1 June 2009

5 minute read

The number of milk cows is forecast to decrease 1 per cent by the end of 2009. Ministry of Agriculture officials will continue to invest in milk production by subsidizing credit for construction of new dairy farm operations and for renovation projects of older dairy operations.

Dairy imports are expected to drop in 2009 as Russia implements trade-restricting policies to support domestic producers. Farmgate prices in the first quarter of 2009 have decreased 15 per cent compared to the same period in 2008 while retail prices for fluid milk increased 26 per cent. The Russian government will fund a national campaign to increase milk consumption called “School Milk”.

Executive Summary:

Milk production is forecast to increase 1 per cent in 2009 reaching 32.8 million metric tons (MMT) as dairy operations continue to replace low-yielding domestic herds with imported pedigree animals and genetics; introduce new feeding technologies; and purchase modern farm equipment. Market analysts attribute the modest growth in domestic milk production to general underperformance of the dairy cattle sector in Russia and transition from old schemes to modern ones.

The number of milk cows is forecast to decrease 1 per cent by the end of 2009. Ministry of Agriculture officials will continue to invest in milk production by subsidizing credit for construction of new dairy farm operations and for renovation projects of older dairy operations and by implementing new policies that restrict dairy imports.

Farmgate prices in the first quarter of 2009 have decreased 15 per cent compared to the same period in 2008 while retail prices for fluid milk increased 26 per cent. Producer prices for butter and cheese continued to decrease in the first quarter of 2009. As a result, the Russian government is taking active measures to protect domestic producers such as increasing import tariffs, make government purchases of non-fat dried milk, subsidizing credit for new dairy operations, and funding a national campaign to increase milk consumption called “School Milk”. The School Milk campaign will allocate funds to Russian schools to purchase fluid milk for students.

Russian imports of dairy products are forecast to drop significantly in 2009 as the Russian government takes measures to limit imports of dairy products and as the Russian ruble continues to strengthen. Russian exports of unsweetened concentrated milk, buttermilk and butter increased during the first 3 months of 2009 while exports of sweetened concentrated milk, cheese, and yogurt decreased.

Commodities:

Dairy, Butter
Dairy, Cheese
Dairy, Dry Whole Milk Powder
Dairy, Milk, Fluid
Dairy, Milk, Nonfat Dry

Production:

Milk production is forecast to increase 1 per cent in 2009 reaching 32.8 million metric tons (MMT) as dairy operations continue to replace low-yielding domestic herds with imported pedigree animals and genetics; introduce new feeding technologies; and purchase modern farm equipment. Market analysts attribute the modest growth in domestic milk production to general underperformance of the dairy cattle sector.

Nevertheless, Ministry of Agriculture officials have pledged to continue investing in milk production by earmarking more subsidized credit for construction of new dairy farm operations and for renovation projects of older dairy operations, even though domestic milk production over the last few years has not come close to meeting the increases envisioned in Russia’s National Priority Project (NPP) in Agriculture. Agriculture Minister Yelena Skrynnik stated recently that Russia will invest 74 billion rubles (approximately $2.3 billion) into 331 livestock projects that started in 2008 but have not yet been completed.

The number of milk cows is forecast to decrease 1 per cent by the end of 2009. One-third of total domestic Russian milk is produced in seven provinces [1] throughout Russia. This demonstrates that the production of dairy products gravitates towards milk sheds of major population centers or other areas with some sort of relative advantage. Per cow productivity in 2008 rose to 4,024 kilograms compared to 3,796 kilograms in 2007. This is well below genetic potential and leaves room for considerable growth in Russia’s per-cow productivity merely through better genetics, nutrition, herd management and proper veterinary care.

Approximately 48 per cent of Russia’s milk is produced on private subsidiary plots. Commercial dairy sector produced 16.94 MMT out of 32.4 MMT of milk produced in Russia in 2008. As the aging rural population continues to dwindle, and is not replaced, room for expansion by profitable commercial dairy farms is expected to unfold. Dairy operations continue to improve low-yielding domestic herds with imported pedigree animals and genetics, feeding technologies and equipment. Ministry of Agriculture officials that not withstanding the fact of problems with finishing old projects as well as starting new ones, it would do its foremost to continue investments in milk production.

Milk production was very profitable in the second half of 2007 and the first quarter of 2008. During this time, strong demand for raw milk increased the farmgate price to 15 rubles/kg. Many large dairy operations took out bank loans to expand their operations as market analysts predicted increasing demand and even higher prices. In April 2008, the farm gate price for raw milk suddenly dropped to 8-9 rubles/kg due, in part, to season fluctuation even though average retail prices for liquid milk are at record levels. The situation worsened in 2009.

Purchase prices are well below production costs. In tough financial situation dairy farms including previously highly efficient farms are in panic as they do not have enough resources to keep their farming at efficient level. At the same time demand for dairy products is decreasing pushing purchase prices down. [1] Moscow, Leningrad and Novosibirsk oblasts, Krasnodar and Altay krays, Tatarstan and Bashkortostan.

Consumption:

Slower growth in the manufacturing sector, higher import duties on dairy products and rising retail prices are expected to keep dairy consumption from rising in 2009. Domestic consumption of raw milk will remain flat while factory use consumption is expected to grow 1.9 per cent. Domestic consumption of cheese will decrease 6 per cent in 2008 as average retail prices are up significantly compared to last year and with the expected duty increases on imported cheese. Butter consumption is expected to drop 5.25 per cent in 2009.

In order to increase fluid milk consumption, the Russian government is funding a nationwide advertising campaign titled, “School Milk” to provide fluid milk to students in all Russian schools. This campaign is already taking place in 27 Russian regions with 6 more regions to be added by the end of 2009. The Russian dairy unions have pushed for this type of campaign for years as their experts have calculated that it will increase the purchase of domestic fluid milk by 26 million rubles per day.

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May 2009