Concerns for the future of the Russian dairy industry

01-07-2014 | |
Concerns for the future of the Russian dairy industry
Concerns for the future of the Russian dairy industry

Rising feed costs as well as high interest rates on loans could significantly harm the milk production sector in Russia, according to the chairman of the National Union of Milk Producers Andrei Danilenko.

“In Russia the cost of producing just one litre of milk in general can compete with the EU, US, Canada and even China”, he said. “That is, in terms of production costs of, we are more competitive”.

However we have loans with more than 15% rate per annum, while western competitors have rates from 2% to 4% per annum. Even under the sponsorship by the Russian authorities which usually lower the rate for milk businesses, such situation is unfavourable and ultimately it adds to the final cost of dairy production, around RUB 5 (US$0.14) per litre, with the average price per litre of raw milk RUB 15 – 18 (US$ 0.44 – 0.53). “

At the same time, according to Danilenko the additional threat of instability for the dairy business is the price of feed, which is highly dependent on the results of harvest and weather conditions within a certain season. The weather in Russia in recent years remains rather unpredictable, which also negatively affects the investment attractiveness of the dairy industry.

And as a result the Russian dairy industry saw no new investments projects for a long time. “After the fourth quarter of 2012 there were no new projects within the dairy industry.”  says Danilenko.

As the result just last year we saw a 1.2 million tonne drop in domestic milk production, with the growth of imports by 2 million tonnes, and the growth of output prices by more than 30

Vladislav Vorotnikov Eastern European correspondent