PHOTO: VLADISLAV VOROTNIKOV
INTERVIEW ▶▶▶
by falsification associated with violation in the fat composition. Regrettably, the information released by Rosselkhoznadzor is not consistent with reality. This regulator reports percentages of falsi- fied products in retail, but in the fineprint it adds that this is only from a small selection of goods. This is a big problem, because yes, we have violations, but according to our researchers they are in no more than 1.8% of products. In this regard, Rosselkhoznad- zor could be causing confusion, which affects consumption. If you talk to consumers in Russia, they tell you that dairy companies are supplying some poor-quality dairy products on the market. This is not true, but nobody wants to hear about the positive image of the Russian dairy industry – everybody is interested in news headings that jump out at you.
In 2019, the Russian government introduced a new electron- ic traceability system named Mercury, and now it is consid- ering the introduction of compulsory tagging of all dairy products in retail. How will this impact the dairy industry? Mercury has already impacted the industry. It was fully introduced on 1 November 2019. Thanks to the system, the Russian dairy market to a large extent was whitewashed. Wiping out falsified products from the market, the system increased the demand for raw milk by 1 million tonnes. This resulted in the share of falsified products dropping from 4.5% to 1.8% in 2019. Mercury helped a lot as it ensures full traceability within the supply chain. This doesn’t mean there are no problems. Just a few days ago, there was a problem because Mercury suddenly turned off, and this meant that both milk producers and processors incurred some fi- nancial losses. As for the tagging, it is designed to prevent coun- terfeit products, but the truth is this problem is not common for the Russian dairy industry or for the Russian food industry as a whole. We believe that the share of counterfeit – when trademark rights are being trespassed – products in Russia is limited to 0.01% of total sales. This is not justified with the costs we would have to bear. In the year of introducing the tagging system we would need to spend RUB61 billion ($ 980 million) to match new requirements, and in the following years we would need to spend a minimum of RUB35 billion ($ 550 million) per year on purchas- ing QR codes and relevant equipment. There is also a problem of code unreadability, which could also cause multibillion losses to the industry.
What impact could this system have on Russian dairy com- panies? Judge for yourself; the net profit of the entire Russian dairy indus- try in 2019 amounted to RUB35 billion ($ 550 million). It could cut the average profitability in Russia by 3% or 4%, or eat the entire profitability. Plus, it is very likely we would see a price hike on dairy products. So we believe this system is excessive and it is senseless, since we already have four traceability systems in the Russian food and beverages market. In this regard, we hope that the government will hear the voice of reason and cancel the tagging project.
20 ▶DAIRY GLOBAL | Volume 7, No. 2, 2020
Do you believe the Russian industry still has high invest- ment attractiveness? During the past few years the Russian dairy industry attracted not only Russian, but also foreign investors. The demand for dairy products is still far below the European level. We anticipate that with the recovery of the Russian economy and the growth in the purchasing power of the Russian population, sales in the Russian dairy market could grow by 25–30% in the next seven to ten years. During the past year, some plans to invest in the Russian dairy industry have been unveiled by the Russian agricultural holding RusAgro and by Novolipetsk Steel Company, paving the way to build some milk farms in Tver Oblast and Kaluga Oblast. There are some investment plans from the German DMK Deutsches Milchkontor GmbH. French company Savencia has bought a production site in the Republic of Bashkortostan to pro- duce cheese. There are also some projects harboured by Chinese investors in the Russian Far East. Investors are interested in the Russian dairy industry, including from a point of view of establishing export supplies in future.
How would you assess the export opportunities of the Rus- sian dairy industry? In 2019, we exported dairy products with the total value of $ 300 million, 90% of which went to the CIS countries. I would say that in the next five to six years most of our products will land in the post-Soviet countries. I believe by 2024 we will be exporting 60–70% of our total export to these markets. We will export prod- ucts with high added value, including cheese, yoghurts and ice cream. We also have some opportunities in expanding export of such products as milk whey, dry powder milk, and in this case we would focus on South-East Asia, including China and South Korea, as well as the Middle East and Africa. Under a positive scenario I would say that dairy exports from Russia could grow 2.5–3 times, reaching $ 800–$ 900 million.
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