The price of milk will go down.

13 June, 2020 г.
The year 2020 will be different from any other year, in spring the dairy industry, as well as a number of other sectors of the agro-industrial complex, experienced peaks in demand caused by the self-isolation regime - consumers were buying up products for long-term storage on a massive scale. Already now, according to estimates, consumption has returned to the level of late 2019 - early 2020. Soyuzmoloko predicts a decrease in consumption by 3-4% by December. The key factor is a decrease in the purchasing power of the population.
 
In late May, FAS announced its intention to study the validity of low purchase prices for raw milk, while the price of finished products remained the same on the shelf.
 
At the same time, the Supervisory Authority does not mention that all participants in the chain increased production costs - after all, with the growth of currency volatility increased the cost of spare parts not only for agricultural machinery and equipment, but also for production lines of processors. 
 
According to FAS data, in the Altai Territory milk price has fallen from 20-22 rubles per kg to 15-17 rubles per kg.  According to "Agroinvestor," the Siberian Union of Milk Producers and Processors ("Soyuzmoloko. Siberia") appealed to the Federal Ministry of Agriculture to reduce the supply of cheese, butter and milk powder from Belarus to reduce the volatility in the dairy market. In connection with the supply of cheap dairy products from the neighboring republic, "there are fears of an unprecedented collapse in prices of milk and raw materials," reads the letter of the Union. He also notes the local crisis of overproduction of raw milk under the conditions of unstable socio-economic and epidemiological situation, due to which demand for dairy products has fallen and stocks are growing.
 
At the same time, the cost of milk production is also rising. According to Soyuzmoloko's forecast, the operating cost index may increase by 12-13% by the end of the year. The main reason is weakening of the ruble. 
 
It should be reminded that in 2017 Director of the Center for Milk Market Research (DIA) Mikhail Mishchenko noted the problems of overproduction at the enterprises of the Altai Territory. In 2019, in an interview with Rossiyskaya Gazeta, the expert said that - "warned the previous leadership of the krai: you produce a lot of cheese and cheese products, and the main consumption - in the European part of Russia, where they are increasing their own production. In five years it has increased by 81% in the Central Federal District, 74% in the Far East, 213 in the North-West, and almost 700% in the Urals Federal District. If this problem is not solved, the south of Western Siberia risks losing this industry".
 
"There are two ways: to develop domestic consumption (much of it is based on the purchasing power of the population, which has been falling in recent years) or to break through abroad - primarily in the former Soviet republics. Now the countries are concluding bilateral agreements on duty-free trade. Such agreements would be the most effective and simple support to our exporters - not only large companies, but also small businesses," said Mikhail Mishchenko.
 
The previous governor of the Altai Territory, by the way, said about the indestructible positions of the region's cheese industry. Today it became known that UFAS suspected three processing companies of the region of collusion. 
 
General Director of "Soyuzmoloko" Artem Belov in a conversation with "Agroinvestor" says that "production of marketable milk continues to grow: only for the first quarter it has increased 9% compared to the same period last year. This has led to the fact that the production of long-term storage products has started to increase under conditions of low demand.
 
"As a result, we saw a significant increase in the production of cheese, whole milk powder and skimmed milk, but these products got into storage, and at the end of May their stocks are higher than in the same period in 2019. Further price dynamics of raw milk will depend on the regulation of the situation by the state, including the control of imports to Russia," said Artem Belov.
 
Will the supply of dairy products from Belarus be closed? According to Mikhail Mishchenko, the issue will be related to the ruble strengthening. 
 
"The price of milk in Belarus corresponds to the world situation and if the ruble falls - Belarus will keep the supply, if the rate is strengthened - Belarus will be closed," says the director of DIA.
 
According to the analyst, the cost of milk production in Russia is quite competitive. However, there are conditions that reduce the competitiveness of products to zero. In particular, the state and banking policy, the availability of credit and a high rate. Banks are not very keen on lending to agriculture, and subsidized loans do not work for the entire market. Small and medium enterprises have little chance of working in lighter conditions. The cost of connecting to energy resources and the cost of using them are also important. 
 
According to Gazprombank's Center for Economic Forecasting, after the opening of trade and the restoration of imports, as well as due to seasonal reasons, the national currency rate will weaken by autumn to 73-76 rubles per dollar. 
 
Recall that the Dairy Index DIA on June 8, 2020 was 26.91 rubles per kg (excluding VAT, fat-3.6%, protein-3.0%), 0.4% lower than last week and 4.5% higher than in June 2019. Prices of raw milk in the Russian regions, according to the annex to the Index DIA, continue to decline, while the import price also declined last week due to the decline in prices of some Belarusian exchange products and the strengthening of the ruble. 

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