Review of the Russian Milk MarketResearch by the Company “Global Reach Consulting”
Agriculture in the Russian Federation requires drastic measures in order to overcome the systemic crisis. Since the early 1990s, the agriculture industry has slowed down its development, and cattle farming is no exception. According to Rosstat, the number of dairy cows in the early 2000s amounted to around 13 million – by 2016 the figure had declined by almost 37%. In recent years the Government has been developing and implementing state programs aimed to improve the situation in the industry, due to which the decline rate in cattle numbers has been slowing down.
Positive dynamics in cattle reproduction at 100 reproductive females per year can be observed. The latest data indicates the highest offspring index over the past 24 years – 78.4 heads of cattle.
Despite the stable growth in milk production in recent years (in 2016 alone milk production per cow per year increased by over 4% compared to 2015), raw milk production has been stagnating since 2013, and in 2016 it demonstrated a slight decrease. In addition, milk production is subject to seasonality, and around 42% of the annual volume is produced in the warm season from May to August.
The bulk of raw milk production – around 93% – falls on agricultural organizations and household plots. It should be noted that agricultural organizations have been increasing their share from year to year, the share having grown from 46% in 2012 to 49% in 2016. At the same time household plots are losing their positions with -4 pp to 2012 in 2016.
Traditionally, regions of the Volga Federal District are leading in milk production, their shares having amounted to around 31% in 2016. They are followed by the Central, Siberian and Southern Fedral District with the overall share of around 47%.
The lowest volume of production was recorded in the Far Eastern Federal District – in 2016 regions of the federal district produced about 0.5 million tons of milk, which equals only 2% of the total production volume for Russia.
Regarding the regional structure, it can be noted that the volume of milk production exceeds 1 million tons in Tatarstan, Bashkortostan, Altai Krai and Krasnodar Krai as well as Rostov region. Only two regions – Bashkortostan and Altai Krai – demonstrated a decrease in output volumes in 2016, whereas the other leading regions demonstrated growth in raw milk production.
Despite the volumes of raw milk production decreasing, resources of the Russian market are formed from domestic producers, demonstrating an increase in the share of domestic raw milk in the market. In 2016 a 1% decline in imports of raw milk can be observed.
Development of the raw material base in the milk industry is crucial, as dairy products serve as an integral part of the diet for 90% of the Russian citizens. Russian companies produce whole milk products (milk, cream), fermented dairy products (kefir, quark, yogurt, kumis, soured milk), butter, cheeses, whey and other product types.
In 2016 multidirectional dynamics was observed in milk production. In 2016 production of milk, cream, fermented dairy and cheeses demonstrated positive dynamics, having increased by 1-4% to the figure of 2015. The volume of whey, butter and quark production declined the most in 2016, by 3-4%.
Growth in production of certain dairy product types is caused by the Russian market being oriented toward import substitution. After the food embargo imposed in 2014 dairy producers increased their output rates in order to satisfy the consumer demand. In 2016, 1-4% growth in production of the main types of dairy products was recorded. The exception were butter, quark and whey, production of which decline by 3-5% to 2015.
Dairy imports have been declining for the past 3 years. Import volumes dropped by almost 32% in physical terms to 2013. The maximum decline occurred in 2015, when supplies of dairy products from the USA, Canada, Australia and European countries stopped, and relations with new suppliers were still in the process of being established.
In 2015 volumes of imports were declining in all categories of dairy products, the volume of cheese, quark and butter supplies having dropped the most – by 41 and 39% respectively. In 2016 a decline in imported product supplies in physical terms was only observed in condensed milk and cream – the decrease amounted to approximately 29% to 2015.
Multidirectional dynamics can be observed in cheese and quark imports. In 2016 import growth rates in physical terms increased by almost 5%, whereas in monetary terms the growth rates of imports declined by over 1.4%, which is explained by the decrease in costs of the products supplied. In 2016 supplies of cheeses and quark from Belarus increased, and countries supplying more expensive goods, such as Argentina and Armenia, had their import shares decline by 13 and 58% respectively.
Belarus was the undisputed leader in imports of all dairy product types in 2016. Over 70% of all imported butter, over 80% of cheeses, condensed milk and cream as well as more than 90% of fermented dairy products, whey and non-condensed milk were supplied to Russia from this country.
It should be noted that, despite the declining production volumes and imports, Russia increased its dairy export volumes by 4% in 2016. Over 65% of imports in volume terms fall on fermented milk drink, non-condensed milk and cream supplies. Kazakhstan is the main purchaser of Russian dairy products, its share equaling 37% of exports.
Within import substitution, the Government of the Russian Federation has been taking measures aimed to create favorable conditions for the development of agriculture. According to forecasts, growth in domestic raw milk consumption and production volumes is expected, and thus the competitiveness of Russian milk and dairy products will increase.
Department of Business Planning and Marketing Research
“Global Reach Consulting”