Sardinia's Spilt Milk
The Italian headlines have recently been swept up by the rage of Sardinian farmers and their protest against the unfair pricing they receive for the yew milk used in the production of the world famous Pecorino Romano DOP. Apocalyptic scenes picturing rivers of milk being discharged in the streets in a sign of protest have gone viral on every media platform and caught everybody's attention for days. It all began at the end of January when the price of the milk fell from €0.70 per litre to €0.55 per litre, less than the cost of production per litre currently estimated at €0.60.
The media and the Italian government have been very quick to blame the Pecorino Romano Consortium and their sloppy marketing and advertising strategies for the fall in prices but is it really true that all the fault lies with the consortium? The crisis has deeper roots than what is actually being portrayed in this mediatic public trial. In order to understand the crisis, it is necessary to paint a complete picture of the facts and align it with some very basic free market principles.
Let’s start at the beginning. It was 2004 when the first alarm bells went off. At the end of the summer of that year, some Sardinian farmers organised roadblocks on the main roads of the island as a sign of protest for the same reasons that lead to the latest protest - unfair pricing for their milk. Back then the local government managed to resolve the situation by providing public funding, in the form of rural incentives, to the sheep farmers in order to bridge the gap between the low price and the actual cost of milk.
The 13 years that followed have been anything but plain sailing on the central Mediterranean island. Further yearly protests, an oscillating market and endless talks between the farmers' unions, the consortium and local and central governments lead to more public funding, estimated at €45 million, being channelled into the milk crisis. The farmers' unions have also branded the current slash in pricing as illegal, citing a 2012 anti-cartel legislation whereby a commercial business is not allowed to impose certain contractual conditions that will result in below-cost pricing being imposed on the producers.
The Minister for Agriculture has recently appeared on a radio show and accused the Consortium of letting the farmers down by using cheaper milk imported from Romania but still charging premium prices for the final product.
On the other hand, the consortium categorically rejects the accusations of buying cheaper imports of milk from Romania for the production of the Pecorino Romano DOP and challenges the Minister’s claims. The consortium has in fact recently published a press release in which it reminds the Minister of the strict controls put in place to guarantee that only Italian milk is used for the production of the Pecorino Romano DOP and highlighted that the Consortium has no control over the markets.
What to make of all this? It would be unjust to try and find a culprit, as every party involved in the milk crisis has some faults. The lessons to learn are simple - producing more milk and cheese will not strictly increase profits because if the production outgrows the demand the market prices will inevitably fall with repercussions along the whole supply chain. In such a competitive market diversifying the business model is crucial to every business, even though farmers cannot do much with a herd of sheep. Alternatives in their business models should have been made in order to create other sources of income rather than relying on solely milk. State intervention in the form of subsidies will only exacerbate the problem, as markets do not react well to tinkering. As delicious as the Pecorino Romano DOP may be, this type of cheese is not as unique as many Italians may think and thus, clear and robust marketing and advertising strategies are key to the success of a business. It is time for serious rethinking in order to move the industry forward by taking some very drastic and possibly heartbreaking decisions. Perhaps a return to smaller-scale production and distribution could be the solution?
It is an utter shame to see good food going to waste in a world where food shortages are at the top of agenda of every country, particularly when millions of people across the planet are suffering malnutrition.