GENERAL MARKET TRENDS
One of the main factors influencing the situation in the Russian dairy industry and its development is the state of dairy cattle breeding, which suffered greatly in the early 1990s, affecting the volumes of raw milk production.
In 2006, the ‘Development of the Agricultural Sector’ national project began to be implemented in the direction ‘Accelerated Development of Animal Husbandry’. The key activities in this regard included supplies of pedigree livestock and construction of modern dairy farms, which led to a slight increase in gross milk production.
In 2016, the gross milk yield volume declined by 0.1% compared with the previous year, amounting to 30.75 million tons (against 30.77 million tons in 2015). All in all, considering the retrospective, said indicator has had weak dynamics in the last 3 years.
In short, a rather difficult situation has formed in today’s Russian dairy market: milk output in the country has not been managing to catch up with growth in demand for raw milk in the industry. The increase in dairy product consumption from 2000 to 2016 reached 14.15%, whereas the volume of raw milk production decreased by 0.5%.
Whole milk production (drinking milk, drinking fermented dairy goods etc.) has been the most successful segment of the market. The segment has the highest share of self-sufficiency in the Russian Federation, production requiring 70% of raw marketable milk. Imports of whole milk products are challenging to perform due to the product’s short shelf life, high transportation costs per item and a number of other factors. Given the lack of competition from imports, the whole milk segment has been developing successfully.
In August 2014, the Resolution of the Government of the Russian Federation ‘On measures for implementation of the Decree of the President of the Russian Federation dated August 6, 2014 № 560 ‘On the application of certain special economic measures to ensure the security of the Russian Federation’ was adopted, according to which, starting with August 7 and for the duration of 1 year, a ban on imports of agricultural produce, raw materials and foods from the USA, the EU, Canada, Australia and Norway was imposed. At the moment, the embargo has been extended until the end of 2018. A retrospective market analysis shows that the impact of the embargo on the market is ambiguous.
According to the Russian Federal State Statistics Service (Rosstat), the dynamics of domestic production of milk and the main types of dairy products in volume terms were insignificant in 2016 compared with indicators for 2015. Highest growth in output volumes in 2016 was demonstrated by the cream segment – 3.6%. Negative dynamics were observed in the sour cream segment (-0.1%). The volume of kefir production in 2016 remained at the same level as in 2015.
The embargo imposed in 2014 affected imports of the product category ‘Milk and cream, non-condensed and unsweetened (whole milk)’, the volumes of which were decreasing. In 2016, the volume of imports thereof dropped by 18% to 2014. A gradual decrease in imports has been observed since 2014 and correlates with the implementation of the embargo.
The ‘Cheeses and quark’ product category has been demonstrating a decline in imports since early 2014, and the product sanctions at the end of the year aggravated the situation. For comparison, the volume of imports of said products in 2014 dropped by 25.9% compared with the level of 2013; if indicators for 2016 and 2013 are compared, the decline equalled 47.7%. Compared with 2015, however, the year 2016 demonstrated growth against the backdrop of imports dynamics for other dairy products.
The dynamics of imports in such segments as milk powder, cheeses and quark, and butter changed in 2015–2016, which was apparently caused by the stabilisation of the Russian ruble. Imports increased – substantially in certain segments: growth in the milk powder segment reached 15.1% compared with the similar indicator in 2015, whereas the butter segment demonstrated an increase of around 5%; the segment of cheeses and quark grew by around 8%.
Import growth rates significantly exceed growth in domestic production.
According to estimates by “NeoAnalytics”, the dairy segment of the market has potential for dynamics, even though domestic consumption exceeds supply formation (production) and, as a result, the share of milk and dairy product exports is insignificant and amounts to not more than 2% of the total dairy output volume. The bulk of products exported are supplied to the CIS countries.
“NeoAnalytics” estimates the volume of the Russian market of milk and dairy products to amount to around 1,281.4 billion rubles in monetary terms in 2016, exceeding the figure of 2015 by 5.3%. Growth dynamics will be affected by positive indicators of domestic production and import volumes.
According to forecasts by “NeoAnalytics”, positive market size dynamics will be maintained in 2017–2019, and in 2019 the indicator may amount to around 1,490 billion rubles.
The main factor primarily affecting small manufacturers in the Russian dairy market is seasonality. During the summer months, milk output volumes increase, whereas consumer demand and purchasing prices decline. Starting with autumn, a reverse process takes place – milk production decreases, whereas consumption and prices grow.
TRENDS AND DEVELOPMENT PROSPECTS OF THE DAIRY INDUSTRY
In recent years, the dairy industry has been facing a number of negative factors, which affected its development; they include:
* an increase in competition between domestic and foreign dairy manufacturers;
* growth in production costs;
* considerable seasonal fluctuations in milk selling prices;
* a reduction in the cattle number due to increased feed costs.
These factors combined will continue to affect the conditions of development of the Russian dairy market up until 2019.
In addition, as a result of increased costs for cattle housing, the trend for a decline in livestock numbers will remain – primarily in household plots, which have a significant share in milk production among other farm categories (45–48%). It should be noted that in recent years, as part of the process of production intensification, cattle has been getting substantially more productive. However, growth in milk yields per cow has not been compensating for the decrease in milk production volumes that occurs due to livestock reduction.
The ban on dairy imports from a number of countries imposed in 2014 further increased the demand for Russian goods (including both finished products and unprocessed milk for cheese and butter production).
Stable consumer demand for dairy products on the whole is an important driver for further development of market dynamics. Consumption of milk and dairy goods is vital for human health. Even though Russia’s consumption indicators are not significant, they are higher than the similar indicators for Eastern Europe and much higher than global consumption, which amounts to 15 litres per capita. The low figure is due to low levels of dairy product consumption in hot and very cold countries as well as countries with underdeveloped economies and agriculture lacking an infrastructure for processing, packaging and storage of these products. However, according to forecasts by the Ministry of Agriculture of the Russian Federation, milk consumption in Russia may decline by 2–3% in 2017.
Regarding the range of dairy products, according to the Russian Dairy Union, new functional and preventive goods are expected to emerge.
Research Company “NeoAnalytics”