Dmitry Matveev: The potential for the growth of the cost of dairy products has not been exhausted

- Speaking about the current state of the dairy industry in the Russian Federation, it is necessary to note the following trends: 

• no increase in dairy consumption compared to the previous year – this level has been stable since 2019. Among the main reasons, one can obviously mention the decrease in real incomes of the population and the redistribution of the structure of household spending on food. 

• a sharp increase in the cost of production and processing of milk. There is data on the market, there is our internal analytics in Kabosh Group of Companies. We estimated the dynamics of the cost of the final product and prices for basic materials in crop production, dairy farming and milk processing for the period 2019-2021. Unfortunately, it is not only the prices of protein and other feed additives that are growing, which is much talked about. In dairy farming, prices for feed and veterinary drugs, seed for reproduction are growing. In crop production, significant cost items are seeds, fertilizers, agricultural raw materials, fuel and lubricants - the costs for most of these items have doubled or tripled, and somewhere the increase was 1750%! If we add the purchase of imported equipment, taking into account the changed exchange rates, the situation cannot but cause alarm both for us and for the majority of industry participants. 

• as a result of the gap between the sharply increased cost and the significantly lagging growth in selling prices, in the middle of this year we observed a drop in milk production in 5 regions of the Russian Federation. Dairy farms and small companies began to reduce their livestock, many enterprises were forced to impoverish the diet of animals and, as a result, milk yields fell. 

Speaking about forecasts, in my opinion, the potential for cost growth has not been exhausted and we must necessarily solve the issue of profitability in order not to lose the achieved indicators for the growth of production and consumption of dairy products. This is not only a matter of developing a separate industry, but also a matter of preventing diseases, strengthening immunity and preserving the health of our citizens.

The main risks for the industry in the current situation, in my opinion, are as follows: 

• Further stagnation of demand in the domestic market (primarily due to macroeconomic factors). 

• Reduced profitability in the raw materials and processing sectors (in the absence of compensating factors and support for a socially significant industry from the state, the risk can have critical consequences). 

• Reducing the volume and increasing competition for state support (which, as practice has shown, is allocated significantly less than the market needs). 

• Strengthening of state regulation (prices, ecology, labeling, etc.) and creating an additional cost burden for the manufacturer). 

• Displacement of natural dairy products from the market by substitutes (substitute products and their wide propaganda, lobbying of interests by large corporations). 

The development of dairy exports and access to new markets, in my opinion, can become one of the key growth drivers for domestic enterprises and the industry as a whole. The potential of the global market will allow us to go beyond the limited framework in which domestic enterprises are squeezed like in a vice. Kabosh Group of companies is currently actively developing this direction and we are confident in the prospects for the development of an export brand of Russian high-quality hard and semi-hard cheeses.

Among the global consumer trends in the world market, the following can be distinguished:

• increased consumption of substitute products, 

• conscious attitude of consumers to the choice and assessment of the quality of consumed products, 

• serious impact of state programs and information companies on the structure and volume of consumption of dairy products, 

• the desire to consume natural products, the emphasis on the environmental friendliness of the product and production, 

• the globalization of taste preferences and the partial erasure of national characteristics when choosing food in the world. 

The opinion of the editorial board may not coincide with the opinion of the author