Why does the dairy industry lack government regulation?
Источник: The DairyNews
Despite the advanced policy of import substitution, the growth of state support and the embargo, the dairy industry needs to be regulated more tightly. What does the market lack for stability and what were the mistakes of support in recent years? What is the horizon of planning considered by farmers and who thinks milk prices are not enough – in the material of The DairyNews.
WHO THINKS THE PRICES ARE NOT ENOUGH?
According to analysts, the main regions experiencing the greatest decline in the price of raw milk have an acute shortage of processing capacity. In February, this was said by Head of the Ministry of agriculture Alexander Tkachev, who called Tatarstan an appendage of raw materials. Mainly, the fall of the price affected the regions of the Urals, the Volga region and parts of Siberia. Including Udmurtia, Perm region and Altai region.
It has to be noted that according to the monitoring of the Ministry, the decrease in the price of raw milk in the Udmurt Republic on April 5 compared to the end of December last year amounted to 22.7% - the average price of milk reached 19.28 rubles/kg. In Altai region compared to December 28, 2017, at the beginning of April, the average price of milk fell by 18.9% to 19.8 rubles/kg, in Ulyanovsk region since December the average price of milk has decreased by 16.9% to 18.3 rubles/kg. In Novosibirsk region, as noted in the monitoring of the Federal Agricultural Department, the average price of milk in early April was 19.1 rubles/kg which is 15.9% less than at the end of December last year. In Chuvashia the decline was 13.6% - to 19.1 rubles/kg, in Perm region the figure decreased to 21.5 rubles/kg by 13.4%.
With the beginning of the embargo and support for the policy of import substitution agricultural enterprises began to increase rapidly the production of raw milk, at the same time, state support for processing plants was significantly different from the support of agricultural producers (it was almost absent), and in the regions no one was in a hurry to invest in the construction of new dairy plants immediately. Meanwhile, today, after almost four years of food embargo, the regions with a shortage of processing capacity have the most serious problems with the abundance of raw materials and falling prices. The exception, perhaps, is Altai region, but the region is sufficiently surrounded by neighbors that provide it with raw materials.
Meanwhile, with the growth of currency rate and falling incomes, the industry has seen a steady decline in the consumption of dairy products, including the shift in the direction of cheap analogues, the share of falsification on the shelf has increased. All this has once again had a negative impact on processing enterprises.
Meanwhile, as of April 20, the weighted average price of raw milk in Russia was 23.25 rubles per liter, while the RDRC index amounted to 24.06 rubles per liter. For comparison, on April 17, 2017, the figures were 24.7 and 24.9 rubles per liter. Meanwhile, the global trend of falling prices for raw materials supported by rising production shows a much more serious decline. In the USA the average price of milk decreased by 20% during the year.
It’s worth noting that according to the Russian Dairy Research Center, Index RDRC in Altai region on April 16 amounted to 20 rubles, in Tatarstan - 20.7 rubles.
Even in the regions of the Central Federal district, despite the fact that the price of raw materials is higher or in the range of weighted average price in Russia, farmers note its approach to the cost threshold. At the same time, the heads of agricultural enterprises note that the situation is affected not only by the problem of cheap milk powder, but also by the policy of large agricultural holdings, which can afford to maneuver more widely in difficult market conditions. At the same time, the interests of large producers are often lobbied at the Government level.
"The class of dairy producers is a complicated mechanism that is not easy to adjust, if there are difficulties. Another key problem of the industry is the absolute impossibility of forecasting its costs and revenues. Those who produce only milk as raw material without processing cannot sell it at a certain price. All cream is eaten by the one who has greater access to information and to the Government – large agricultural holdings, for example. It is impossible to imagine an objective picture of the situation on the dairy market", noted Andrey Blinov, Director of JSC “Plemzavod Yaroslavka”, in his comments to The DairyNews.
We will remind, earlier the President of Soyuzmoloko Airat Khairullin during the meeting with the first Deputy Minister of agriculture of Russia Dzhambulat Khatuov stated the need for fixed prices of raw milk.
"If we want to develop dairy farming, we must understand that until we cover the deficit, we will not become self-sufficient. Our economy should not be calculated based on the cost price, but on the monetary income per liter of milk at the rate of about 28.6 rubles per liter including subsidies. If the milk producer doesn’t get 28.6 rubles per liter, he will stagnate. And we will accuse him of inefficiency. The question is not about efficiency. The question is that those who have lower cost, they just did not count all the costs", - concluded Airat Khairullin.
