, milk prices started to decrease after the scandal, reducing by almost 15 percent in the last three months of 2007.
Milk Fraud Scandal
In September 2007, Brazilian consumers became surprised with the information that producers had adulterated the milk sold in supermarkets. The adulteration of the milk seemed to be a direct consequence of the market informality, and was called by the media as a "milk fraud scandal".
The recent "milk fraud scandal" proved, in fact, that the inspection system of quality did not work in Brazil and has reached the sphere of supermarkets too. Adulteration involved the addition of oxygenated water and caustic soda in the milk, which was sold as pure milk to end users or to dairy manufacturing companies.
In Brazil, the milk produced in the farms is sold to cooperatives. It was at these cooperatives that the milk was adulterated with the objective of increasing product volume, in turn increasing producer's profit. For each 100 thousand liters of milk, the cooperative won additional 10 thousand liters. As a result of the adulteration, most nutrients (proteins and so on) essential for human beings was lost.
Parmalat SpA, one of the largest companies in the Brazilian dairy market, was a victim of fraud, and suffered the consequences of the milk adulteration scandal. Costumers stopped purchasing Parmalat milk, afraid of consuming oxygenated water or caustic soda.
Conclusion
Perception of the milk industry by consumers has suffered a severe shake in the recent periods, mainly due to the fraud mentioned, a fact that was directly translated into sales drop. The consumers also became to be more aware of the provenience of the milk sold in the market.
The Brazilian Ministry of Agriculture is expected to improve laws concerning milk handling and increase production inspections so that the credibility is restored to avoid the appearance of new scandals.