Artyom Belov: “The reduction in dairy imports enabled Russian producers to develop”
The director general of the National Dairy Producers Union on the state of the milk industry, market growth factors and import restrictions
The population’s income reduces year after year. As a consequence, demand for dairy has fallen in the last five years. It’s one of the tendencies to point out in the market, believes Director General of the National Dairy Producers Union, ex-Adviser to the Russian Minister of Agriculture Artyom Belov. In an interview with Realnoe Vremya, he said about the state of the sector, the impact of import substitution and the next trends in the milk market.
Dairy exports from Russia totalled about $300 million
Artyom, what’s going on now in the milk market? What tendencies can you point out?
There are several tendencies. First of all, the population’s income is reducing. This has the greatest impact on the market, as the milk industry is very sensitive to the level of purchasing power. As a consequence, the consumption level is decreasing. The dynamics of demand for dairy has been negative in the last five years, the fall has totalled about 7-8%. The market’s state in the future will depend on people’s wealth. A 20-30% rise is possible in the next 7-10 years.
Secondly, the only positive moment is that market milk production volumes have steadily risen in the last several years. The year-on-year growth paces are from 2,5 to 3%. This tendency is linked with a high price for raw milk. Comfortable profitability allows to hope that we will see further growth of market milk production.
Thirdly, we can note that dairy imports volumes reduced by 20-25% in 2018. This enabled Russian producers to develop. As a consequence, the volumes of Russian dairy exports stabilised. Last year, it totalled about $300 million.
Our dairy producers have a task to increase exports. Where do you think Russian products would be in demand?
The CIS countries’ market, first of all, will be key for Russian products. It’s close to us, our products are familiar there, and consumers are ready to choose them. On the other hand, the third world countries’ market will join. The world market is assessed at tens of billions of dollars. It grows quite dynamically: by 2-3% a year. It grows mainly thanks to Southeast Asian, Near Eastern and North African countries.
Chains are the key market player. Do they fix the milk price?
We all do: milk producers, processors and chains, we all live in unfavourable macroeconomic conditions. Incomes are reducing, demand for milk is reducing. Everyone is doing one’s best to survive. Chains indeed can dictate supply conditions to producers. Probably this is why groups of shops are in more favourable conditions in this chain. To support the pace, keep the demand level, groups of shops together with producers have promo sales, moreover, the number of promo products has suddenly increased in the last years. In this sense, it supports consumers, they benefit from it.
It’s not very good for chains in the long term because, in fact, profitability reduces. And if profitability reduces, development opportunities are limited.
But I would like to emphasise again that the whole link has a problem. And if we want this link to develop stably, we should agree on clear and long-term game rules.
To support the pace, keep the demand level, chains together with producers have promo sales, moreover, the number of promo products has suddenly increased in the last years. In this sense, it supports consumers, they benefit from it
“This year is unusual”
Milk purchase prices in a number of regions, including in Tatarstan, sharply fell in 2018. How is this problem solved? And what’s happening to the prices now?
I’ve recently been in Tatarstan and can say that prices in the region haven’t reduced since the beginning of the year. Though the raw milk production volume traditionally starts to go up from February-March, as a result, the price falls. The price usually goes down by 20-25%. This year is unusual – milk prices even in the regions with high volatility such as Tatarstan, Bashkiria, Altai Krai hasn’t fallen.
Yes, there was a serious fall in price in 2018. It happened because dairy supplies from abroad suddenly increased against the backdrop of a reduction in consumption levels. The situation bounced back in the second half of the year. By late 2018, prices began to grow from July and almost reached the indicators we saw in early 2017.
Why does dairy grow in Russia?
Agricultural organisations, of course, make the biggest contribution to the growth of volumes. If we look at the Q1 2019 numbers, we will see again that market milk production, which is processed, rose by 2,8% on average. Meanwhile, the volume of market milk production in agricultural organisations increased by some 3,-3,5%.
Imports of a big volume of powdered milk was called one of the reasons for the fall in prices. It became quite a widespread product. However, there have been hot debates around it for long…
What is powdered milk? It’s the same milk devoid of one component, water. From a perspective of key components: protein, fat, calcium, everything is in. Then this milk is just remade – water is added. As a result, usual milk with a set of the same beneficial substances appear. Dry milk is an absolutely good-quality natural product.
What is powdered milk? It’s the same milk devoid of one component, water. From a perspective of key components: protein, fat, calcium, everything is in. Then this milk is just remade – water is added <...> Dry milk is an absolutely good-quality natural product
“People more often choose cheaper analogues”
An embargo on Belarusian milk has been imposed in Russia for more than a year. Have Russian producers won something after imposing the restriction?
We don’t have an embargo on Belarusian milk per se. There are certain questions about the milk supplied by the Federal Service for Veterinary and Phytosanitary Surveillance. A number of Belarusian enterprises have already solved these issues, others – not yet. This is why dry milk supplies from these enterprises are still restricted. I think as soon as enterprises solve the problem, they will immediately have the restrictions lifted. And there will be no problem. It’s just a matter of time. As for prices, of course, these restrictions supported prices for Russian raw milk, especially in the summer of 2018. Prices went up.
At the same time, we should understand that the decision to limit the supplies was more psychological because a part of the dairy closed for Russia now gets to our market. This happens via third countries.
The number of foods with milk fat substituted has increased in Russia in the last several years. Why do you think this has happened?
Indeed, cheese products consumption has increased from 12-13 to 27-28% in the last 6 years. Purchasing power is decreasing, this is why people choose cheaper analogues. While milk fat substitutes are much cheaper.
An initiative of one of the sector’s unions has been recently discussed in the mass media about the ban on importing meat and dairy from abroad for personal use. What do you think of it?
Indeed, a number of countries has such a ban. Meat products, of course, are under the greatest risk. There are high risks of certain diseases. Risks in dairy are minimal because it’s 99% per cent, consequently, it doesn’t pose a threat.
If we look at the Q1 2019 numbers, we will see again that market milk production, which is processed, rose by 2,8% on average
“As for cancer from usual milk, it is obviously nonsense”
There is also a problem of sales of products at fair. People go to a farmer’s market and expect to see farmer’s products. But sometimes something made somewhere in Moscow Oblast in unknown shops with doubted quality sometimes lays on shelves like farmers’ products. How can we fight it?
Mainly it’s a task of regional authorities because they know all their producers, all milk producers. At a fair, first of all, farmers in a region should be given the green light. For instance, there are many of them in Tatarstan. Municipalities, the republic’s task is to select those producers who really produce or process. It will be great support for local farmers.
Talks about the benefit of New Zealand’s A2 milk has been discussed in the last year, like it’s much better than the usual one, while usual milk almost causes cancer. There is a feeling of a marketing strategy.
It’s hard to say something about A2 because there are different points of view about it. Scientific community doesn’t have a single opinion about it. But as for cancer from usual milk, it is obviously nonsense.
What will a milk price depend on in Russia in the short run? What factors will it depend on?
There are four key factors here. Firstly, it’s a demand. It’s connected with the population’s income, if incomes grow, demand will also grow. Secondly, the situation in the world market, what will happen to prices. Now they are growing. The third factor is our relations with the Republic of Belarus. Now we signed statements, which are comfortable to both Russian and Belarusian producers. How much we will manage to keep these statements is the factor that will affect the situation in the world market. Fourthly, the efficiency of the fight against falsification. Fake products are accounting for about 7-8% now. It’s big volumes whose price is assessed in tens of billions of rubles.