Market trends

Background

Russian dairy sector pleads for government assistance

The Russian Milk Union has recently appealed to the Russian government for assistance and to recognise that the entire dairy industry has been impacted due to quarantine measures in place to slow down the spread of Covid-19 in the country.

The ongoing crisis is threatening small and medium-sized businesses, both milk farms and milk-processing plants, the Milk Union said as between 30% to 50% of demand for dairy products comes from the food service segment which experienced closures due to the pandemic.

Photo:Shutterstock
Photo:Shutterstock

State aid not approved for ag sector

Earlier, the Russian government announced a bailout package for companies struggling due to Covid-19. The package involves a six-month delay on tax payment, including VAT, access to soft loans from state-owned banks and moratorium on all inspections by government agencies. However, so far the government has refused to approve state aid for the agricultural industry.

Particularly the Russian dairy industry is not eligible for state aid because not all companies in the sector are facing challenges, said Oleg Syrota of the Russian political partly All-Russian People Front. A lot of agricultural holdings are doing really well – they have no problems, while small business and farmers have been impacted in a major way, especially in the milk farming segment, Syrota said. All food markets and fairs where farmers could sell their goods directly to customers have been closed, so they have lost access to the market, Syrota added.

Additionally, there is the issue that some (dairy) companies already received state aid previously, for future projects which they are unable to complete under current circumstances, and they may be subjected to certain penalties, Syrota noted, adding that farmers are currently negotiating with the Agricultural Ministry to find solutions around these issues.

Outlook

The retail prices for dairy products on the Russian market are expected increase by at least 10%, said Lyudmial Manitskay, chairman of the Milk Union. For certain products, like butter, cheese and powdered milk an even bigger price hike is anticipated because those items are tightly linked to the exchange rate of the Russian ruble, which has been losing its value against hard currency since the start of Covid-19 in Russia. In addition, the rise in price is expected partly because the price for premixes in the Russian dairy industry climbed by at least 30% during the past several weeks, Manitskay said. It is likely that only giant international companies with huge financial reserves will survive, the Milk Union said in the statement.