Milk requests intervention

In late December, Deputy Chairman of the Agricultural Committee of the State Duma Airat Khairullin sent appeals to the Government and the Ministry of agriculture of the Russian Federation with a request to bring order to the situation prevailing in reducing the purchase prices of raw milk. This was stated by the deputy in comments to The DairyNews.

"Unjustified reductions of purchasing prices for raw milk today, in a period of low milk with high winter costs are unacceptable. So I prepared and sent an official appeal to the Government of the Russian Federation and to the Ministry of agriculture of the Russian Federation on December 28 with a request to intervene in the mess and give appropriate orders to restore the order. Otherwise all the force and state money directed as grants will be useless," said Airat Khairullin. 
According to the MP, on the eve of the new year, the farmers of the country have received notices of the reduction in purchase prices for 2-3 rubles per kg. 
In addition to the reduction in purchase prices for milk all the processors demanded reduction of supplied volumes, said Khairullin.

"At the same time the prices for finished products on store shelves are growing, the total sales of dairy products in stores remain the same, just shifting from manufacturer to manufacturer. This suggests that the profitability of agricultural producers again flows to processing and retail. Large processing companies explain the lower prices by the fact that sales of their products decreased due to pressure on the market from imported products coming from Belarus and South America," said the deputy, stressing the growth of production costs in 2017. According to Khairullin, interventions to support raw milk producers must begin no later than on 1 February. 

However, the authorities are not ready for them today, which is evident from the regulatory framework, the updating of which is planned no earlier than by March. 

We will remind, last year the Ministry of agriculture calculated minimum price for procurement and commodity interventions, based on the fact that raw milk costs 24 thousand rubles/t. In particular, it is proposed to set the following prices: freeze-dried skimmed milk powder – 222 thousand rubles/ton; freeze-dried milk powder, except skimmed – 293 thousand rubles/ton; butter – 340 thousand rubles/ton.

More than 47% of readers interviewed by The DairyNews in the spring of 2017 said that the dairy market needs no intervention. Promised by the Minister of agriculture mechanism was not activated, prices in a season of great milk in summer did not show a serious decline. Meanwhile Soyuzmoloko said about the so-called conditional surplus caused by a reduction in demand for dairy products and the volume of raw milk that excesses the needs of processors.
"On the one hand, during the last four years milk production in Russia is steadily increasing— an increase amounted to more than 2 million tons (about 10% of the volume of commodity production). On the other hand, during the last four years demand for dairy products has been decreasing. Annual demand reduction is at least 2-3%, and in some categories it is significantly more. For 2017 the excess of the market was taken by processors, first of all, by producers of long term storage milk powder, butter and cheese. Now the amount of reserves of these products is around 15-20% of the annual volume of production, which is significantly more than needed. As a result, processors significantly reduce the purchase of raw milk," said Artem Belov, Executive Director of Soyuzmoloko.

WHO NEEDS INTERVENTION? 

The consumer, manufacturer, processor need it. According to market participants, government interference in the form of activating the mechanism of intervention will keep prices of raw milk and prevent subsequent sudden decline in milk production, coupled with increasing of consumer prices. Participants of the industry note the impact of Belarusian deliveries. We will remind that last week the Ministry of agriculture and food of Belarus lowered minimum export prices for all groups of dairy products.

"Only government can save the industry from crisis under the condition of urgent interference. First, purchasing intervention points in regions with high price volatility and high amplitude of production in summer and winter periods can help remove the excess of the market. The government may enhance public procurement for the Federal Agency for state reserves “Rosrezerv” and social institutions. However, in this case it will be necessary to solve the problem of falsification. This is due to the fact that a key factor in public procurement is price, and often the choice is in the direction of dishonest manufacturers. Second, the government needs to build an effective policy to protect the domestic dairy market. It is necessary to sustain balances with Belarus and tightly demand to stop the flow of substandard dairy products from the third countries", - said Artem Belov.

Experts say that strengthening of position in relation to products from Belarus can be observed in the coming months. Taking into account the fact that the previous year was marked by serious accusations against Belarusian dairy producers by the Rosselkhoznadzor, this year we can talk about a complete ban of the products. However, everything will depend on the level of dairy lobbyists of the Russian Federation.

Ravil Dautov, General Director of the company "Laktis" emphasizes that "if we bring order on quality control of products to the procurement for all budgetary organizations, including the army, the Navy and stop buying falsified products and products of the enterprises-phantoms milk may not be enough even with the Belarusian supplies"

"The amount of money allocated from the budget of the Rospotrebnadzor for continuous quality control of products procured for our children, the army, Navy and other structures will be significantly less than the amount allocated for intervention and other activities," - said Ravil Dautov.

The participants of the market also note the need of raw milk producers to adapt to market conditions, working on the cost price. "The surplus of milk is obvious and as already mentioned the intervention is important and necessary, it is only necessary to modify this mechanism. Yes, not in the form of implementation proposed by the Ministry of agriculture, but guided by the models existing on the global market (including USA). It's a pity that Vladimir Volik, promoting the intervention is not working in the Ministry of agriculture of the Russian Federation at the moment", - said the Director of the Russian Dairy Research Center Mikhail Mishchenko.

General Director of GC "Kabosh" Dmitry Matveev believes that the decline or increase in prices is a normal situation in any market. "As for the price of milk, the cost is falling, not because there is no demand for it. Today such product as liquid milk due to a certain situation in the market becomes less popular, because it is not economically profitable to produce natural dairy products. Natural product is an expensive product, and therefore it is difficult for it to compete with cheap and substandard goods. In my opinion, one should speak not about interventions, but analyze the negative trend that has developed in the market. That is the issue the government must work on", - commented Dmitry Matveev.

Experts emphasize that a price will never be stable, and intervention is not a panacea that can be seen in the example of the EU, where an excess of milk powder, purchased in the course of government intervention, presses on the market causing uncertainty of sales. However, with a rare and necessary activation, the mechanism of state intervention in pricing on the dairy market can bring a positive result. 

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