Meanwhile, Commercial Director of "EkoNiva" Sergey Lyashko at the recent forum "Dairy Belarus" stressed the impact of competition with Belarusian milk at cost price. According to the expert’s evaluation, sounded in his speech, the cost of milk production in Belarus is about 12 rubles; in the Alliance "VEMA" which includes "EkoNiva", this figure reaches about 19.5 rubles per liter.
At the same time, the expert said that "EkoNiva" by the end of 2018 will be able to produce more than 2000 tons of milk per day. Previously, it was planned to achieve this goal only in 2019.
It is unreasonable to blame Belarus in the conditions of the common customs space, emphasize some market participants. The problems of import overstocking could have been predicted back in 2014, but it was not possible to lay the foundation for its solution then.
NOT ALL THE TROUBLES ARE DUE TO THE PRICE
The state should pay close attention to the dairy market, according to industry participants. At the same time, cash injections alone are clearly insufficient, or a revision of the directions is required. The problem of availability of bank loans, the interaction with trading networks still are in a number of key issues for the dairy industry.
Mikhail Mishchenko, Director of the Russian Dairy Research Center, calls the conceptual apparatus of the technical regulations "On safety of milk and dairy products» a problem.
"We need to remove non-dairy products from the technical regulations. In the press there is a discussion, many say that, if we remove products with vegetable fats, there will be nothing to feed the population. But we have Belarus and there are prospects of development of domestic production, - announced Mikhail Mishchenko.
In addition, as noted by the expert, "trading networks compete with each other only for the price. Does the processor have access to the end user? Not actually. For the milk processor, the end customer is the store. It is necessary to regulate the relationship between the retailer and the supplier, to promote regional products".
If necessary, interventions can also become a regulatory tool.
What is currently proposed by the Ministry of agriculture? The Ministry intends to become the main regulator of the dairy market of the Russian Federation. The question is the relevance and role of measures.
"We consider it necessary to prohibit the use of milk powder in the production of cheese. To prohibit the use of vegetable fats in the production of all dairy products," Alexander Tkachev said during the meeting of the final Board of the Ministry of agriculture. Currently, the Ministry is preparing amendments to the technical regulations "On safety of milk", implying a ban on the production and sale of cheese-like products containing vegetable fats from 50 to 100%.
The growth of milk production, supported by the state, is inevitable. The Ministry of agriculture announces the figure of 500 thousand tons of growth annually, and the Belarusian side expects to maintain the share of the Russian market at least 3 million tons.
However, will domestic enterprises withstand this?
A number of market participants in an interview with The DairyNews noted the tendency to monopolize the market in the current conditions, in their opinion; most of the efforts of the state are aimed at preserving large enterprises that provide a serious influx of milk.
"Milk has a real cost, no one will win if bankruptcy begins and because of the low price people will not be able to pay their loans and other obligations. In any case, the state should control the situation – the dairy industry is not self-regulating. It is foolish to develop first, investing billions, and then destroy the market by unwise administrative actions. In this case, any efficiency of spent efforts is lost", - said Stanislav Goryanskiy, Head of the Agrofirm "Detchinsky" in an interview with The DairyNews.
"The authorities report on high results, but the agricultural producer has no funds on the account. It is not clear how to maintain production: imported equipment is getting more expensive, and there is no domestic equipment corresponding to international standards. There are big problems with human resources, wages in rural areas are very low and people are literally fleeing. For comparison, in Yaroslavl region in 1992 there was 800 thousand hectares of land in crop rotation and 60 thousand people in production, now only 370 thousand hectares are cultivated and 12 thousand people are involved. Nobody calculates that if 300 employees go to the labour exchange, where the state would be obliged to pay the minimum wage, and it will make about 3.3 million rubles a month and 40 million rubles a year. If the situation worsens, we will be forced to curtail production," - commented Sergey Ivanov, Head of the company CJSC "Agrofirm Pakhma".
The horizon of planning of domestic enterprises is not high. According to players, today only the one who previously implemented the principle of improving efficiency and invested in modernization can win and keep the company afloat. What role can the state play in the process? To introduce competent import control, regulate relations between producers and retailers, to fight hard against falsification, including increasing fines, stimulating the development of technically advanced and developed enterprises.
