MMJ, a raw milk distributor in Gunma Prefecture, will open an online market for raw milk from dairy farmers who do not belong to agricultural cooperatives on Oct. 1, with actual transactions scheduled to start a month later.

The market will trade raw milk, which dairy farmers plan to ship by the week on a schedule from a month to six months ahead, from 9:00 a.m. to 3:00 p.m. on weekdays. The price will be determined through the market and released to the public.

To begin with, the market will be first joined by 17 dairy farmers in Hokkaido, which MMJ has been trading with, and ten midsize milk manufacturers, such as Fuji Nyugyo (Tendo, Yamagata Prefecture) and Tokai-Milk (Godo, Gifu Prefecture). MMJ hopes to attract dairy farmers and milk distributors who prefer to trade milk at prices that reflect demand and supply.

At present, more than 95% of raw milk is traded through Hokuren Federation of Agricultural Cooperatives and nine other local producer organizations. Under this system, dairy farmers cannot get involved in pricing. Some people point out that the system deprives ambitious farmers of profit-making opportunities and forces them to close down or downsize their operations.

Dairy farmers have long been trying to change this rigid raw milk distribution system. The creation of a new market is one step in the right direction toward price setting that reflects factors such as supply, demand, and quality, but the participation of major milk distributors is essential for the market to fully function. This will also likely affect governmental discussions on regulatory reforms.

The system in which the designated producer organizations negotiate with dairy companies over pricing on behalf of dairy farmers began 50 years ago and was initially aimed at increasing bargaining power. But amid growing deflationary pressure, major dairy firms are reluctant to accept demands for price increases.

For the time being, MMJ’s market will only trade a portion of the milk distributed nationwide. The participation of major dairy firms is essential to expand transactions, but they have mixed feelings about transactions that bypass the conventional scheme. Securing a stable source of raw milk is a top priority, but they seem to be worried that the liberalization of milk trade may affect their procurement systems.

Under the pricing scheme involving only a handful of designated producer organizations, dairy farmers “develop few incentives to improve quality or differentiate their products from others,” said Masayoshi Honma, a professor at the University of Tokyo. Meanwhile, the government subsidies dairy farmers on the shipments of raw milk for dairy products that are cheaper than milk for drinking . This is one reason why dairy farmers cannot abandon the current system.

Discussions are underway at the government’s Council for the Promotion of Regulatory Reform over the drastic reform of the pricing system using the designated organizations. A proposal has been made to subsidize farmers that bypass the designated organizations, but opposition remains strong. A final decision will be made in the autumn. The reform also requires institutional design that will facilitate new markets. (Abridged)