Non-dairy problems of the dairy industry

Prices for raw milk in Russian regions, according to the Index DIA app, also continued to grow.

The price index for dairy products on the New Zealand stock exchange GDT also rose. The increase was 1.8%. Prices for all exchange-traded dairy products, except for skimmed milk powder, have increased.

Concentrated feed for cattle in Russia also set a new price record. In December 2020, their average price was 16.6 thousand rubles/ton, which is 4.9% more than a month earlier, and 1.31 times more than in December 2019. Since the beginning of the year, the price has increased by 23.1%.

The most expensive feed for cattle in December 2020 was sold in Southern District (19.8 thousand rubles/ton), the cheapest - in Siberian District (13.1 thousand rubles/ton).

The editors of The DairyNews decided to talk to representatives of the dairy industry to find out how the rise in the price of feed will affect the price of the finished product on the shelf and what problems the industry as a whole faced in January 2021.

Market participants surveyed by The DairyNews believe that an increase in the cost of feed will lead to an increase in the price of the product on the shelf.

Dmitry Matveev, General Director of KABOSH Group of Companies, suggested that the price of milk could increase by 5%.

‘The main concentrated feed we have is corn, meal. Feed prices have risen to 30%. More than half of it is imported. Mineral supplements, meal, soy and rapeseed feed - all this is purchased abroad. In fact, today grain has also become an import component, because taking into account the increase in the exchange rate, it has become more profitable for exporters to export products, as they began to receive more rubles,’ Dmitry Matveev said.

‘Even last year, during the harvesting of forages, it became clear that they would rise in price. Rapeseed feed, oilcake, and corn have also increased in price. If in 2019 we bought corn for our farm for 7-8 rubles, in 2020 it cost about 15-16 rubles. Now its cost is 18 rubles. Rapeseed cake in 2019 cost 16 rubles, and in November-December 2020 – 25-26 rubles. That is, the price of feed in our farm has increased by almost 40%. Protected fat also increased in price by about 30%, - said the representative of a large agricultural enterprise in Vladimir region.

According to him, the rise in the price of imported components will lead to the fact that the cost of the product will significantly increase. He noted that the government keeps prices down. Therefore, dairy plants will buy milk at the same cost.

‘The price of the product on the shelf should be monitored by retailers. But if the government does not restrain prices, the cost of the finished product will increase by about 5%. It is necessary that the government should pay attention to the rise in the price of feed and its imported components and try to keep their optimal price,’ the expert said.

The head of one of the enterprises in Sverdlovsk region also notes that the increase in the price of meal and soy in the region was 45-48%, rapeseed feed - 34-35%, corn - about 24%.

‘Due to the fact that the cost of feed increased in the fourth quarter of 2020, animal husbandry reached zero. Its profitability has deteriorated. Although the first nine months, the indicators were positive. Therefore, without budget support, we would lose,’ the expert said.

According to him, since the beginning of the year, the price of milk has increased by 4-4.5%. At the same time, the cost of feed for the same period increased by 30-35%.

‘We have not managed to change the ration for cows yet, as these changes occurred in the fourth quarter of last year. Therefore, gradually we begin to lose. If this situation persists for a long time, and we will not be able to buy rapeseed and soy meal, cake, then by mid-summer, the volume of milk production will be reduced. This is not a standard situation for this season: usually in the summer, there is excess milk on the Russian market. However, if this situation persists, then by the autumn we will face a shortage, and prices will rise, - said the head of one of the agricultural enterprises in Sverdlovsk region.

He added that due to the fact that now the prices for raw milk do not increase, the cost of finished products on the shelf does not increase. In his opinion, the situation may change by the autumn, but it is still difficult to predict how much.

Some representatives of the dairy industry, on the contrary, believe that the rise in the price of feed will not lead to an increase in the price of the product on the shelf.

‘We are not a grain-producing region, so all the concentrated feed is imported. Moreover, because we do not produce anything ourselves, and we do not have grain at cost, we buy it on the market. On the Russian market, feed prices rose by about 23%. This is bad. If we talk about dairy cattle, the imported component in the feed for them is almost absent. All this concentrated feed is of domestic production. And as for fish feed, we are a region specializing in aquaculture, where the share of imported feed is more than 90%,’ said Vladimir Labinov, Deputy Chairman of the Government of the Republic of Karelia, Minister of Agriculture and Fisheries of the region.

In his opinion, there is no direct connection between the increase in the cost of feed and the increase in the price on the shelf. That is because consumer demand serves as a deterrent to the increase in the cost of the finished product.

