Two-decade decline in Russian dairy herd to end

A trend of decline in Russia's milking herd stretching back to the collapse of the Soviet Union is to end, as state support programmes gain traction, but this will not prevent further growth in the nation's dairy imports.

"The contraction of the Russian dairy herd, which has been ongoing for more than two decades, [is expected] to end in 2013, with a slight increase in the herd," the US Department of Agriculture bureau in Moscow said.

The bureau forecast the number of cows in milk expanding by 50,000 animals to 8.65m head, helped by state support for imports of higher-quality foreign cattle, and low-interest loans to cover the cost of modernising dairy farms.

Even so, the herd would be far smaller than the 21.0m head which with Russia left Communist rule.

On milk production, the country is not expected to make progress towards a goal of 90% self-sufficiency in milk production 2020, as high fodder prices dissuade farmers from maximising yields.

'Price attractiveness of imports'

"Overall fluid milk production is expected to remain stagnant in 2013, as the benefits of improvements in management and genetics compete against high feed costs," the bureau said.

"Russia's grain production in 2012 was lower, causing feed prices to rise, and these prices are expected to remain high until the new grain crop begins to be harvested in mid-2013.

"There remains a significant amount of development needed to meet the state's production goals"

Indeed, the bureau forecast Russian dairy imports will increase next year "as a result of the continued price attractiveness of imported goods".

Bankruptcy filings

Russia is already one of the world's top dairy importers thanks to weak domestic output and the relatively high price of what is produced.

Indeed, "several large dairies have reduced production or filed for bankruptcy," citing in particular the low cost of imports from Belarus, a major dairy exporter to Russia.

Other major exporters to Russia include the European Union, New Zealand and Ukraine.

However, many groups, including Danone, Olam International and PepsiCo, have sought to exploit Russian dairy consolidation as way of entering, through acquisition, a country viewed as a growing market.

Many agricultural operators, too, are seeking to raise output, including German-based Ekosem-Agrar, Russia's third-ranked milk producer which is raising cash through a bond sale for herd expansion, and Sweden-based Trigon Agri, which has operations near St Petersburg.

"Product competition'

Dairy products set for increased Russian imports include fluid milk, cheese and butter, with milk powder purchases seen remaining flat.

Russian dairy groups have singled out butter as offering the lowest margins, "given competition with imported cream butters, domestic alternative butter products, and margarine", the bureau said.

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