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USDA GAIN: Dairy and Products


06 June 2013

USDA GAIN: Russian Federation Dairy and Products Semi-annual 2013USDA GAIN: Russian Federation Dairy and Products Semi-annual 2013

FAS/Moscow has decreased the 2013 forecast for Russian dairy cow inventories because State support programs for the Russian dairy sector have so far proved insufficient to fully offset the impact that increased feed prices, resulting from the 2012 drought, are having on Russian dairy farms. Given the continued reduction in cow inventories, FAS/Moscow has reduced 2013 forecasts for domestically produced fluid milk (31.6 MMT), cheese (455,000 MT), and non-fat dry milk (NFDM) (55,000 MT). These production decreases have, in turn, led to favorable import conditions for dairy products in 2013, particularly from Belarus. Domestically produced butter (210,000 MT) and whole milk powder (WMP) (65,000 MT) production is forecast to remain unchanged given the continued availability of imported Belarusian fluid milk.
USDA Gain Report - Dairy and Products

Production

Cow Inventories

FAS/Moscow has decreased the 2013 forecast for Russian dairy cow inventories by approximately 2 percent. In 2012, FAS/Moscow forecasted annual contraction of the Russian dairy herd might finally come to an end in 2013 given ongoing Russian federal and regional government support programs for livestock development (e.g., subsidies for pedigree cattle purchases) and modernization efforts (e.g., compensation for infrastructural improvements on farms). However, there has been no let-up in the difficulties in acquiring affordable feeds since FAS/Moscow’s forecast last fall. Industry sources report the quantity of available feed in April 2013 was 26 percent lower than the same period in 2012. In late 2012, the Russian Ministry of Agriculture announced its intention to allocate additional resources to compensate for the increased cost of feed (i.e., 15 billion Russian rubles {RUR} or approximately $480 million). These funds, however, were not distributed until May 2013 which may have been too late to stop the continued shrinkage of the Russian dairy cattle herd in 2013.

Fluid Milk

FAS/Moscow decreased the 2013 fluid milk production forecast by approximately 2 percent. During the first quarter of 2013, Russia’s average per-cow milk production decreased slightly (by half a percent) at agricultural establishments because of reduced feed rations comprised of lower quality feeds. This, coupled with reduced cow inventories, is expected to lead to a nearly 4 percent decrease in fluid milk production at agricultural establishments during 2013, when compared to 2012 (5.8 percent less than what was produced at these establishments in the first quarter of 2011). Moreover, according to the Russian State Statistics Service (Rosstat), only 1.1 MMT of fluid milk was marketed in the first quarter of 2013 (nearly 6 percent less than what was marketed during the same period in 2012).

FAS/Moscow also revised its 2012 fluid milk production data based on year-end statistics published by Rosstat. According to the statistics service, Russia produced 31.9 MMT of fluid milk in 2012 (almost one percent more than was produced in 2011). According to Rosstat, private household farms accounted for 48.4 percent of Russian fluid milk production in 2012, while agricultural establishments accounted for 46.2 percent, and private farms accounted for 5.4 percent. However, the Russian Union of Milk Producers believes the share of fluid milk production produced by agricultural establishments is actually much higher than Rosstat estimates. According to Rosstat, the volume of marketed milk, by all farms types, increased by roughly 2 percent in 2012 to 19.6 MMT.

Cheese

FAS/Moscow has lowered the 2013 cheese production forecast by slightly more than 3 percent because of tighter supplies of appropriate quality domestically produced milk. Russian cheese manufacturers, however, are expected to make use of imported fluid milk to partially supplement reduced domestic supplies and still produce more than in 2012 (albeit at levels lower than previously predicted).

FAS/Moscow has revised 2012 production data for Russian domestic cheese downward, by slightly less than one percent, based on year-end 2012 Rosstat data. According to Rosstat, Russia produced 446,000 MT (RUR 51.3 billion or $1.6 billion) of cheese in 2012.

According to the "State Program for Food Industry Development in 2013-2020,” the Russian government’s goal is to invest RUR 100 billion ($3.1 billion) to improve the competitive of the Russian dairy industry over the next eight years. This investment plan is intended, in part, to increase domestic cheese production by 25 percent by 2020 (i.e., to 576,000 MT per year).

