Crying over milk split

Following over six-months months of slow and difficult negotiations, the government finally reached an agreement with its troika of lenders last week, opening the way for the Eurogroup to green-light the next 10 billion euro tranche of loans to the country on April 1st.

According to the agreement, the government is to pass a series of tax and structural reforms. Among these are a number of market reforms proposed by the Office of Economic Development (OECD) including reform of the dairy market which will allow milk up to ten days old to be marketed as ‘fresh’. Currently ‘fresh’ milk in Greece by law can stay on store shelves no more than five days. The proponents of the measure claim that it will help bring down the price of milk in shops which in Greece is on average the third highest in the European Union.

However the controversial measure has met with significant resistance from Greek dairy farmers and others who believe the measure will spell disaster for domestic milk production by opening the Greek market to competition from large industrial European producers who they see as the real beneficiaries of the reform. And now a number of MPs of ruling parties New Democracy and PASOK are threatening to vote against the measure, causing a serious headache for the government and threatening to scupper the much trumpeted agreement with the troika and trigger a political crisis.

What is fresh milk?

It should be pointed out here that all milk is pasteurized. What is known as ‘fresh milk’ is milk that has be pasteurized at relatively low temperatures. It has a shorter shelf life but is more nutritious than high pasteurized milk as fewer unstable vitamins are destroyed in the process. According to the Kathimerini newspaper (link in Greek) there will be no change to the way fresh milk is produced by the law, as low temperature pasteurization will continue to be used, only that the legal maximum shelf life will be extended. Companies will still be able to establish their own sell by dates within the new legal limits which are normal by European standards.

What will the effect of the measure be?

How the proposed reform will affect the Greek market is very much the topic of debate. According to the Kostis Hatzidakis, the Minister of Development and Competitiveness, the reform will help improve competition and bring down the price of milk on Greek supermarket shelves thus helping struggling households.

Milk in Greece is among the most expensive in Europe for a number of reasons. In part this is because much of the domestically produced milk comes from small dispersed dairy farms without economies of scale, leading to high transportation costs. The cost of withdrawing unsold milk from supermarket shelves also adds to the price, as well as the fact that there are few dairy companies in Greece which allows them to operate as an informal cartel, fixing prices at an artificially high level (in the past they have also been convicted of operating as a formal cartel). According to the OECD and Mr Hatzidakis the proposed shelf life extension will reduce the cost of withdrawing unsold milk and open the Greek market to healthy competition from European companies leading to overall improvements and price reductions.

To others however, such as opposition party SYRIZA, the change amounts to sacrificing already struggling Greek dairy farmers in favour of huge European companies that will flood the Greek market with cheap (and inferior quality) milk. Their argument is that the reform is not designed to assist Greek households but the ‘big dairy’ lobby in Europe. Dairy farmers from the western Greek region of Epirus, a major producer of dairy products, in a recent statement called the measure a ‘Trojan Horse’ that will destroy the area. They claim that the troika pressured to class as fresh milk a product, “of doubtful quality and nutrition, a degraded product which foreign industrial producers can push cheaply on the Greek market, making big profits at the expense of Greek dairy farming and leading to its destruction.” The farmers called on the MPs from their region to vote against the measure warning that if they didn’t they would be ‘unwanted’ in the region.

These arguments have appeared to have swayed a number of MPs who have drawn an unexpectedly firm line in the sand saying they will not vote for the measure. The PASOK-New Democracy coalition currently has a razor thin majority of 153 MPs out of 300 meaning that any defection is significant and threatens to undo the government’s plans and trigger a political crisis – especially ahead of the European Elections, polling for which consistently shows a SYRIZA lead.

Perhaps most significantly, the Alternate Minister of Rural Development and Food, Maximos Harakopoulos is reportedly close to resigning his position over the measure although he has stated he will wait for the final text before making his decision. Of New Democracy Iordanis Tzamtzis and Georgios Vlachos have objected to the measure as have the PASOK MPs,  Thanos Moraitis, Nikos Sifounakis and Michalis Kassis.

In a recent interview by Antenna TV, Mr Moraitis said that he will not vote for the measure. When asked why after supporting so many austerity measures he was taking a stand on the issue of fresh milk the MP said, “The issue isn’t only the price of milk but the productive model our country has. I have voted for harsh measures and we have taken difficult decisions but at least we promised ourselves that we would clash with the chronic problems that brought the country to the brink of collapse in 2009. We cannot support state parasitism and a feast for middlemen and that is what is currently underway today… those who will benefit are importers and intermediaries and those will lose are the Greek producers.”

Meanwhile government spokesperson Simos Kedikoglou in an interview today expressed confidence that the MP’s would get over their objections once they were ‘fully informed’ about the proposed changes. However there are also reports that the government is counting possible votes from independent MPs to make up the numbers, although were they to pass the measures relying on votes from independent MPs or MPs from other parties it would inevitably trigger a severe political crisis potentially leading to the fall of the government.

The government is also reportedly ensuring that MPs will have to vote for either all of the measures agreed with the troika, or none, by including them in a single piece of legislation with only three articles.

Could the government be brought down over the price of milk? Given all of the unpopular measures already passed it would be surprising that this would be the straw to break the camel’s back – although perhaps no less perplexing than the troika’s own dogged insistence that the continuation of financial aid to Greece be linked at all costs to extending the shelf life of fresh milk.