Read full article in Russian on DairyNews.ru
According to analysts, the main regions experiencing the greatest decline in the price of raw milk have an acute shortage of processing capacity. In February, this was said by Head of the Ministry of agriculture Alexander Tkachev, who called Tatarstan an appendage of raw materials. Mainly, the fall of the price affected the regions of the Urals, the Volga region and parts of Siberia. Including Udmurtia, Perm region and Altai region.
It has to be noted that according to the monitoring of the Ministry, the decrease in the price of raw milk in the Udmurt Republic on April 5 compared to the end of December last year amounted to 22.7% - the average price of milk reached 19.28 rubles/kg. In Altai region compared to December 28, 2017, at the beginning of April, the average price of milk fell by 18.9% to 19.8 rubles/kg, in Ulyanovsk region since December the average price of milk has decreased by 16.9% to 18.3 rubles/kg. In Novosibirsk region, as noted in the monitoring of the Federal Agricultural Department, the average price of milk in early April was 19.1 rubles/kg which is 15.9% less than at the end of December last year. In Chuvashia the decline was 13.6% - to 19.1 rubles/kg, in Perm region the figure decreased to 21.5 rubles/kg by 13.4%.
With the beginning of the embargo and support for the policy of import substitution agricultural enterprises began to increase rapidly the production of raw milk, at the same time, state support for processing plants was significantly different from the support of agricultural producers (it was almost absent), and in the regions no one was in a hurry to invest in the construction of new dairy plants immediately. Meanwhile, today, after almost four years of food embargo, the regions with a shortage of processing capacity have the most serious problems with the abundance of raw materials and falling prices. The exception, perhaps, is Altai region, but the region is sufficiently surrounded by neighbors that provide it with raw materials.
Meanwhile, with the growth of currency rate and falling incomes, the industry has seen a steady decline in the consumption of dairy products, including the shift in the direction of cheap analogues, the share of falsification on the shelf has increased. All this has once again had a negative impact on processing enterprises.
Meanwhile, as of April 20, the weighted average price of raw milk in Russia was 23.25 rubles per liter, while the RDRC index amounted to 24.06 rubles per liter. For comparison, on April 17, 2017, the figures were 24.7 and 24.9 rubles per liter. Meanwhile, the global trend of falling prices for raw materials supported by rising production shows a much more serious decline. In the USA the average price of milk decreased by 20% during the year.
It’s worth noting that according to the Russian Dairy Research Center, Index RDRC in Altai region on April 16 amounted to 20 rubles, in Tatarstan - 20.7 rubles.
Even in the regions of the Central Federal district, despite the fact that the price of raw materials is higher or in the range of weighted average price in Russia, farmers note its approach to the cost threshold. At the same time, the heads of agricultural enterprises note that the situation is affected not only by the problem of cheap milk powder, but also by the policy of large agricultural holdings, which can afford to maneuver more widely in difficult market conditions. At the same time, the interests of large producers are often lobbied at the Government level.
"The class of dairy producers is a complicated mechanism that is not easy to adjust, if there are difficulties. Another key problem of the industry is the absolute impossibility of forecasting its costs and revenues. Those who produce only milk as raw material without processing cannot sell it at a certain price. All cream is eaten by the one who has greater access to information and to the Government – large agricultural holdings, for example. It is impossible to imagine an objective picture of the situation on the dairy market", noted Andrey Blinov, Director of JSC “Plemzavod Yaroslavka”, in his comments to The DairyNews.
We will remind, earlier the President of Soyuzmoloko Airat Khairullin during the meeting with the first Deputy Minister of agriculture of Russia Dzhambulat Khatuov stated the need for fixed prices of raw milk.
"If we want to develop dairy farming, we must understand that until we cover the deficit, we will not become self-sufficient. Our economy should not be calculated based on the cost price, but on the monetary income per liter of milk at the rate of about 28.6 rubles per liter including subsidies. If the milk producer doesn’t get 28.6 rubles per liter, he will stagnate. And we will accuse him of inefficiency. The question is not about efficiency. The question is that those who have lower cost, they just did not count all the costs", - concluded Airat Khairullin.
