After a long negotiation between milk producers, processors and sellers, the Lithuanian Ministry of Agriculture has proposed a new bill that would severely tighten the regulation of the Lithuanian dairy market. The authors of the bill claim that their intention is to protect Lithuanian producers, bring confidence to the market and boost the consumption of milk products.
But is it really so? The proposed privileges for milk producers are nothing else but an iron curtain that will shift the whole burden onto consumers. The Russian food embargo is an excellent and very familiar example of what is to come. The proposed restrictions would result in higher prices and limit the choice of goods. People in Russia have already faced this.
The first restriction prohibits buying raw milk from foreign producers unless Lithuanian supply is insufficient. I am wondering how the government is going to track the availability of Lithuanian milk. Will all sorts of inspectors and officials walk around farms and examine whether Lithuanian cows can still produce more milk and allow purchasing it from foreign producers only after they have thoroughly examined every single cow?
Such a protection of milk producers is against the single market principle which is one of the cornerstones of the EU economy that ensures free trade among the member states. The proposed restriction simply disregards EU principles that are driving the economy.
Under the proposed law, milk processors would not be able to purchase cheaper milk from foreign producers unless the supply on the Lithuanian market meets the demand. As a result, producers would increase raw milk prices and this will eventually result in higher consumer prices.
And this is not all. Another provision says that Lithuanian milk processors cannot supply dairy products produced from foreign milk on the Lithuanian market. The argument is that we need to supply the internal market primarily with Lithuanian milk products and to properly inform the consumers about their country of origin. Once again, this restriction denies the fundamental EU principle of the free movement of goods and would limit the choice for consumers.
In addition to that, there is a risk that product prices will continue to grow. Given that imported milk accounted for 25 percent of the total milk processed in Lithuania in 2013, it is clear that the import of raw milk is of vital importance for the Lithuanian dairy industry. A ban on selling dairy products produced from foreign milk would limit the supply and increase dairy prices and this would hurt the consumers the most. The Russian food embargo has already proved that and there is no good reason why we should expect anything better in Lithuania.
Although the declared goal is to improve the situation of Lithuanian milk producers, the proposed bill would hurt other market players and consumers as it would drive up prices and create product shortages. The poorest people who spend most of their income on food would be hit the most.
After twenty five years of independence, the government of Lithuania has suddenly decided to restrict trade and take a giant step back, a step towards a planned economy. Both history and the experience of our eastern neighbours show that no one has benefitted yet by turning back the course.