Guy Norton in Zagreb -

French dairy giant Lactalis has been the main focus of angry protests by Croatian farmers for the past two weeks, which have shone the spotlight on the problems faced by the country's agricultural sector as its prepares to meet the challenges of EU membership.

The protests entered their 13th day on February 27, which began after Lactalis's Croatian subsidiary Dukat announced that it was cutting its purchase price for domestically produced milk from HRK2.65 to HRK2.30, the Croatian Association of Milk Producers (HSUPM) urged its members to take to their tractors and blockade major roads across Croatia as well as Dukat's diaries in Zagreb, Bjelovar and Karlovac. The protests have seen thousands of litres of unprocessed milk poured down drains or given away free at local markets. The HSUPM, which claims to represent roughly 80% of milk producers in Croatia, says that Dukat, which buys around 45% of all the milk produced in Croatia, is effectively driving them out of business with its new pricing policy. "It is unacceptable that the Croatian dairies offer Balkan prices and seek European quality milk," Igor Resetar, president of HSUPM told state news agency Hina.

The increasingly bitter dispute has served to highlight the competitiveness problems of the Croatian dairy sector where the number of producers has plummeted in the last 10 years. In the course of the last decade, the number of dairy farms has shrunk from 57,000 to just 14,900, with the result that Croatia now imports a third of its market needs.

But despite generous state subsidies, which until recently amounted to as much as HRK1.1 per litre, Branko Bobetic, a director at Croatiastocar, the trade association which represents the major dairies in Croatia, says local farmers have failed to keep pace with foreign competitors. While in the EU the annual average milk yield per cow is 6,394 litres, the level in Croatia is a meagre 4,230 litres. "Low productivity is the biggest problem," says Bobetic. "If farmers don't achieve optimal productivity, then no milk price will help them."

At an average price of HRK2.66 per litre at the start of 2012, the price of milk in Croatia was 43.9% higher than in 2009 and between 1-13% more expensive than in the EU, says Bobetic. But according to HSUPM's Resetar, that is still well below the cost of production given rising feed, fuel and vet bills. Ultimately, the HSUPM is seeking a price of HRK4.09 per litre - far higher than anywhere else in the EU, which Croatia is set to join on July 1, 2013.

Milking it

For his part, Agriculture Minister Tihomir Jakovina has attacked the farmers' blockades, which have caused traffic chaos nationwide and led to 29 arrests in Zagreb on February 23 after farmers blocked Slavonska Avenija, a main thoroughfare in the Croatian capital. He told Nova TV that he believed that the protests were politically motivated by "those who have lost in the December 4 elections" - widely believed to be an oblique reference to the Croatian Peasants Party (HSS), a member of the right-wing coalition which lost power at the end of last year and the traditional lobbyists for the farming industry in Croatia. He has also refused to reverse a recent HRK0.42 cut in subsidies to dairy farmers.

In the meantime, four smaller milk producer associations representing around 18% of Croatian milk production have signed an agreement with dairy industry representatives based on a price of HRK2.43 per litre, the average price of milk in five EU states – France, Germany, Hungary, Romania and Slovenia. However, the HSUPM refused to accept the offer and has called on Croatian President Ivo Josipovic to help to mediate a new pricing agreement and bring an end to a dispute, which threatens to damage the prospects of much-needed foreign direct investment in Croatia's cash-strapped agribusiness sector.