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Russian dairy prices rise in sympathy with EU market

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Despite its relative isolation, the Russian dairy market is rising in sympathy with European prices, said Stephan Duerr, the president of EkoNiva group.

Milk prices have seen a precipitous rise in recent months, thanks to a global slowdown in production.

Data from the European Commission estimates EU milk prices 32.03 euro cents per kilogramme in December.

This is up 5.1% year-on-year, and up 24.7% from the market's July low.

Shortage of supply

Mr Duerr forecast that in the next couple of months the price of milk per litre in will rise to 40 euro cents.

"The primary reason for this dramatic increase in prices is the drop in milk production volume," said Mr Duerr, with European production down some 10%.

"Western milk producers spend approximately 30- 35 euro cents to produce 1 litre of milkā€¦ considering the investments, the production costs even reach 40 eurocents," he said.

"When the milk prices stayed at the level of 20-25 eurocents per litre for a long time, many family farmers simply gave up their business."

"Why keep on making losses? "

Russian market rallies in sympathy

Given the sanctions on EU exports of dairy products into Russia, prices there might appear insulated from the European market.

But producers are raising prices there as well, Mr Duerr said.

"Our processors do not quite understand what is going on but they are also increasing the prices."

And Mr Duerr warned that given the tightness in Europe, sanctions are not the only things keeping European supply out of Russia.

"My acquaintances in the German milk processing industry tell me that if the Russian government removed the dairy product import ban tomorrow, they would not be able to supply cheese to Russia because they simply do not have enough of it," Mr Duerr said.

Milk adulteration

Mr Duerr returned to the subject of adulteration of Russian dairy products, an issue he has raised in the past.

"In order to keep the prices stable, many processors will use vegetable fat for dairy production," he said.

But the rise in prices still offer an opportunity for Russian producers.

"Next year, EkoNiva will continue increasing milk production volumes," Mr Duerr said.

"Provided that we receive the subsidies and the conditions for production are favourable, we will consider a possibility of construction of further dairy facilities.

By William Clarke

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