Chart1. Russia: Historical Domestic Cheese Production, 1,000 MTs

Source: Foreign Agricultural Service, Official USDA Estimates (NOTE: * indicates New Post Estimate)

Butter

FAS/Moscow has made no changes to the forecast for 2013 Russian butter production. According to Rosstat, 2012 Russian butter production was slightly higher (three percent more) than previous FAS/Moscow estimates. Given the continued availability of imported milk from Belarus, FAS/Moscow believes a three percent reduction in 2013 production levels, when compared to 2012, remains realistic.

The State support program for the “Development of Butter and Cheese in Russia for 2011-2013,” calls for Russia, by year’s end, to increase production of butter from domestically produced inputs by 14 percent, compared to 2009 production levels (i.e., to 264,200 MT). The program also calls for an increase in per capita consumption of domestically produced butter from 1.6 kg in 2009 to 1.9 kg in 2013. The Program’s goal is to support the modernization of existing butter manufacturing facilities, but not the construction of new butter production establishments (so as to ensure there is sufficient raw material {fluid milk} available for the industry). Despite the imminent completion of the program, Industry experts believe per capita consumption and production goals for domestically produced butter will remain well below their targets.

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

2013 Russian production of dry milk is forecast to remain flat (WMP) or significantly decrease (NFDM) as the demand for domestically produced dry milk continues to fall. As previously reported, Russia introduced legislation in 2008 which requires beverages with powdered milk ingredients to be marketed as “milk drinks.” This legislation has had a negative impact on the attractiveness of the product for consumers because consumers perceive these products to be less natural. In addition, despite having well-equipped production facilities with modern technologies and sufficient experience to be able to produce high quality dried whole and skim milk, Russian producers of ice cream, yogurt, cottage cheese, and infant formula continue to prefer higher quality imported powders over that which is produced domestically.

FAS/Moscow has slightly increased 2012 production for Russian WMP (up 3 percent to 67,000 MT) and NFDM (up by approximately 4 percent to 57,000 MT), based on year-end 2012 Rosstat data. While NFDM production remained relatively flat when compared to 2011 levels, 2012 domestic production of WMP was down approximately 12 percent from previous levels.

Consumption

FAS/Moscow has decreased the 2013 forecasts for fluid milk domestic and factory consumption as a result of reduced fluid milk supplies. Over the past ten years, the volume of fluid milk marketed by Russian agricultural establishments has not varied significantly. According to Rosstat, agricultural establishments marketed nearly 93 percent of the fluid milk they produced (i.e., 13.7 MMT), 73 percent of which was consumed by factories in 2012.

The average price for raw milk in 2012, when compared to 2011, increased by 1.2 percent to RUR15.6 ($0.5)/liter. The average price for first grade raw milk of standard fat content in April was RUR14 ($0.45)/kg (excluding VAT). When compared to 2011, the 2012 average retail price for milk increased by 8.6 percent, to RUR30.5 ($0.98)/liter. The average retail price for butter increased by 4.1 percent to RUR243.4 ($7.8)/kg, and the average retail price for hard cheese decreased by 2 percent to RUR258 ($8.3)/kg.

Chart 2. Average Monthly Prices for Russian Fluid Milk, RUR/kilo

NOTE: Despite decreased domestic production, imports of Belarusian milk suppressed prices in early 2013. Source: Russian Ministry of Agriculture

FAS/Moscow’s 2013 cheese consumption forecast is revised downward as a result of tighter domestic milk supplies, but is still expected to be higher than it was in 2012. According to trade sources, approximately 38 percent of Russia’s 2012 cheese consumption was attributable to cheese spreads, 29 percent to hard cheeses, 18 percent to semi-hard cheeses, and the remaining 15 percent to soft, smoked, and pickled cheeses.

The majority of the cheese consumed in Russia in 2012 (i.e., 43 percent) was comprised of the lowest cost cheeses, such as “Russian,” Poshekhonsky, and “Dutch,” priced at approximately RUR 200 ($6.5)/kg. Nearly the same share of cheese consumed in 2012 was comprised of average and higher-than-average priced cheeses ranging from RUR 200 ($6.5)/kg to RUR 330 ($10.7)/ kg, including Edam, Gouda, and Maasdam cheeses. Only 11 percent of the cheese consumed in Russia in 2012 was comprised of the highest-priced cheeses, including Roquefort, Kasseri, and Champignon, priced at more than RUR330 ($10.7)/kg.

