Milk that will never go sour

The current situation in the global milk market has never been seen before

The current situation in the global milk market has never been seen before: production preprocessing has reached the highest point while prices have fallen to rock bottom in the last seven years. Meanwhile, our producers face ambitious tasks: to increase milk production by over 30 percent in the next four years, while working on export diversification and preserving competitiveness as Belarus joins the WTO.


Processed cheese production
The situation seen in the global milk industry closely resembles the oil problem: prices will never rise until the players fail to lessen their production volumes. Supply has outstripped demand and, accordingly, milk prices have fallen to the 2009 level. Of course, this trend has influenced the Belarusian market. According to Maxim Fasteev — an expert of the UN Food and Agriculture Organisation, although our facilities are now demonstrating great production levels, profits in foreign currency have halved, while export costs in January-February 2016 fell by 20-25 percent against the same period in 2015.

“Our milk market is special: 96 percent of milk products are exported to Russia. On the one hand, it’s now necessary to cut this dependence but, on the other hand, Russians pay best of all,” stated Mr. Fasteev. “In order not to lose export revenue while exporting, producers should pay more attention to diversified sales, also actively taking part in exchange bidding.”

Despite unfavourable external factors, our producers do not plan to cut milk production. On the contrary, the branch faces a major task: to increase output up to 9.2m tonnes by 2020 (33 percent more on 2015 figures). The First Deputy Agriculture and Food Minister, Leonid Marinich, explains that the industry is aiming for intensive development to increase milk production. The major task for the agricultural sector in the future is to cut costs by 25 percent. “We understand that changes are necessary; we need to cut costs and expenses to ensure competitiveness. We have a couple of years ahead to do this. We’ll be ready by the time we expect to join the WTO in 2020,” he added. The Ministry is already reminding producers that WTO membership will result in reduced export prices. Our manufacturers need to start working on decreasing their prices.

So far, the Ministry’s Foreign Economic Activity Department is pleased with the milk production figures of the first quarter which rose by 25 percent. Meanwhile, our dependence on the Russian market is not so pleasing. “We supply 96.6 percent of our products to Russia,” says Departmental Head, Alexey Bogdanov. “However, just 1.1 percent goes outside the Eurasian Economic Union — accounting for $19.1m. We also need to understand that, by 2020, we’ll have increased our production up to 9.2m tonnes, with 5.8m of them needing to be exported. By that time, Russia will have cut its milk imports from 7m to 4.1m tonnes. The difference between their imports and our exports will be almost 1.7m tonnes. What should we do with this amount of volume? With this in mind, we are constantly urging producers to diversify their sales — sending their products to the CIS and non-CIS states.”


The market analysis has shown that some enterprises exported to CIS last year at prices higher than those proposed by Russia. Marina Petrova — a leading expert of the Russian milk market — believes the milk industry of the neighbouring country has not yet achieved real import substitution, continuing to stagnate. In the last two years, the share of milk imports from Belarus exceeds 90 percent in many areas: Russia buys 96 percent of Belarusian dried milk, 97 percent of our dried whey, 99 percent of cottage cheese and 98 percent of milk. The expert considers the present transformation of the Russian market opens new possibilities for Belarusian producers regarding the replacement of European products. As the same time, Ms. Petrova recommends to concentrate on supplies of popular and non-expensive products since the buying capacity of Russians has decreased.

In turn, producers are recommended to sell products with high added value to third countries. In particular, the Ministry sees great prospects in the Chinese and Arabian markets, noting it is ready to give all possible support in this area.


FIGURES


From January-March 2016, agricultural producers exported 920 tonnes of milk products (worth $350m). Exports of milk products in 2015 stood at $1.7bn.

FACT

Last year, Belarus was placed third in the rating of world milk production regarding its butter and milk whey production. The country was fifth in cheese, cottage cheese and dried semi-skimmed milk production.

By Galina Kononova
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