Attractive dairy opportunity appearing on our doorstep
Will Belarusian producers be able to help neighbours in covering their milk deficit?
By Sergey Novikov
Prices for milk, butter and cheese are soon likely to rise in Russia, by at least 10 percent initially, according to the Ministry of Agriculture and the Branch Association of Milkmen. Lack of state subsidies and reduced numbers of livestock will lead to this price hike and the opportunity for Belarusian milk processing enterprises to increase volumes of deliveries to our neighbour. Of course, Belarus is already considered to be one of the main exporters of milk and cheese to Russia.
Every June and July, the months of milk abundance, Russian dairy prices usually fall by about 20 percent. This year, the situation is different, due to a lack of milk. Being a ‘social product’, prices are regulated by the government but are due to rise by 5 percent in August and another 5 percent by the end of the year.
Russia’s membership of the World Trade Organisation has brought competition from abroad, with butter imports alone up by 80 percent, as noted by the Federal Customs Service of the Russian Federation, as of 20 June, 2013. Moreover, this excludes imports from the Customs Union and Belarus.
The import of cheese has also increased, leaving less room for Russian cheeses. Trading networks, building their relations with importers, have neglected local dairy firms, leading to those producers reducing their volumes of milk by 5 percent (or even 10-15 percent). Once the dairy deficit situation became apparent, it was found that it was no longer possible to extend domestic sources, leaving only importers to benefit, charging the prices they desire. Russians have already begun to notice that prices for Belarusian products have risen.
Russia’s mechanism of state support for the dairy industry previously provided about 30 billion Russian Roubles of subsidy. Now, subsidies are received for each litre of milk, with requirements attached concerning quality (fat and protein levels). A regulation is also planned concerning calving, making the system of subsidies more complicated. Among the subsidies cut are discounts for mineral fertilisers.
Unlike Russia, whose WTO membership is curbing its ability to subsidise domestic producers, Belarus is more flexible. At the beginning of this month, our Ministry of Agriculture and Food increased the minimum recommended export prices for dairy products. The Belarusian Universal Commodity Exchange reports that export prices for dairy products continue to rise. However, there is a limit to the volumes our Belarusian farms can produce and it’s impossible for them to completely cover demand on the Russian market: nearly 9 million tonnes of cheese is imported per year. Of this, 4.2-4.5 million tonnes can be covered by Belarus, with the rest coming from further abroad.
Belarus is considered to be the largest exporter of milk to Russia, and the share of our goods accounts for almost 75 percent of total exports from January-May this year. The Finns follow, selling 7.8 percent to Russia. Ukraine, Germany and New Zealand are next in line. Higher added value goods are sold in more modest proportions. Belarus sells about one-third of its cheese to Russia, covering about 15 percent of the market, although Russia certainly takes the lion’s share of Belarusian dairy exports over all, with Kazakhstan in second place.
Russia is prepared for rising milk prices exceeding inflation but it’s also expected that this will reduce demand, leading to suppliers of raw materials having to reduce their prices, bringing no long-term benefits. Our consumer market aspires to parity with our neighbours in terms of pricing but this could actually result in Belarusians paying more on their own domestic market.