Russia's attempts to increase milk output are being stymied as food producers prefer to substitute illicitly vegetable oil in place of higher-priced diary fats, the head of Russia's top milk producer said.
Russian diary producers are bolstering milk supplies with the secret addition of palm oil, with at least 20% of products on the market adulterated in this way, Stefan Duerr, president of EkoNiva said.
The practice of stretching budgets by replacing diary fats with lower-cost vegetable oils is widespread across many markets, but Mr Duerr alleged that in Russia this substitution is being done illegally, without proper labelling.
Mr Duerr warned that the illicit adulteration of dairy products with palm oil "irreparably ruins the dairy industry".
Russia has traditionally been a major milk importer, but sanctions imposed last year due to the conflict in Ukraine have cut it off from supplies from the European Union.
The current weakness of the rouble against global currencies have also made imports more expensive.
The US Department of Agriculture sees Russian whole milk powder imports falling from 44,000 tonnes in 2013, before sanctions were imposed, to 35,000 tonnes in 2014, and 35,000 tonnes in 2015.
Butter imports were seen falling from 140,000 tonnes in 2013 to 137,000 tonnes in 2014, and 100,000 tonnes this year.
The shortage of imported milk should be a shot in the arm for the domestic dairy industry, but Mr Duerr notes that the effect of the supply squeeze on local milk availability has been limited.
"Objectively, milk is in short supply in Russia," said Mr Duerr, "Yet, there is a surplus of milk on the market".
Mr Duerr ascribes the local milk surplus to the fact that so many dairy product produces are illegally bolstering their supplies with vegetable oil.
Mr Duerr noted reports of large-scale vegetable oil deliveries to diary factories, which sold their products as all-milk.
Although there is legislation in place to prevent food falsification, Mr Duerr says that the fines that are made are "not very burdensome," and bringing private prosecutions is difficult.
In fact, Mr Duerr suggested that the falsification might be tolerated by authorities, by "silent consent" as a means of managing the rapid food price inflation Russia has seen since the beginning of sanctions.
And Mr Duerr says that the as long as cheaper vegetable oils can be substituted for dairy fats, the struggle to grow local production is "a hopeless business".
"Under such circumstances it looks like there's no point in increasing dairy production," he warned.
"I'll never stop repeating that no subsidies from the state, no incentives for the consumer will help unless food falsification is resisted."