PARTNER FEATURE ▶▶▶
How the dairy market in Russia is developing
During 2020, the dairy market in Russia further progressed in breaking the drawdown that has dominated the sector for six years since the embargo announcement in 2014. The embargo cut the dairy market by about 45% in value and reduced the number of imported products by half.
BY EVGENIA UVAROVA, PROJECT MANAGER AT SCHNEIDER GROUP T
hroughout the last six years and after more sanc- tions on Russia, the dairy market has not managed to become competitive on an international level, overcome the small market consolidation or change
the fact that low-margin sectors, such as milk and kefir pro- duction, remain rather regional players. Milk is an important component for other products, and the small number of sig- nificant producers results in high prices in all sectors of the dairy market. The slow development of the Russian dairy market is explained by the long-term return on investment, which is common for the dairy industry, and a basic industrial landscape that simply is not prepared to grow. However, in- vestment in the dairy market is an important topic for Russia, and investments from Western businesses are of particular importance. Similar to other industries, the dairy market – including cheese, butter, milk, kefir and other products – demonstrates a strong need for Western technologies.
Domestic milk production The 2014 embargo provoked two major trends in Russia. On the one hand the dairy market faced a shortage in com- ponents and products, which created a serious obstacle to production of ready-for-sale products and left the market half empty. On the other hand, it stimulated local industrial pro- duction of milk as an important component for dairy prod- ucts. So in order to fill the void of imported milk, domestic companies started to develop milk production. According to data from 2014 to 2019, the amount of milk produced grew from 14.3 to 16.9 million tonnes, and producers managed to satisfy the majority of the value chain. However, increased
28 ▶ DAIRY GLOBAL | Volume 8, No. 1, 2021
milk production was not enough to deliver competitive price and quality. The price issue in particular has played a key role during the last six years in the development of the dairy mar- ket. In Russia, the local demand for dairy products per capita remains low due to high prices. The average per capita dairy consumption in Russia is 158.5kg per year, while in Europe the average is 306kg per year. The Russian economy faced a crisis in 2018, resulting in a strong decline of purchasing power. The situation was repeated in 2020, following the economic effects of the coronavirus crisis. This meant that the Russian dairy market, facing one serious issue after another, did not have a chance to recover. As a result, Russian-made dairy products were, and remain, too expensive for domes- tic consumers while the economic crisis affected both the dairy sector and the purchasing power of consumers. The data from 2020 demonstrates that with the increase in milk production and decline in purchasing power, growth went to inventory. In 2019, the amount of imported goods such as butter, cheese and cottage cheese grew. However, a problem is that milk is a difficult product to keep in stock because it is perishable. One other factor that affected the increase in price for raw milk was the measures taken by the government to regulate the market for milk-containing products in order to improve the quality of dairy products.
Foreign companies Dairy market consolidation in Russia remains low, and milk production is divided as follows: 3.8% EkoNiva (German company), 2.2% government-owned companies, 1.3% Agrokompleks (Russian company) and other companies with
PHOTO: SHUTTERSTOCK
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