MILK PRICE TALKS IN LIMBO

[Anchor Lead]

With only six days left before the deadline for milk price negotiations, dairy farms and dairy processing companies have yet to narrow their differences. Dairy farmers are opposed to the introduction of a new system designed to lower prices of milk for processing.

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Some 100 dairy cows are raised at this farm. The farmer pays 30 million won for cattle feed every month, 10 million won more than last year. Air conditioning and heating charges as well as labor costs are also rising.

[Soundbite] Choi Sang-yeol(Farmer) : "A few farms went out of business in the past. But lately a couple of farmers have closed down their farms. It's concerning."

Milk produced by stressed out dairy cows is unfit to be sold because of high somatic cell count. That's why they are raised in more spacious areas compared to other livestock animals, meaning their milk costs more to produce. The median debt of dairy farmers has surged nearly 40 percent over the past two years. More than 220 farms have been shut down. According to the Korea Dairy & Beef Farmers Association, currently only some 397000 dairy cows remain in the nation, similar to the level during the foot-and-mouth disease outbreak 11 years ago. If farmers are paid only 800 won for milk intended for processing, they can no longer afford to sustain their farms.

[Soundbite] Lee Seung-ho(Korea Dairy & Beef Farmers Association) : "Production cost should be 900 won or 1000 won to pass the break-even point. Who wants to produce milk for 800 won and sustain losses?"

The government and the milk processing sector say the current system fails to take into account the fact that milk consumption is falling while the consumption of processed dairy products is rising. Milk prices in Europe and the U.S. are just half of those in Korea. Hence, no reason to use domestic milk to produce processed products.

[Soundbite] Lee Chang-beom(Korea Dairy Industries Association) : "Korean dairy products have no price competitiveness. The domestic dairy market is losing ground."

When tariffs on milk imported from the EU or the U.S. are also lifted four years from now, domestic milk will likely lose its price competitiveness further.

[Soundbite] Park Beom-soo(Assistant Secretary of Agriculture Ministry) : "To prevent dairy farms' losses during the overhaul, the gov’t will provide support for the development of premium dairy products using domestic milk and introduce new kinds of dairy cows that can produce milk for processing."

The government is trying to persuade the dairy sector by unveiling measures to scrap tariffs on imported animal feed, but dairy farmers are opposed to that and are even considering refusing to supply raw milk anymore.