Growing interest in the Russian dairy market

An increase in production

This seems likely to continue with so much happening in the local markets. On the production side, we can see a marked shift to large farms of 2,000+ cows – the days of the sovkhozes (supplied the state's requirements as dictated by government planning commissions) and kolkhozes (state-run farms) are long gone.

The concentration of dairy farming is still rather low compared to poultry and pig production, where large producers exist, but the situation is fluid. This is demonstrated by the activities of key players such as Ekonovia, which plans increase its dairy herd to more than double to cover 30,000 head between now and 2015. The push for premium milk has also seen Moloko set up the country's first organic milk production, in Ulyanovsk province.

Severe drought

Yet the drought has hit Russia's coarse grains and feed production severely. This year's wheat production is estimated at 37.5 million tonnes compared to 56.2 million tonnes produced in 2011. A similar issue has constrained supply from neighbouring countries and feed prices have almost doubled over the same period of 2011. The request for government subsidies made by the National Union of Milk Producers this summer was predictable.

This situation does not help in a sector characterised by low yields and poor feeding practices – for instance, many farms use mainly silage and haylage of permanent grasses, which are often harvested late to maximise weight rather than nutritional value.

As if this situation was not sufficiently dynamic – and the battle between Danone (Unimilk) and PepsiCo (Wimm-Bill-Dann) nowadays providing the headline contest in the local market – Russia finally joined the World Trade Organisation (WTO). The resulting lowering of import tariffs will have significant impacts – we can also see the potential of renewed US supply to the market after the blockage during two years of dairy certificate negotiations.