There is a famous cow in Norse mythology named Auðhumla. According to myth, she played a key role in the creation of the world – milk from her udders fed the first giants and she freed the first god, Búri, by licking on a salt block. Iceland’s first settlers not only drank milk, they used whey to preserve food through the long winters. Cows still play an important role in Iceland today, producing milk, cheese, and other dairy products, which locals consume at higher rates than elsewhere in Europe. Icelandic dairy products, skyr in particular, have even been conquering the global market in recent years. So how does Iceland’s dairy industry work?
The basics
Iceland has around 550 milk producers located across the entire country. Together they have some 25,000 cows that produce about 150 million litres [40 million gallons] of milk per year. The average dairy farm in Iceland has just under 50 cows: more than Finland and Norway where there are on average 45 and 30 cows per farm respectively, but much smaller than the average farm size in Denmark (200 per farm) and Sweden (95 per farm).
Iceland has its own breed of dairy cow known as the Icelandic breed. Like the Icelandic horse, it is somewhat smaller than its relatives abroad and is known for its variety of colours. An average Icelandic cow can produce about 6,000kg [13,200lb] of milk per year, with the best animals producing 11,000kg [24,300lb].
Dairy farms must operate according to strict cattle welfare legislation which outlines the conditions farmers must provide animals, including housing and feed. For example, cows in Iceland must graze outside for at least eight weeks per year, according to law. It is illegal to import cattle into Iceland, in order to protect the local breed from disease.
Dairy products make up a big part of Icelanders’ diets. According to Iceland Dairies, dairy product consumption in the country is 60% higher than the European average.
Industry regulation
The demand for milk and dairy products has been relatively steady in Iceland in recent years. If it drops, it is relatively simple for dairy farmers to scale down production in response (by slaughtering cattle and selling their meat). Increasing production, however, is a process that can take years, meaning it can be difficult for farmers to respond to a sudden spike in demand. If dairy farms produce too much milk, it can be a challenge to make up for their loss. This is why Iceland, like many other countries, has a milk quota system in place: farmers buy a licence of sorts allowing them to produce a certain amount of milk, and the government sets a minimum purchase price on milk to prevent losses for farmers. Icelandic law also protects the dairy industry by placing high tariffs on dairy product imports, the reason why it’s rare to see foreign dairy products in Icelandic grocery stores.
Mjólkursamsalan (Iceland Dairies)
Almost 100% of the milk produced in Iceland is sold to Mjólkursamsalan, or MS Iceland Dairies. MS is 80% owned by Auðhumla (remember that name?), a cooperative of around 600 dairy farmers around the country. MS processes and packages the milk and makes products such as cheese, butter, and of course, skyr. MS also sells raw milk to other dairy product producers – more on that later.
MS has operated in its current form since 2007. In the 1990s, Iceland’s government introduced legislation that aimed to lower the cost of milk production. As a result, a systematic streamlining of the dairy industry took place. In the next decade or so, more than a dozen dairy companies merged, many of them into what is now Mjólkursamsalan.
Streamlining can be positive, but having one dominant company in a nationwide industry comes with its own issues. This year, the Supreme Court of Iceland ruled that MS broke competition laws around a decade ago when it sold milk at a higher price to its competitors than to its own production department. As legislation governing raw milk sales has already been amended to address such violations, the Supreme Court ruling does not directly impact milk production today. However, it points to the situations that can arise when most of a country’s raw milk must be bought through a single seller.
Consumers
Most people recognise that state support of local dairy production benefits the local economy, creates jobs, and plays a part in ensuring food security. Regulation also impacts animal welfare and the preservation of farming traditions. But what is the impact of this regulation on consumers? A 2015 report by the University of Iceland’s Institute of Economic Studies found that the Icelandic state, and therefore taxpayers, paid an additional ISK 8 billion [$64.7m, €54.7m] for dairy between 2009 and 2011 than if the milk produced locally had instead been imported from abroad.
The report’s authors proposed that volume duties on dairy products be abolished and ad valorem duties be lowered in order to make foreign dairy products available on the Icelandic market. They argued that with these changes, local products would still be competitive but consumers (and the state) would save overall.
Such changes would also encourage a broader variety of products. While Icelandic dairy producers produce a fair variety of yogurts and skyr products, selection of cheeses, for example, is limited. There is not a strong cheese-making tradition in Iceland and it is unlikely that it will develop much under current market conditions. It bears noting that none of the changes proposed by the report’s authors have come to fruition so far.
Existing regulation of the dairy industry is at least in part responsible for the industry’s relative stability. The industry saw only a 0.4% contraction in 2020, despite a halt in tourism that drastically reduced the number of consumers. Iceland’s dairy industry is growing at pace with the population, in contrast to the sheep farming industry, which has been contracting significantly for years – but that is a subject for another article.
