Cartomancy: What will happen to prices in 2017?

What’s up- factors affecting the price of raw milk?

According to the information of the Federal state budgetary institution "Spetstsentuchet in agriculture", the average price for raw milk in Russia by 5 December was 22 831,4 RUB/t. It is 10% more than for the same period last year. It should be noted that the price in some regions is more than 30 rubles.

The shortage of raw milk

The price of raw milk depends on many factors, main of which is deficiency of milk production-raw milk in Russia. In addition, the cost of milk production is growing at the expense of import of related products. "Milk production costs have increased significantly due to the increase in prices and import substitution has not occurred. The process is going on, but slowly. We have the lion's share of the supply from abroad: they are ingredients, drugs for cows, the means for treating the udder, hooves, etc.," said Alexander Sukhinin, Director of the "Village dairy plant" in the comments to The DairyNews.

The high cost

The cost of production of raw milk is growing. Elena Stafeeva, Chairman of the "Union of animal breeders of the Urals," in comments to The DairyNews noted that production costs of raw milk go ahead the rise of prices.

"Observed in the market, increase of prices was the delayed effect of the rising costs of production in 2014 and 2015, which have not been matched by a corresponding increase of incomes of agricultural producers from the sale of milk," says the official message of "Soyuzmoloko".

Limit supplies from Belarus

The restriction of imports, primarily from Belarus played its role. So, in July, the Rosselkhoznadzor has revoked the Declaration of 15 companies-suppliers of milk powder, among them are JSC "Savushkin product", JSC Volkovysk, "Bellakt" and JSC "Lepel milk canning plant". It was not possible to obtain operational review from these companies.

Global prices

Prices for dairy products are growing all around the world. "The rise in global prices for dairy products that started in April – May and continued in autumn, resulted in reducing the volume of imports of dairy products into the territory of Russia in the second half of 2016. As a result the commodity resources of the domestic market of dairy products continue to decline, the market decreases, forming additional demand for domestic raw materials" - said in an official statement "Soyuzmoloko".

Seasonality

In addition, the market of raw milk is significantly affected by seasonal factors – prices traditionally grow in the autumn-winter period.

Vasily Suraev, General Director of JSC "Kirov dairy plant" in the comments to The DairyNews linked the increase in prices with procurement of transnational companies: "The price of raw milk increased in 3-4 quarters of this year. "Large processing companies (especially transnational companies) do not have own raw materials base. And due to the fact that at the end of the year the demand for dairy products is growing, and the volume of milk production is decreasing, the heads of the separate farms are looking for buyers offering "better" conditions. As a result, this leads to increased value of dairy products and inflation growth," said Mr. Suraev.

The lack of butter

According to Rosstat, production of butter and butter pastes in Russia decreased by 6.3%from January to August 2016. According to analysts interviewed by The DairyNews, the high demand for this product, especially from companies that use butter in continuous production, has become another factor in the growth of prices for raw milk.

Meanwhile, the Authorities...

According to the official position of the Ministry of agriculture of the Russian Federation, the prices for dairy products are currently in the range of inflation. "The rise in prices for dairy products (for the year – editor’s remark), according to our data, amounted to 9%," - said Artyom Belov, Executive Director of Soyuzmoloko, at the hearing in the Public chamber devoted to the change in tariffs of "Platon" system on 5 December.

In December, the Ministry of agriculture of the Russian Federation will continue a series of meetings to prevent the growth of prices for dairy products. The experts of "Soyuzmoloko", The Russian Union of dairy industry enterprises, Federal Antimonopoly Service and milk processors took part in the meeting under the supervision of the Director of Department on regulation of food markets of the Ministry of agriculture of the Russian Federation Vladimir Volik. At the time of publication of this article, no decisions and official comments from the Ministry of agriculture on the results of the meeting were made in public.

In addition, this year the Ministry of agriculture announced the holding of a dairy intervention in 2017, but the mechanism still remains unclear.

On January 1 next year so-called "single subsidy" will come into force. Many experts and market participants attributed this innovation to the reduction of payments to milk producers

2017: What will it be?

Making up the budget

Farmers from the "milk regions", interviewed by The DairyNews said that next year they focus on price which is not less than 30 rubles per kilogram of raw milk.

Vladimir Surovtsev, PhD in Economics, associate Professor of the North-West research Institute of Economics and organization of agriculture, in comments to The DairyNews noted the danger of high prices for milk for the market. "The price of milk in Russia is again higher than in Europe (in Euro terms), that in the event of a probable lifting of sanctions by the end of 2017 can become a serious threat to ambitious investment projects oriented at high prices. The positive effect of the devaluation of the ruble for the industry will be exhausted in the coming months, the negative impact – growth of prices for factors of production – will begin to act ", - said the expert.

Volatility will continue

The processors interviewed by The DairyNews are pessimistic. Some of them refused to give a forecast on prices for dairy products in the coming year, citing the high volatility of raw material prices. "With regard to the coming year, the expectations are pessimistic. This is due to many vectors. They are the increase in the prices for raw materials and finished products, reducing the consumption of dairy products, and a number of significant effects, which complicate the economy", - said Alexander Shirinkin, Chairman of the Board of Directors of JSC "Tula dairy plant" in the comments to The DairyNews.

Will the consumer stand it?

Artem Belov believes that the price for dairy products in the average will grow by categories by 6-9% next year; however, the dynamics of prices will be mixed. "If we're talking about milk consuming products such as cheese or butter, the potential growth rate here could be higher. The dynamics of recent years shows that growth rates in these categories were higher. However, it is necessary to understand that in these categories we have already almost reached the top level of demand, and a further significant increase in prices may simply lead to very serious demand reduction, and a serious decline in demand will pull the price down," said Artyom Belov, cited by News Agency Rambler News Services.

Vladimir Labinov, the expert of the dairy market also expects the increase of prices for dairy products. "Today there is the growth of prices on the market of raw milk. As a result we will have inevitable effect of these prices in some way on the consumer shelf. And I'm inclined to assume that the price on a consumer shelve will still increase during 2017, and it will increase higher than the rate of inflation in the country, unfortunately," said Vladimir Labinov during the conversation with the leader of the heading "Agricultural policy" Igor Abakumov on the channel ORT.

According to Ekaterina Zakharova, leading analyst of the Russian Dairy Research Center, prices for dairy products in the retail sector will not grow substantially, as in this case, there is a risk of reduction of demand. "I think they (retailers – editor’s remark) will focus on the customer. It is no secret that we have a negative dynamics of consumer demand. In this regard, I believe significant growth of prices on the shelf will not occur" - said the expert in the comments to The DairyNews.

It is important to note that high prices for raw milk put small milk processors in the risk zone. Some of them may leave the market in the next 1-2 years.

«Gifts» in 2017

In 2017, the dairy industry will see a number of introductions: "uniform subsidy", intervention, the "Law on trade" will come into force, measures to mitigate prices and a focus on exports. We will see the effects in the second quarter of 2017. We expect an interesting year!

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