Price caps in Russia’s dairy industry
The Russian government’s efforts to stop dairy price increases could drive the industry towards collapse, according to sources.
In November, the Russian Federal Antimonopoly Service and the General Prosecutor Office kicked off an investigation into the price turbulence in the dairy market based on numerous complaints from customers that the price of some products jumped far beyond the official food inflation level. The General Prosecutor’s Office claimed that the dairy manufacturers were forced to lower their prices pending the investigation.
The state policy puts the Russian dairy industry under pressure, Konstantin Synetsky, general director of Russia’s southern dairy union told local news. “In the context of restrained prices for finished [dairy] products and a sharp decline in industry profitability, it may be that milk processing plants will suspend operations,” he said.
Milk farmers are also under immense pressure, as the price caps hurt the costs along the value chain. “The price crisis is alarming for farms as well as small and medium-sized [dairy] businesses,” Synetsky said.
In early November, the Russian Agricultural Ministry opposed imposing price caps on dairy products in response to market turmoil.
Insufficient capacities
The Russian dairy industry is not coping with a growth in consumption, Dmitry Matveyev, president of Kabosh, a prominent dairy manufacturer said, explaining the recent price hike. “New dairy processing plants are not in operation due to high interest rates on loans,” he said, adding that the number of cows is decreasing and there is a shortage of raw materials on the market.
He also agreed that the price regulation is occurring on the background of a surge in operational costs. “The costs in the industry have jumped, [as] the interest rates on loans are 22%. Prices for fuel and gas are on the rise; spare parts prices have skyrocketed by 150% during the last 2 years, and there are problems with equipment supplies,” he said.
Help needed
Russian manufacturers insist that the price regulation should be accompanied by state subsidies, as otherwise, the industry will plunge. “Milk and butter are important products. Let’s subsidise these products,” he said. “The producers are not to blame for this [the price rise]; what should they do? No one is talking [about the dairy industry’s predicament]; everyone just wants to introduce [price] limits.”
Synetsky agreed that the state could throw a helping hand to dairy manufacturers in the form of direct subsidies or tax breaks to halt the growth in retail prices and help keep dairy manufacturers heads above water.
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