‘Therefore, the increase in the cost of production is a decrease in profit for milk producers. It is not possible to automatically transfer the cost increase to the shelf. There are no linear dependencies here,’ the expert said.

‘We have our own modern feed mill, which allows us to make high-quality feed without buying grain. We buy premixes that contain a lot of imported ingredients. What saved us from a sharp increase in the cost of milk is an increase in the productivity of cows in the dairy complex. Each cow produced 13,456 kg of milk,’ said Head of the APC Kilachevsky Anatoly Nikiforov.

He confirmed that due to the rise in the price of the euro, the cost of feed increased by 50%. At the same time, Anatoly Nikiforov believes that it is not necessary to count on the fact that prices for raw milk will increase this year, since the purchasing power and income of the population, according to Rosstat, decreased by 3.8 %.

In addition to the rise in feed prices and the establishment of new records by the DIA index, other non-dairy problems are also catching up with dairy farmers. The labeling is one of them.

For example, Dmitry Matveev, General Director of KABOSH Group of Companies, believes that labeling can lead to a reduction in demand for dairy products.

‘Today we see that the consumption of traditional dairy products, unfortunately, is falling. I believe that this is also due to the price. We must do everything to ensure that the price of the finished product does not rise. But, unfortunately, today everything is done to ensure that it grows,’ the expert noted.

He believes that if the deadline for the introduction of mandatory digital labeling is still postponed, it will be done for a maximum of six months, which will not solve the problem completely.

‘Food safety is important, but due to failures in the "Honest Mark" system, there may be problems in the production and supply of products. We remember that this happened earlier in the veterinary certification system, and we are afraid of a repetition of such things in a more serious scale. In addition, for some manufacturers, this will become a heavy burden, and some will leave the market. But I think that there will not be many such producers,’ said Vladislav Cheburashkin, the founder and CEO of the Cheburashkin Brothers holding.

Many milk processors have already experienced by their own example that this process requires a lot of money.

‘The Cheburashkin Brothers Holding, which includes four modern farms in Dmitrov and Sergiev Posad districts of Moscow region, estimates the cost of the new "Honest Mark" labeling at 10-12 million rubles. In the near future, the company plans to conclude contracts for the supply of appropriate equipment,’ said the acting head of the Ministry of Agriculture and Food of Moscow region Sergey Voskresensky.

In addition to the traditional problems, milk processors are also plagued by social problems – such as gasification.

Head of the Agricultural production cooperative Kilachevsky Anatoly Nikiforov said that he decided to run gas heating in a rural store, but faced a lot of paperwork.

‘The organization that supplies gas is certified. It has documents confirming the activity, but we had to pay for the registration of the boiler. In this case, we could install it ourselves and still registered the same documents. Now we want to gasify two villages. One organization asked for more than 5 million rubles just for the project, the other – 3.5 million, - said Anatoly Nikiforov.

He noted that the APC Kilchevsky can provide gas for the villagers. To date, five projects are being implemented. Two villages have already been gasified. The cost of the remaining three projects is more than 7 million rubles.

Lack of funding is also one of the most important problems of milk processors.

For example, the head of one of the agricultural enterprises in Sverdlovsk region notes that the main issue at the enterprise is related to construction: despite the presence of a good herd and feed base, to improve production volumes, it is necessary to build new yards, funds for which are not enough.

‘Very often, grants are given to farmers. I have nothing against them, but for some reason collective farms are not given grants free of charge. Sometimes private farms have the same production volumes as we do. In general, in our farm, the limiting factor is housing conditions for animals. If we could create favorable conditions, then, today, we would milk 10-10.5 thousand kg of milk per cow, as the genetic potential of animals, as well as the quality and quantity of feed allow. Now we are producing 9 thousand. kg per cow per year,’ said the head of one of the agricultural enterprises in Sverdlovsk region.

He noted that the construction is expensive, and we do not want to use old tied-up system technologies. According to the expert, one such cattle place costs about 200 thousand rubles. With the new technologies, one cattle place costs more than half a million. In addition, according to the expert, it is difficult and sometimes pointless to look for an external investor.

These are not all the questions that concern milk processors every day.

We cannot say that all of the above mentioned problems are new to the industry. 2020 either worsened some of them, or delayed them, but not for long. We would like to solve them by combined efforts, but for now, everyone is fighting on the ground, proving the right of enterprises to live in all regions of the country.

Read the full expert comments in the "Hot Topic" section.