Russia: Dairy demand slump as consumption drops

He added that the trend became evident already last year when consumption dropped by 200,000 to 250,000 tonnes against the previous year.

On the other hand, last year, Russian dairy production grew by 800,000 tonnes. As a result of these 2 trends, Russian stocks of dairy products with long shelf life reached a record of 1.4 million tonnes. Belov estimated that the level considered normal for the industry is 1 million tonnes.

Plummeting sales

Other market participants share a similar picture. Russia’s dairy market could see a 20-30% slump in consumption, warned some. A massive switch to cheaper products could accompany an anticipated drop in consumption as Russian consumers are expected to see their incomes diminishing.

Despite the weak demand, Russian dairy production is growing. During the first 2 months of 2023, dairy production in the industrial sector showed an exceptional 8% growth compared with the previous year, Belov estimated.

Dairy imports are dwindling

In 2022, the supply-demand ratio in the Russian dairy market was largely stabilised by an 8% drop in imports. While supplies from Belarus (the largest exporter of most dairy products to Russia) continued, deliveries from Argentina and Uruguay have nearly come to a halt, while exports from New Zealand appeared to be at a minimal level, Belov said.

This year, there is no chance that a drop in imports will compensate for the weak domestic demand, Belov admitted.

Dairy exports

“Now we need to find a new balance in the market,” Belov said. “And here, one of the important components that can help resolve the situation is to increase export volumes. And the state’s efforts should be aimed at stimulating export, including of the existing stocks. We are talking about products such as milk powder, butter, whey, etc.,” he said.

As Belov estimated, consumer demand for milk and dairy products this year, “will be stable at best; it is not worth counting on its growth.” Weak demand coupled with continuing production growth could drag down prices in the Russian market for the benefit of consumers.