Russia Faces Potential Raw Milk Shortage Amid Rising Dairy Demand
Source: DairyNews.today
The Russian dairy industry is on the brink of a raw milk shortage due to continuous growth in domestic dairy consumption, according to Soyuzmoloko, a leading industry organization. Speaking at a recent conference in Ufa, Soyuzmoloko’s General Director, Artem Belov, highlighted that the surge in dairy consumption has outpaced raw milk production, an unusual trend for the country that has not been seen for many years.
In the first half of 2024, dairy consumption in Russia increased by 6%, while raw milk production grew by only 2.5%, Belov reported. Soyuzmoloko’s data shows that raw milk output reached 13.2 million tonnes during this period, compared to 12.9 million tonnes in the first half of 2023, reflecting modest growth that is failing to meet rising demand.
Export Pressure Intensifies Supply Issues
In addition to domestic consumption, rising dairy exports are exacerbating the pressure on raw milk supplies. “With strong export potential and several export-oriented projects underway, the shortage of raw materials is becoming more pressing,” Belov stated. He stressed that increasing the raw milk supply will be essential to prevent a prolonged shortage, which he anticipates could affect the industry over the next 2-4 years.
Rising Costs and Inflation Concerns
The shortage of raw milk is also driving up food inflation, a trend the Russian government has been actively trying to mitigate. Recent efforts to curb inflation include raising the Central Bank’s key interest rate and launching antimonopoly investigations against major food producers. However, according to a Soyuzmoloko study, production costs in the Russian dairy industry have surged by 14% to 18% over the past year, leading to a decline in profitability for dairy companies.
“While retail prices are starting to catch up with these rising production costs, the raw materials sector has largely been compensated. However, processors have not been as fortunate, and this is a concerning trend,” Belov noted.
Retail Price Increases and Higher Incomes
As production costs continue to rise, retail prices for key dairy products are also climbing. For example, as of August 2024, the cost of butter production had increased by 17.4% year-on-year. Despite these price hikes, Belov pointed to a silver lining: rising real disposable incomes among the Russian population.
The increase in purchasing power is sustaining high levels of dairy consumption and giving dairy producers room to adjust prices accordingly, mitigating some of the negative effects of inflation and production cost increases.
In conclusion, while the Russian dairy industry is grappling with the dual challenges of a raw milk shortage and rising costs, the sector remains buoyed by strong consumer demand and growing export opportunities. However, industry stakeholders will need to address supply issues to ensure long-term stability.
Export Pressure Intensifies Supply Issues
In addition to domestic consumption, rising dairy exports are exacerbating the pressure on raw milk supplies. “With strong export potential and several export-oriented projects underway, the shortage of raw materials is becoming more pressing,” Belov stated. He stressed that increasing the raw milk supply will be essential to prevent a prolonged shortage, which he anticipates could affect the industry over the next 2-4 years.
Rising Costs and Inflation Concerns
The shortage of raw milk is also driving up food inflation, a trend the Russian government has been actively trying to mitigate. Recent efforts to curb inflation include raising the Central Bank’s key interest rate and launching antimonopoly investigations against major food producers. However, according to a Soyuzmoloko study, production costs in the Russian dairy industry have surged by 14% to 18% over the past year, leading to a decline in profitability for dairy companies.
“While retail prices are starting to catch up with these rising production costs, the raw materials sector has largely been compensated. However, processors have not been as fortunate, and this is a concerning trend,” Belov noted.
Retail Price Increases and Higher Incomes
As production costs continue to rise, retail prices for key dairy products are also climbing. For example, as of August 2024, the cost of butter production had increased by 17.4% year-on-year. Despite these price hikes, Belov pointed to a silver lining: rising real disposable incomes among the Russian population.
The increase in purchasing power is sustaining high levels of dairy consumption and giving dairy producers room to adjust prices accordingly, mitigating some of the negative effects of inflation and production cost increases.
In conclusion, while the Russian dairy industry is grappling with the dual challenges of a raw milk shortage and rising costs, the sector remains buoyed by strong consumer demand and growing export opportunities. However, industry stakeholders will need to address supply issues to ensure long-term stability.
