The Milk Monopoly

Allegedly, a dozen differently labelled sorts of Icelandic cheese all taste the same. People have been in doubt about how to express their frustration at this, but have since the start of the week found a focal point for their anger: that bureaucrat in the Ministry of Agriculture… what’s his name? We will get to that. The Icelandic milk market is a de facto monopoly, run in close cooperation between MS, the country’s dairy conglomerate, and state authorities. Retail prices of milk, as well as wholesale prices of raw milk, are, to this day, fixed by the Agricultural Pricing Committee. This perceived anomaly, within a society that often considers itself market-oriented, is common knowledge. Earlier this week, however, when RÚV’s news magazine show Kastljós revealed some of the tactics involved in upholding MS’s monopoly, indignation ensued.

A Cow-Op, if you will

If you buy any dairy product in Iceland, chances are it was produced and marketed by Mjólkursamsalan—the Milk-co-vendor, MS for short. MS was originally founded in 1935, though its most recent embodiment was technically established in 2005. It is registered as a co-operative, and owned, through two intermediaries, by the country’s 700 dairy farms. MS and its associates, the conglomerate in whole, hold a 99% market share in the field. All the country’s milk farmers must sell their raw product to MS, from which other potential producers must then purchase it. On top of that, importing foreign dairy products remains forbidden, leaving the whole field, more or less, to one party.

For decades, smaller producers have attempted to break MS’s monopoly in production and retail. So far, such attempts have been short-lived.

As detailed in Kastljós earlier this week, MS has repeatedly hindered competition in various ways: by selling raw milk at a higher price to competitors than to its associates; by outright refusing to sell unpasteurized milk for yoghurt production; by buying smaller companies and taking over their production, and so on.

What a peculiar way to rejoice

Late September, the Icelandic Competition Authority fined MS for abusing its dominant market position, by selling milk at a 17% higher price to its competitors than to its own associates. The fine was set at 370 million ISK, roughly equal to 2.4 million Euros. The charges were pressed by one Ólafur Magnússon, former owner of dairy producer Mjólka. Reportedly, Mjólka nearly went bankrupt in 2009. At that point, one of the two parties which own MS on behalf of farmers, the co-op KS, bought Mjólka and took over its production. Ólafur went on to found another production company in the same field, Kú. Just as Mjólka before, Kú must buy its raw milk from MS. Since the September ruling, MS is, for the time being, forced to sell to Kú at the same price as to its own associates.

MS has signalled that it will not suffer this ruling gladly, announcing that they will appeal the verdict. Egill Sigurðsson, chair of the co-operative’s board, said on-air that there is nothing unnatural about selling milk at a higher price to competitors “than the price at which we make transfers within the conglomerate”. He further said that the ruling is based on a misunderstanding, and that MS in fact ‘rejoices at any competition’.

Ólafur Magnússon replied that MS had “deliberately and repeatedly killed new companies” in the field. There seems little need, however, to take his word for it. Prominent Progressive Party member, former Minister of Agriculture, Guðni Ágústsson, now heads a dairy farm-related ‘association’ whose only members are now, in fact, MS and its associates. Interviewed in Kastljós, Guðni expressed doubts that the MS-conglomerate constitutes a monopoly, since it competes with Coca-Cola and other beverage producers.

Much easier when you are at both sides of the table

Further blurring the lines between business and politics in the field, Kastljós revealed the background of Ministry official Ólafur Friðriksson. As office manager of agricultural affairs at the Ministry of Agriculture for twenty years, Ólafur chairs the Ministry’s Agricultural Pricing Committee, which decides the° price of milk, nation-wide, and sits on the Advice Board on imports and exports of agricultural products, which decides on possible exceptions from the ban of agricultural imports. He chairs many other related committees and boards within the ministry. Before taking on the job, however, he was the manager of KS, one of MS’s two parent companies. Furthermore, according to Kastljós, in the last twenty years, Ólafur has been board member of some fifteen corporations related to KS. In other words, if there is a separation barrier between business interest and state power, in the field of dairy production, it certainly seems porous.

The Progressive Party’s current Minister of Agriculture, Sigurður Ingi Jóhansson replied that politicians, such as himself, should be held responsible, and not individual ministry staff members. The day after, interviewed for radio, he exclaimed a lot of: “What sort of past connections do the journalists have? Shouldn’t people start with themselves, if they head on this sort of journey? Shouldn’t journalists start by examining their own past relations?” A line of defence which, for the record, sounded no stronger when spoken than it does in print.

You bunch of drivelling market-dogmatists!

To be fair, more valid arguments have been made in support of the current arrangement. In recent articles, Left-Green MP Ögmundur Jónasson, the former Minister of the Interior and now a member of the opposition, has insisted that demanding competition in the field would be no less dogmatic than demanding a continued monopoly. He says that while MS makes it possible for small farms to defend their interests, state-regulated prices keep the monopoly at bay and protect the interest of consumers. Leading to increased productivity and lower prices than an unregulated dairy market would, he asserts that all in all the setup has served the interest of both.

Until someone can tell the actual difference between Skólaostur, Brauðostur, Góðostur, Heimilisostur, Samlokuostur, Pizzaostur, Gratínostur, Gotti and Fjörostur, dairy-consumers may beg to differ.

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This article was updated on October 13.