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USDA GAIN: Dairy and Products


13 November 2012

USDA GAIN: Russia Dairy and Products Annual 2012USDA GAIN: Russia Dairy and Products Annual 2012

FAS/Moscow expects the contraction of the Russian dairy herd, which has been ongoing for more than 2 decades, to end in 2013, with a slight increase in herd size. This is due, in part, to government support for large scale imports of high-quality dairy cattle, including from the United States. Overall dairy production, however, is expected to remain largely flat in 2013. Although improvements in farm management and genetics have increased Russian milk yields, high feed costs are expected to impede growth. For cheese, despite competition from imports, production is expected to remain strong in 2013. For butter, however, production is expected to continue to fall next year. Milk powder production is expected to remain flat (for whole milk powder (WMP)) or increase slightly (for non-fat dry milk (NFDM)).
USDA Gain Report - Dairy and Products

Production:

Cow Inventory

FAS/Moscow expects the contraction of the Russian dairy herd, which has been ongoing for more than 2 decades, to finally end in 2013, with a slight increase in the herd. This is due in part to government support for large scale imports of high-quality dairy cattle, including from the United States. Russia has significantly increased imports of high quality U.S. genetics, which are expected to help bolster Russia’s “cows in milk” numbers. (Charts 1 and 2).

FAS/Moscow estimates cow inventories to decrease less than one percent in 2012, but fluid milk production to increase on higher yields. Agricultural enterprises continue to improve genetics and farm management practices which are having a positive impact on fluid milk output. Moreover, State support programs are encouraging farms to maintain herd size in order to comply with the conditions of the programs. Specifically, dairy operations are now receiving support, in part, based on maintaining stable cattle numbers in an effort to ensure there is a sufficient supply of milk and dairy available in the domestic market.

The Ministry of Agriculture reported that inventories of purebred cattle in the dairy herd accounted for 12% of cattle in 2010 and 13% in 2011. Data for 2012 are anticipated to be released by the Ministry of Agriculture in February 2013, but FAS/Moscow forecasts continued increases.

Fluid Milk

Overall fluid milk production is expected to remain stagnant in 2013, as the benefits of improvements in management and genetics compete against high feed costs. Russia’s grain production in 2012 was lower, causing feed prices to rise, and these prices are expected to remain high until the new grain crop begins to be harvested in mid-2013. Nevertheless, the continued development of commercial herds at agricultural enterprises, supported by the Ministry of Agriculture, should have a positive impact on future production volumes.

For 2012, fluid milk production has increased slightly. Russian dairy farms produced 25.5 MMT of fluid milk from January-September 2012, 1.9% more than during the same period in 2011. The GOR has provided favorable subsidies for the import of live animals to strengthen the national herd, and favorable loan terms to modernize pre-existing dairies in an effort to come closer to self-sufficiency in dairy (and beef) production. There remains a significant amount of development needed to meet the State production goals of 90% self-sufficiency by 2020. The draft State Agricultural Program for 2013-2020 sets a goal of 38 MMT of yearly fluid milk production by 2020, 6 MMT higher than estimated production for 2012. (See Chart 3)

Factors supporting modest production and marketing increases for Russian fluid milk in 2012 include:

  • New commercial dairy operations, populated with highly productive cattle, began producing in Russia;
  • Slowing contraction of Russia’s dairy herd as a result of Government support for livestock development programs;
  • Favorable loans for milk producers wishing to modernize; and,
  • Milk yields at modernized and new dairy operations increased to 3,472 kilograms per head, per annum, through August 2012 (a 7.2% increase from the same period in 2011).

Dairy Products

The prospects for production of dairy products are mixed for 2013, as cheese and NFDM are expected to grow, WMP is expected to remain flat, and butter production is expected to continue to contract. Competition among Russian dairy producers is quite strong, and imports are continuing to increase. Several large dairies (e.g. Nadezhda Dairy from Mordovia and Nevelsk Milk-Canning Facility) have reduced production or filed for bankruptcy, and they have stated this is because they cannot compete with low-cost imports from Belarus. Trade sources reported that producers of cheese, butter, and dry milk powders are suffering the most from import competition, when compared to producers of higher margin products, such as yogurts and cottage cheese. Moreover, the National Union of Milk Producers has publicly announced that they are seeking government assistance, including, for example, loans for dairy farm construction and modernization with payment terms of at least 20 years, loans for equipment purchases with repayment terms of at least 10 years, and minimum repayment terms for the purchase of cattle of at least 5 years.

Cheese

Despite continued competition from imports, Russian cheese production is expected to continue to experience growth in 2013 albeit at a slower pace than in 2012. Cheese production in 2012 is estimated to have increased by 5.8 percent. One of the key reasons for this growth is that local governments have been encouraging dairy processors to buy milk, even at high prices. These processers have in turn processed this milk into cheese, as there was no excess demand for fluid milk. These purchases have been promoted by local governments to ensure cattle inventories do not contract as a result of high feed costs. Despite growth in domestic production, cheese imports are also expected to grow, albeit slightly, as they continue to be competitively priced with Russian cheeses.