Meanwhile, Commercial Director of "EkoNiva" Sergey Lyashko at the recent forum "Dairy Belarus" stressed the impact of competition with Belarusian milk at cost price. According to the expert’s evaluation, sounded in his speech, the cost of milk production in Belarus is about 12 rubles; in the Alliance "VEMA" which includes "EkoNiva", this figure reaches about 19.5 rubles per liter.
At the same time, the expert said that "EkoNiva" by the end of 2018 will be able to produce more than 2000 tons of milk per day. Previously, it was planned to achieve this goal only in 2019.
It is unreasonable to blame Belarus in the conditions of the common customs space, emphasize some market participants. The problems of import overstocking could have been predicted back in 2014, but it was not possible to lay the foundation for its solution then.
NOT ALL THE TROUBLES ARE DUE TO THE PRICE
The state should pay close attention to the dairy market, according to industry participants. At the same time, cash injections alone are clearly insufficient, or a revision of the directions is required. The problem of availability of bank loans, the interaction with trading networks still are in a number of key issues for the dairy industry.
Mikhail Mishchenko, Director of the Russian Dairy Research Center, calls the conceptual apparatus of the technical regulations "On safety of milk and dairy products» a problem.
"We need to remove non-dairy products from the technical regulations. In the press there is a discussion, many say that, if we remove products with vegetable fats, there will be nothing to feed the population. But we have Belarus and there are prospects of development of domestic production, - announced Mikhail Mishchenko.
In addition, as noted by the expert, "trading networks compete with each other only for the price. Does the processor have access to the end user? Not actually. For the milk processor, the end customer is the store. It is necessary to regulate the relationship between the retailer and the supplier, to promote regional products".
If necessary, interventions can also become a regulatory tool.
What is currently proposed by the Ministry of agriculture? The Ministry intends to become the main regulator of the dairy market of the Russian Federation. The question is the relevance and role of measures.
"We consider it necessary to prohibit the use of milk powder in the production of cheese. To prohibit the use of vegetable fats in the production of all dairy products," Alexander Tkachev said during the meeting of the final Board of the Ministry of agriculture. Currently, the Ministry is preparing amendments to the technical regulations "On safety of milk", implying a ban on the production and sale of cheese-like products containing vegetable fats from 50 to 100%.
The growth of milk production, supported by the state, is inevitable. The Ministry of agriculture announces the figure of 500 thousand tons of growth annually, and the Belarusian side expects to maintain the share of the Russian market at least 3 million tons.
However, will domestic enterprises withstand this?
A number of market participants in an interview with The DairyNews noted the tendency to monopolize the market in the current conditions, in their opinion; most of the efforts of the state are aimed at preserving large enterprises that provide a serious influx of milk.
"Milk has a real cost, no one will win if bankruptcy begins and because of the low price people will not be able to pay their loans and other obligations. In any case, the state should control the situation – the dairy industry is not self-regulating. It is foolish to develop first, investing billions, and then destroy the market by unwise administrative actions. In this case, any efficiency of spent efforts is lost", - said Stanislav Goryanskiy, Head of the Agrofirm "Detchinsky" in an interview with The DairyNews.
"The authorities report on high results, but the agricultural producer has no funds on the account. It is not clear how to maintain production: imported equipment is getting more expensive, and there is no domestic equipment corresponding to international standards. There are big problems with human resources, wages in rural areas are very low and people are literally fleeing. For comparison, in Yaroslavl region in 1992 there was 800 thousand hectares of land in crop rotation and 60 thousand people in production, now only 370 thousand hectares are cultivated and 12 thousand people are involved. Nobody calculates that if 300 employees go to the labour exchange, where the state would be obliged to pay the minimum wage, and it will make about 3.3 million rubles a month and 40 million rubles a year. If the situation worsens, we will be forced to curtail production," - commented Sergey Ivanov, Head of the company CJSC "Agrofirm Pakhma".
The horizon of planning of domestic enterprises is not high. According to players, today only the one who previously implemented the principle of improving efficiency and invested in modernization can win and keep the company afloat. What role can the state play in the process? To introduce competent import control, regulate relations between producers and retailers, to fight hard against falsification, including increasing fines, stimulating the development of technically advanced and developed enterprises.
Read full article in Russian on DairyNews.ru
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