Price rises seen in Russian dairy market
The Russian General Prosecutor’s Office and the Federal Antimonopoly Service have rolled out plans to look at the factors behind the price hike in the dairy market. In the meantime, analysts forecast a 30% rise in prices in the key categories by the end of the year as the industry’s cost crisis tightens.
Russian prosecutor general Igor Krasnov has announced an investigation of the milk price dynamics amid numerous reports of skyrocketing prices.
“Considering the special social significance of dairy products, the prosecutor’s office will give a fundamental assessment of the actions of economic entities,” the prosecutor’s office explained.
The announcement is made in response to an unravelling crisis in the dairy market, where the price of all dairy products, most noticeably butter, soared in the last few months.
The Russian state statistical service Rosstat estimated that the price of butter climbed by only 14% since the beginning of the year. Independent researchers argue the price increased 25-30%.
Interest rate is the key
Alexey Gruzdev, CEO of Streda Consulting, largely attributed the upward price rally on the dairy market to the Russian Central Bank’s key interest rate dynamics.
During a recent meeting in October, the Russian Central Bank raised the benchmark rate to 21%, a historic high. The move, called to tame inflation, has made commercial loans almost unaffordable for the dairy industry.
“The key rate is high, and the cost of money is high, too. The terms of preferential loans have also been revised – producers must now pay more,” Gruzdev said.
In addition, he added, household incomes rise in Russia, which triggers a growth in food consumption. Raw milk production has failed to catch up with this trend.
Artem Belov, CEO of the Russian Union of Dairy Manufacturers, Soyuzmoloko, also attributed the price turbulence to the high key interest rate. He said that costs are rising along the entire value chain, including logistics, packaging, labour, energy, feed, and equipment maintenance.
A new hike
By the end of the year, Russian dairy prices can rise a further 30% from the current level, Igor Abakumov, an independent Russian agricultural analyst, forecasted. He largely listed the same reasons for the growth as the costs rise across the board.
For instance, he estimated that logistics costs jumped by 30%, accompanied by a 20% rise in the cost of packaging and a similar increase is seen in salaries in the dairy industry.
To mitigate the rising costs, Russian dairy manufacturers have no choice but to raise prices, the analysts explained.
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