The most important stage in the rise in milk prices, which made the product the villain of inflation and reduced its presence on supermarket shelves, is behind us. The drop in wholesale prices that started to be recorded this month due to the high supply and also the end of the dry period is starting to comfort the consumer’s pocket.
In July, milk rose more than 25% in retail and accumulated nearly 80% higher for the year, according to the IPCA, the country’s official measure of inflation. But, since the beginning of August through last Tuesday (16), the average price of a liter of milk for wholesale in São Paulo has fallen by about 17%, according to data from Cepea (Centre for Advanced Studies in Applied Economics). .
“I think the worst moment for price hikes is over,” says Samuel José de Magalhães Oliveira, an economic researcher at Embrapa (Brazilian Agricultural Research Corporation). He considers that the pre-pandemic price level should not be resumed, but believes that extremely high bids should give way in this second half. The chief economist at Apas (Associação Paulista de Supermercados), Diego Pereira, is another person betting on lower consumer prices in mid-October.
The Hirota chain, which includes 18 supermarkets, 23 express stores and 91 points of sale in condominiums, recorded a 20% decrease in the cost of milk this month. Helio Freddy, chain manager, says he’s passing on that discount to customers.
Last month, packaged milk was the main product lacking in supermarkets, with 22.7% of the regularly supplied volume rupturing. It is the highest a product has ever recorded in retail in three years, since January 2019, according to a national survey by consultancy Neogrid.
The company electronically monitors 80% of the largest supermarket chains. Pereira, of Apas, says the product shortage in retail is the result of intense negotiations between supermarkets and dairy, precisely because of the high prices.
According to Oliveira, from Embrapa, this was one of the worst seasons. In the first quarter, the industry’s acquisition of milk, which accounts for the largest share of the market, was 5.9 billion liters. It is 10.3% lower than the same period of the previous year.
However, the picture began to change. The high prices offered by the industries again stimulated the producers. In addition, signs of stagnation in the global economy have lowered grain prices and lowered costs.
“There has rarely been such a strong incentive through price to increase production as in the middle of the year,” Oliveira stresses. He says there are reports of producers providing more feed for the animals in order to get an extra liter or two of milk per day. This change is already starting to affect the increase in supply, prices and the normalization of supply.
Drought, epidemic and war have increased the cost of production
Economic researcher Samuel José de Magalhães Oliveira, of Embrapa (Brazilian Agricultural Research Corporation) Gado de Lite explains that in addition to severe drought, an unfavorable combination of factors has led to higher milk prices. Among them are price shocks for grains used to feed livestock, such as corn and soybeans, and shutdowns caused by the pandemic. The war between Russia and Ukraine, two major grain producers, also increased the cost of a liter of milk.
The result was higher production costs, and the price offered by industries, under pressure from weak retail consumption, did not cover this increase.
The peak of the rise in costs measured by Embrapa occurred in August of last year, when cumulative increases in 12 months reached 40%, the researcher says.
Without enough pay, producers ignore the matrices and even give up. This image shows the massive rise in retail prices recorded up to a month ago, with a significant decrease in the supply of the product on the shelves.
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