Russian milk farmers are seeing their profitability plummet as the wholesale price of raw milk slumped by 15% since the beginning of the year on the background of an oversupply, market players stated.
Currently, the average milk price in Russia stands at 32-33 roubles (US$0.41-0.42) per kg, noticeably lower than at the beginning of the year, the Russian newspaper Vedomosti reported. One of the sources in the market described this price situation as unhealthy, explaining it has a major impact on dairy farmers.
One of the top managers of a Russian dairy company told the publication that the downward price rally on the market is primarily attributed to an oversupply. He estimated that production exceeded the actual demand by 1.7-2 million tonnes at the beginning of the year.
The oversupply is likely to be associated with a rise in raw milk production and a drop in demand for some in the first place, premium dairy products on the Russian market.
Russian dairy plants found themselves unable to process all milk supplied to the market and started lowering purchasing prices. An anonymous source added that storage capacities also do not allow Russian businesses to increase stocks, even of products with long shelf-life.
At the end of 2022, the Russian Union of dairy companies, Soyuzmoloko, estimated that the overall stocks of dairy products at the warehouses jumped by 40% compared with the previous year.
With this backdrop, Russian milk farmers are already finding themselves on the edge of profitability. Impacting big market players, who are believed to be more prone to price fluctuations than small farmers.
“There is indeed a problem with the pressure of processors on farmers, and if prices continue to decline, the situation may lead to the bankruptcy of individual farms,” commented Olga Bashmachnikova, vice president of the Association of Peasant Farms and Agricultural Cooperatives of Russia, adding that the market conditions look particularly challenging for the small farms.