Competition Authority Requires Valio to Raise its Milk Price

Valio is a company owned by Finnish milk producers which pays the return generated from the markets through Valio dairy co-operatives to Valio milk producers. The high price paid by Valio for raw milk stems from a broad range of special products, not from sales of basic products.

21 Dec 2012 --- The Finnish Competition Authority (FCA) and Valio are engaged in a conceptual dispute over the correct relation between the wholesale price of Valio basic milks and the price paid by Valio for raw milk to its procurement co-operatives. The Competition Authority accuses Valio of wholesale pricing basic milk at a rate lower than the cost of production and requires that the company raises the price of its basic milks without delay. In Valio’s opinion, the FCA is demanding that Valio transfers the return on its special products to the price of basic milks. Valio will implement the measures required of it by the Finnish Competition Authority, but will at the same time request that the Market Court imposes a prohibition of measures, and will put an appeal process in motion.

Valio is a company owned by Finnish milk producers which pays the return generated from the markets through Valio dairy co-operatives to Valio milk producers. The high price paid by Valio for raw milk stems from a broad range of special products, not from sales of basic products.

Pursuant to the order of the Finnish Competition Authority, Valio will have to transfer in full the good price paid for raw milk which the company has achieved with its special products, to the wholesale price for basic milks. The price increase will concern skimmed milk in particular.

“The requirement of the Finnish Competition Authority means that Valio will not be permitted to offer its customers basic milks at a market price competitive in comparison with imported products, and so Valio requests that the Market Court imposes a prohibition of measures in order not to have to raise the wholesale prices of basic milks,” says Valio CEO Pekka Laaksonen.

The Finnish Competition Authority thinks that the price paid by Valio for raw milk to procurement co-operatives is a variable cost in full. From Valio’s perspective, the price paid for raw milk is by nature partly a fixed cost and partly a performance related share of profit. Valio’s opinion is supported by the statements of five professors of accounting from four Finnish universities.

For competitive reasons and while the legal process is pending, Valio will not comment further on its actions and the process at this point.