The price of milk will go down
The year 2020 will not be like any other. In the spring, the dairy industry, as well as a number of other areas of the agricultural sector, felt peaks in demand caused by the self - isolation regime-consumers massively bought up long-term storage products. At present, according to estimates, consumption has already returned to the level of the end of 2019-beginning of 2020. Soyuzmoloko forecasts a 3-4% decline in consumption by December. The key factor is a decrease in the purchasing power of the population.
At the end of May, the FAS announced its intention to study the validity of low purchasing prices for raw milk, while the shelf price for finished products remained the same.
The Supervisory authority does not mention that all participants in the chain have increased production costs - because with the growth of currency volatility, the cost of spare parts has increased not only for agricultural machinery and equipment, but also for the production lines of processors.
According to the FAS, in Altai region, the price of milk fell from 20-22 rubles/kg to 15-17 rubles/kg. According to "Agroinvestor", the Siberian Union of milk producers and processors ("Soyuzmoloko. Siberia") asked the Federal Ministry of agriculture to reduce the supply of cheeses, butter and milk powder from Belarus to reduce volatility in the dairy market. In connection with the supply of cheap dairy products from the neighboring Republic, "there are fears of an unprecedented collapse in prices for raw milk", says the Union's letter. He also notes the local crisis of overproduction of raw milk in an unstable socio-economic and epidemiological situation, due to which the demand for dairy products has fallen and stocks are growing.
At the same time, the cost of milk production also increases. According to Soyuzmoloko's forecast, the operating cost index may increase by 12-13% by the end of the year. The main reason is the weakening of the ruble.
It should be reminded that in 2017, the Director of the Dairy Intelligence Agency (DIA) Mikhail Mishchenko noted the problems of overproduction at enterprises in Altai region. In 2019, in an interview with “Rossiyskaya Gazeta”, the expert said that - “I warned the former leadership of the region: you produce a lot of cheese and cheese products, and the main consumption is in the European part of Russia, where they are increasing their own production. For five years in the Central Federal district, it has increased by 81%, in the Volga Federal district – by 74%, in the North-West - by 213%, and in the Urals Federal district – by almost 700 percent. If the problem is not solved, the South of Western Siberia risks losing this industry".
“There are two ways: to develop domestic consumption (here much rests on the purchasing power of the population, which has been falling in recent years) or to make their way abroad - primarily to the former Soviet republics. Currently, the countries conclude bilateral agreements on duty-free trade. Such agreements would be the most effective and simple support for our exporters - not only large companies, but also small businesses", noted Mikhail Mishchenko.
The previous Governor of Altai region, by the way, declared the unbreakable positions of the region's cheese-making industry. Today it became known that the FAS suspected three processing companies of the region in collusion.
CEO of “Soyuzmoloko” Artem Belov in a conversation with “Agroinvestor” says that "the production of commercial milk continues to grow: in the first quarter alone, it added 9% compared to the same period last year. This has led to an increase in the production of long-term storage products in conditions of reduced demand”.
“As a result, we saw a serious increase in the volume of production of cheeses, whole milk powder and skimmed milk powder, but these products came to the warehouse, and at the end of May, their stocks are higher than in the same period of 2019. Further dynamics of raw milk prices will depend on the state's regulation of the situation, including in terms of controlling import supplies to Russia", notes Artem Belov.
Will the supply of dairy products from Belarus be closed? According to Mikhail Mishchenko, the issue will be related to the strengthening of the ruble.
“The price of milk in Belarus corresponds to the global market situation and if the ruble exchange rate falls, the Republic of Belarus will keep supplies, if the exchange rate strengthens, Belarus will be closed", says the Director of DIA.
According to the analyst, the cost of milk production in Russia is quite competitive. However, there are conditions that reduce the competitiveness of products to zero. In particular, the state-banking policy, the availability of loans and the high rate. Banks are not very willing to lend to agriculture, and subsidized loans do not work for the entire market. Small and medium-sized enterprises have little chance to work in light conditions. The cost of connecting to energy resources and the cost of using them is also very important.
According to the Centre for economic forecasting of “Gazprombank", after the opening of trade sphere and the recovery of imports, and also due to seasonal reasons, the national currency will weaken by autumn to the level of 73-76 rubles per dollar.
It should be noted that the Dairy Index DIA on June 8, 2020 amounted to 26.91 rubles (about 0.35 euros)/kg (excluding VAT, fat and protein content 3.6% and 3.0% respectively), which is 0.4% lower than last week and by 4.5% higher than in June 2019. Prices for raw milk in Russian regions according to the Index DIA application continue to decline, the import price also fell last week due to lower prices for a number of Belarusian exchange-traded products and the strengthening of the ruble.