Russia: The high costs of dairy labelling

16-02 | |
milk; Shutterstock ID 66641356; PO: DG online
milk; Shutterstock ID 66641356; PO: DG online

The introduction of mandatory labelling has had an impact on the rise of production costs in the Russian dairy industry, as indicated by research conducted by the Russian Finance Ministry.

This contributed to last year’s rise in retail prices on the market by less than 1%, the Ministry estimated. While the price hike on feed production accounted for a 60% share in the increase in production costs, the rising cost of fuel was responsible for 30% of the increase, it added.

With this background, raw milk in Russia jumped in price by, on average, 39.38% in 2021, the research showed.

“One of the factors contributing to the rise in production costs was the global crisis on the feed additives market. Many feed additives producers are based in China. Any changes in this country impacts global trends,” the Ministry said.

In addition, authorities believe that some rise in production costs was associated with the increase in prices for imported equipment and spare parts, in the context of the ‘industry robotisation’. In addition, packaging used by dairy producers increased 45% in price in 2021, the Ministry estimated.

Russia has introduced mandatory labelling of some dairy products on the domestic market in July 2021. Since 1 December 2021, the new regulation was extended to dairy products with a shelf-life below 40 days, thus covering the whole of dairy products on the market.

Heavy financial burden on dairy companies

Russian operations argue that the labelling has put a heavy financial burden on dairy companies, prompting them to raise prices.

Petr Shelisch, chairman of the Russian Consumer Rights Protection Union said that the labelling cost dairy producers Rub0.5 (US$0.065) rubles per dairy product plus VAT.

“This is a visible part of production costs, and there is also money needed to purchase specialised equipment, install and maintain it and retailers have to bear the costs to be able to scan and read the labelling,” Shelisch said, adding that these costs had been transferred to the retail price.

Mandatory labelling of all dairy products on the Russian market cost Russian dairy plants around Rub20 billion (US$360 million) per year, the Russian union of dairy producers, Soyuzmoloko, estimated. A milk processing plant with the capacity of 100 tonnes of milk per month would have to spend Rub150 – 300 million (US$2.5 – 5 million) on labelling per year, Soyuzmoloko said.

Vladislav Vorotnikov Eastern Europe correspondent