Plan B
The situation in Belarus is currently unstable and we need to consider all possible scenarios, including a significant reduction or complete stop of exports to Russia.
After the embargo was imposed in 2014, the Republic of Belarus increased its share in Russian dairy imports to 90%. Over the past five years, Belarusian dairy imports have been slightly diluted with milk from South America and a number of other regions, but their volumes are not yet comparable to imports from the Republic of Belarus.
According to the FCS data for June 2020, the share of the Republic of Belarus in the import of cheeses in Russia was 85.88%, in the import of butter - 74.12%, in the import of whole milk powder - 99.28%, skimmed milk powder - 94.03%, in the import of whey powder - 88.44%.
It is interesting to know, in June 2020, the volume of butter imports from the Republic of Belarus to Russia increased sharply. The total volume of butter imports increased in June compared to May 2020 by 44.5% to 11.4 thousand tons, compared to June 2019, butter imports increased by 46%. The growth was provided by the import of Belarusian butter, +63.8% to 8.4 thousand tons, the growth of imports from other countries was +7.9% to 2.9 thousand tons.
The volume of imports of skimmed milk powder has increased (+23.12% by May 2020 to 5.5 thousand tons, but 45% less compared to June 2019), whole milk powder (6 times more than in May 2020 to 484.5 tons, twice as much as in June 2019) and whey powder (+14.9% to 3.2 thousand tons, 19.6% less than in June 2019). The volume of cheese imports decreased by 3.14% to 22.7 thousand tons, compared to June 2019, the volume of imports increased by 28.7%.
Traders may have increased purchases of butter and milk powder in June, fearing that under the influence of domestic political difficulties in Belarus in the late summer and autumn of 2020, deliveries will be limited or involve serious difficulties in working with Belarusian partners. At the same time, prices for Belarusian butter and milk powder increased significantly in July 2020.
Probably, after the summer purchases, it will be possible to pile up stocks, in addition, Russia is growing its own production of raw milk and finished dairy products. As we have already written, Russian enterprises are increasing the production of milk-intensive products: cheeses, milk powder, butter: https://www.dairynews.ru/news/v-2019-godu-v-rf-prodolzhilsya-rost-proizvodstva-s.html
Exports of dairy products are also growing, although the volumes are still not large. The volume of Russian exports of butter in January-May 2020 amounted to 1,108. 4 tons, 53.8% higher than in January-May 2019, in monetary terms, exports of butter in the first five months of 2020 increased by 87.8% to 4793.6 thousand dollars.
Even in the event of a temporary collapse, supplies from the Republic of Belarus will still recover, but during this period, the share of South American milk in the Russian market may grow. Already in January-June 2020, imports of butter in Russia from Argentina, for example, increased by + 843% compared to the corresponding period in 2019 to 5.5 thousand tons according to Clal, imports of cheeses increased by 59.44% to 4 thousand tons. At the same time, the export of Argentine cheeses and butter to some other regions has decreased, so the Argentine players will make efforts to increase supplies to the Russian market.
Difficulties with the import of dairy products from the Republic of Belarus in the short term will lead to an increase in prices for raw milk and exchange-traded products, in this situation, someone will lose, someone will gain. However, it is more interesting and more important to track the long-term trend, can we predict in terms of domestic consumption and growing production of milk and dairy products import substituting and competing with the Republic of Belarus on the markets of third countries. At the same time, the option of re-export is also very likely, when Belarusian products entering the Russian market will in one way or another contribute to increasing the volume of Russian exports.
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