Increasing imports of butter, WMP, and NFDM are expected to continue to spur domestic consumption of these products (despite domestic production remaining relatively flat or falling).

Trade

FAS/Moscow forecasts 2013 dairy imports to increase as a result of tighter fluid milk production in Russia and the continued price attractiveness of imported goods. Milk imports in 2013 are forecast approximately 10 percent higher than previous 2013 forecasts, given reductions in domestic production and consumer belief that foreign milk is of better quality.

Russia imported 324,124 MT of non-concentrated milk and cream in 2012, 16.1 percent more than in 2011.

Graph 3. Comparison of Monthly Russian Fluid Milk Imports from Belarus and the Rest of the World (1,000 MTs)

Source: Global Trade Atlas (Russian Import Statistics and Belarusian Export Statistics)

The majority of Russia’s dairy imports, however, continue to originate from Belarus. In 2012, Belarusian exports accounted for 90 percent of Russian fluid milk imports, 92 percent of Russian WMP imports, and 72 percent of Russian NFDM imports. In fact, Belarus continues to maximize bilateral preferences in its common economic territory with Russia (e.g., Customs Union, Free Trade Zone, Union State, etc.). At the end of 2012, Russia and Belarus finalized government-to-government bilateral purchase commitments for the Russia-Belarus Union State. According to the commitments, Russia will increase imports of Belarusian dairy products by 11 percent (to 4.11 MMT) in 2013, compared to 3.7 MMT in 2012.

FAS/Moscow increased the 2013 forecast for Russian cheese imports by an additional one percent to compensate for anticipated reductions in forecasted domestic production. In 2012, Russia imported 356,190 MT of cheese (four percent more than in 2011) with the majority coming from Belarus (26 percent), Germany (22 percent), and Ukraine (15 percent).

FAS/Moscow’s has slightly decreased the forecast for 2013 butter imports. As previously stated, an anticipated reduction in production levels will be offset by an increase in imports (but at a slower rate than previously predicted). In the first quarter of 2013, butter imports were up by nearly 40 percent over 2011 levels (with the bulk of imports originating in the EU, Uruguay, and New Zealand). However, in 2012, Russia imported 117,405 MT of butter (only three percent more than in 2011) with the majority coming from Belarus (42 percent), New Zealand (18 percent), Uruguay (11 percent), and Finland (9 percent). Despite a huge increase in imports in the first quarter of 2013, FAS/Moscow has revised downward the 2013 import forecast to account for a slower rate of import growth based on an analysis of recent year-end trade statistics.

Moreover, despite modest increases in the volume of imported butter last year, palm oil imports (with a volume six times that of butter imports) also increased in 2012. The Russian dairy industry continues to express concerns with the increasing volume of these palm oil imports, the primary input in the production of margarine, which the industry believes is unfairly marketed as butter. FAS/Moscow believes this is likely to continue into 2013.

FAS/Moscow’s WMP and NFDM import forecasts for 2013 are considerably increased based on significant import growth from Belarus in calendar year 2012, in accordance with year-end Rosstat data. In 2012, Russia imported 27,933 MT of WMP (32 percent more than was imported in 2011) and 95,619 MT of NFDM (29 percent more than was imported in 2011) of which Belarus accounted for 92 and 72 percent, respectively. FAS/Moscow is forecasting a slight increase in imports in these commodities as domestic Russian production continues to remain flat.

Policy

Due to continued import penetration of processed dairy products in the first quarter of calendar year 2013 (particularly for butter), the Russian government decided to increase import duties for butter and some cheeses starting April 1, 2013, for a period of 90 days. A continuation beyond 90 days will be considered by the government to help stimulate domestic production, if deemed necessary. However, industry experts believe a continuation of the temporary increase in duties may only further stimulate Belarusian and Ukrainian supplies over other exporting countries (e.g., the EU, New Zealand, and Uruguay) because: these products are entering duty free; are not subject to the current short-term tariff increase because they are fellow CIS Member States; and, because they will face less competition from non CIS exporting countries.

June 2013

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