December 11, 2007

Japan milk corporations to hike prices for 1st time in 30 years

Meiji Dairies Corp. (2261.TO) and Morinaga Milk Industry Co. (2264.TO) decided on Monday (December 10, 2007) to raise milk prices next spring for the first time since 1978, citing higher raw milk prices as the price for cattle feed shoots up amid increased demand for biofuel, The Nikkei reported in its Tuesday morning edition.

Domestic raw milk prices are set through annual negotiations between milk companies and 10 producer groups across Japan. The largest group for beverage-use milk settled on a price hike of about 3 percent for deliveries starting in April to Meiji Dairies, the largest milk company, and No. 2 firm Morinaga Milk. Because these prices act as benchmarks for negotiations with other parties, the price of beverage-use raw milk will likely rise nationwide.

Because milk is made from 100 percent raw milk, the cost-sales ratio is high and there is little room for higher costs to be absorbed. Compounded with higher costs for energy and materials for paper packing, milk companies see no choice but to raise wholesale and suggested retail prices.

Milk consumption is decreasing due to factors such as a declining birthrate. But there are more than 500 milk companies in the country because most milk is produced locally. A supply glut has caused typical store prices to fall to about Y170-Y180 per liter, with prices declining consistently for the past 10 years.