Producing sheep’s and goat’s milk in Cyprus brings farmers marginal profits or losses, while large cheesemakers earn net profit margins of 4 to 14 per cent, according to a sector inquiry by the Commission for the Protection of Competition (CPC). The watchdog found that, as far as it could tell, cheesemaking was an oligopoly, with five companies holding 74.6 per cent of the market. It also found that pressure from cheesemakers for cheap milk falls on fragmented sheep and goat farmers.
The inquiry covered the period from 22 July 2022, when a framework agreement on halloumi production with protected designation of origin (PDO) status took effect, to 25 July 2023. The agreement was between sheep and goat farmers, cattle farmers and cheesemakers. The inquiry found that halloumi plays a decisive role in setting milk prices.
According to the commission’s cost analysis of a model farm with 500 animals, goat’s milk costs an average of 1.18 euros a litre to produce, a loss of 0.33 euros a litre. Sheep’s milk costs 1.78 euros a litre, a loss of 0.38 euros a litre. Sheep and goat farming survives mainly on state and EU subsidies, the inquiry found.
Large cheesemakers, by contrast, recorded net profit margins of 4 to 14 per cent between 2021 and 2023, though some were temporarily hit by the 2022 energy crisis. Smaller cheesemakers recorded returns ranging from 1 per cent to losses of 8 per cent.
Some 2,066 sheep and goat farms produced about 84.3 million litres of milk in 2023. Only 20 per cent of it is sold through organised producer groups, and two of them, M-POAI and OPA, handle 50 to 60 per cent of that share. Individual farmers sell the remaining 80 per cent directly to cheesemakers, which the inquiry said sharply limits their bargaining power.
In the cattle sector, 275 dairy farms produce about 300 million litres of milk. The Pancyprian Organisation of Cattle Farmers (POA) controls about 70 per cent of trade and acts as the price leader. At farm level, no single sheep, goat or cattle farm holds a dominant or advantageous position, and the commission described that market as competitive.
The Ministry of Agriculture, Rural Development and Environment pointed out that cheesemakers continually push for low milk prices to stay competitive in international markets. Because the POA has a strong negotiating position in cow’s milk, that pressure is passed on to sheep and goat farmers, who are weak and split across many producer groups. The report said there was an impression that the low price of sheep’s and goat’s milk was subsidising the high price of cow’s milk.
Cyprus consistently has the highest raw cow’s milk prices in the European Union, on average 0.1358 euros a kilo above the EU average. The inquiry attributed this to Cyprus being an island, high freight costs and a dependence of up to 90 per cent on imported animal feed.
The watchdog also examined whether the 2022 framework agreement had been honoured. The agreement set minimum prices of 0.80 to 0.90 euros for goat’s milk and 1.35 to 1.45 euros for sheep’s milk, and a rise of at least five cents for cow’s milk. These were met with few exceptions and in several cases exceeded, to the benefit of producers. A term obliging cheesemakers to take all the milk produced was fully applied, which prevented surpluses from being destroyed.
Agreements between producer groups and cheesemakers that fix raw milk prices may restrict competition, the commission said. However, the EU’s Common Market Organisation regulation (1308/2013) allows recognised producer groups to sign collective contracts with buyers, to stabilise the market and production in small economies. The commission found that the 2022 agreement was negotiated independently, as the range of prices showed. Some of its terms were one-year transitional measures to help producers and avoid unsold milk. The available data showed no distortion of competition from the agreement, it said.
Farmers had complained that cheesemakers avoid taking milk from producers who have left another cheesemaker, to avoid friction. The cheesemakers said they place no obstacles in the way of cooperation.
Of the 108 registered cheesemakers, seven large companies control more than 80 per cent of halloumi exports: Charalambides Christis, Petrou Bros, Papouis Dairies, Dodoni, A/foi Pantziarou, Lefkonitziatis and Achnagal.
To tackle the sector’s structural problems, the watchdog recommended encouraging small farms to grow and possibly merge, to cut fixed costs per litre and secure volume discounts on feed. It proposed developing domestic production of long-life (UHT) milk, which is currently all imported, to absorb seasonal surpluses of fresh milk. It also proposed targeted state support for local feed production, to reduce the sector’s exposure to international price swings.
The commission warned that continued state aid offers only temporary relief. In the long term, it said, the sector needs modernisation, transparency and business autonomy to become truly viable and competitive.
It stressed that all businesses in the sector must keep their decisions fully transparent and independent. They must avoid anti-competitive agreements, price-fixing or sharing out customers, and every producer group and cheesemaker must set its prices and terms of trade on its own.
