The Russian union of dairy producers, Soyuzmoloko, is calling for increased state support to the domestic dairy industry. Their call comes as production costs in the raw milk segment soar and the government keeps seeking price caps on vital goods in retail.
The cost of raw milk production has been rising way faster than both wholesale and retail prices on the domestic market, Soyuzmoloko says. In March of 2021, the production cost in this segment appeared to be 18.2% higher compared to the same period of the previous year.
"Although the dynamics of raw milk production remain positive, the rising costs cool down the capacity for expansion and curb the industry's investment attractiveness," Soyuzmoloko adds.
Different forms of state aid needed
Soyuzmoloko is seeking state aid in several forms. One of the most important measures is reimbursement of capital costs for new milk farm constructions and modernisation. The business union also urges the government to secure concessional loans for dairy producers and introduce some additional aid in relation to the upcoming dairy products labeling reform.
Soyuzmoloko wants the government to support dairy farms and processing companies' operations through direct subsidies allocated per litre of product.
Price caps raise concerns
The additional state aid might be justified since the government has repeatedly demanded food producers to constrain the rise of prices on the domestic market, threatening them with penalties from the Federal Antimonopoly Service.
The government has already introduced price caps for some staple goods, including sugar and sunflower oil, stressing that the price dynamics in every segment are under scrutiny. Speaking during a Russian Parliament's session in May, the Russian Prime Minister Alexey Mishustin claimed that producers' greediness became the main reason for pushing prices up on some staple foods. "The government has enough resources to sate their appetites," he said, adding that in numerous cases, the growth has been unjustified.
Dairy companies in Russia are limited in their ability to raise prices not only when it comes to government policy but also as there is relatively weak demand.
The cost of raw milk production increased in 2021 by 20-30% compared to last year, Dmitry Matveev, president of the agricultural holding Kabosh was quoted as saying by the Russian Business Consulting agency. The decreased demand pushed processing companies to cut down their needs in raw milk, which impacted prices, Matveev said.
"Retailers are also not accepting a price rise [from dairy producers]," Matveev added.
Market participants estimated that under normal circumstances, prices would grow by nearly 20%, but the relatively weak demand allowed a price increase limited to only 4%, below the inflation level, during the last year.