Butter

Butter production in 2013 is expected to continue to contract due to reduced profitability and competition from less expensive imports and domestically produced products such as margarine.

Russian production of butter and butter spreads decreased by 3.9% to 163,300 MT through September 2012, and FAS/Moscow estimates 2012 calendar year butter production to decrease by 3.3 percent, when compared to 2011. Decreased butter production in 2012, however, has been backfilled by imports to stabilize supply. At the All-Russia Seminar of Dairy Industry Producers, in September 2012, Russian dairies stated that producing butter is not as profitable as other dairy products given competition with imported cream butters, domestic alternative butter products, and margarine (which is sometimes being marketed as real butter). They stressed an interest in pursuing dairy products with lower costs of production in the future (e.g., fluid milk and/or kefir).

Whole Milk Powder (WMP) and Non-Fat Dry Milk (NFDM)

FAS/Moscow forecasts WMP to remain flat in 2013, but NFDM production to rise as Russia continues to produce more cheese, and Russia’s processing industry continues to grow and increase utilization. The Russian government’s decision, in 2010, to define beverages with powdered milk ingredients as “milk drinks” rather than milk, has put pressure on production and imports of powdered milk. In 2012, the Russia-Kazakhstan-Belarus Customs Union signaled its intention to define “milk drinks” in the same manner.

In 2012, according to Rosstat, the major Federal Districts where Russian dry milk was produced were the Volga Federal District (42%), the Central Federal District (25%) and the Siberian Federal District (19%).

Consumption

Consumption of dairy products in Russia has generally remained flat, and this is expected to continue into 2013. High retail prices for dairy products make it difficult for low income families to regularly purchase high-end dairy products. In addition, Russia has had negative population growth for a number of years. Milk prices have remained steadily high for farm-gate, processor, and retail milk prices throughout 2012 (see Chart 4). This trend will likely continue in 2013 as below-average grain crops and, subsequently, very high feed prices are reflected in the price of milk.

In the past, the situation of escalating prices had been softened by an agreement in 2010 among producers and processers that established mutually acceptable minimum and maximum price levels for raw milk. Nevertheless, there is a wide variation in prices by region, as a result of varying degrees of regional support, regional differences in the cost of production, and differences in the quality of raw milk.

According to Rosstat, the average Russian consumed 246 kilograms of milk and dairy products in 2011, a 0.4 percent decrease from 2010. The highest rates of consumption -- 284 kilograms per capita -- were reported in Volga Federal district where “Tatar Republic,” one of the largest Russian producers of fluid milk, is located.

Trade:

Despite domestic production gains, FAS/Moscow forecasts 2013 dairy imports to increase as a result of the continued price attractiveness of imported goods. This situation could be exacerbated in 2013 as high domestic feed prices (as a result of drought) continue to push up Russian dairy prices. The majority of Russia’s dairy imports are still anticipated to come from Belarus. Belarusian fluid milk and dry milk products account for the vast majority of Russia’s imports as they maximize bilateral preferences in the common economic territory (i.e., Customs Union, Free Trade Zone, etc.)

From January-July 2012, Russia imported 210,700 MT of fluid whole milk (62% more than during the same period in 2011). These import gains are attributable to more Belarusian product being available on the market which is less expensive and which some consumers believe is of higher quality. In addition to supplying the vast majority of fluid and dry milk, Belarus also supplies approximately two-thirds of Russia’s butter imports, and one-third of its cheese imports.

Because of the large volume of imports from Belarus, and in order to protect its domestic industry, the Russian dairy industry has lobbied the GOR for the creation of a system to monitor the quality, quantity, and price of dairy products delivered from Belarus to Russia.

For butter, in addition to Belarus, other major exporters to Russia are the EU, New Zealand, Uruguay, Argentina, and Australia (see table 13). The EU and Ukraine were also large exporters of cheese (see table 12), WMP (see table 14), and NFDM.

Policy:

Import Duties

Since acceding to the WTO in August 2012, Russian import duties for certain dairy products have changed favorably for exporters to the Russian market.

Tariff Rate Quota for Imports of Whey

In September 2012, the Customs Union issued Decision No. 142 which established a 5,000 MT tariff rate quota (TRQ) for imports of whey (HTS 0404101201 and 0404101601) in an effort to control imports and protect domestic production. The Ministry of Economic Development will distribute the TRQ for imports of whey among exporters (excluding CIS countries) who shipped between May 1, 2009 and June 30, 2010, and from July 1, 2010 to May 31, 2012 based on their proportion of the volume of whey imported during those periods. The Russian Ministry of Industry and Trade is reportedly responsible for issuing import licenses for the TRQ.

The TRQ volume for 2012 was calculated based on the maximum allowable volume of the annual quota (i.e., 15,000 MT), according to Russia’s WTO commitments. According to the tariff schedule, which came into force on August 23, 2012, whey imports within the TRQ will be subject to a 10% duty, and out of quota product will be levied 15% (this is compared to the previous duty of 15%, but not less than 0.35 Euros per kilo).

November 2012

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