Dairy and Products Annual
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THIS REPORT CONTAINS ASSESSMENTS OF COMMODITY AND TRADE ISSUES MADE BY USDA STAFF AND NOT NECESSARILY STATEMENTS OF OFFICIAL U.S. GOVERNMENT POLICY Required Report - public distribution Date: 10/31/2014 GAIN Report Number: RS1483 Russian Federation Dairy and Products Annual 2014 Dairy and Products Annual Approved By: Holly Higgins Prepared By: FAS Staff Report Highlights: FAS/Moscow forecasts annual domestic milk production to decline two percent in CY 2015 (to 29.3 MMT). In turn, imported fluid milk is forecast to remain flat (375,000 MT) as dairy processors continue to take advantage of the market opportunities for high-value dairy products. Production estimates for cheese (460,000 MT), butter (240,000 MT), and NFDM (85,000 MT) are expected to marginally increase next year, while WMP production is forecast to fall slightly from increased production levels in 2014. Imports of dairy products are expected to remain flat or increase slightly when compared to reduced 2014 import levels which have been impacted, in part, by Russia’s decision to ban imports from several foreign suppliers. Production Cow Inventories FAS/Moscow forecasts 2015 Russian cows-in-milk to fall by approximately 2.5 percent from revised 2014 estimates (to 7,850 head). Unlike in the pork and poultry sectors, and despite industry modernization and improved per-cow yields at large agricultural holdings, most of the dairy cattle in Russia are located on small-scale, less efficient farms. Although Russia is forecast to import nearly 100,000 head of live purebred cattle in 2014 (both dairy and beef cattle) to improve the quality of the pre-existing herd (see RS1475) – nearly the same volume imported in 2013 – these purebred animals are being imported by large-scale agricultural establishments (which account for less than half of Russia’s fluid milk production). Due to this reason, the long term decline of the Russian dairy cattle herd is expected to continue in 2014 and 2015. FAS/Moscow has also lowered the 2014 cows-in-milk forecast given the anticipated fluid milk production declines this year, and has slightly lowered 2013 estimates based on the availability of year- end milk production statistics. Fluid Milk FAS/Moscow forecasts 2015 fluid milk production to fall approximately two percent (to 29.3 MMT) from revised 2014 forecasted levels (i.e., 29.9 MMT). As previously noted in past reports, Russian domestic milk production still continues to fall even as facility modernization and improved farm management practices are being instituted at large-scale agricultural establishments. FAS/Moscow has also decreased the 2014 forecast for milk production (by almost two percent to 29.9 MMT) as industry analysts are predicting a small decline in overall milk production in Russia this year. In addition, 2013 production levels have also been decreased by less than one-half percent to correlate with year-end statistics published by Rosstat. Chart 1. Russian Monthly Fluid Milk Production (January 1999 - August 2014) (1,000 MT) Source: Rosstat According to Rosstat, from January through June of this year, agricultural establishments accounted for less than half (i.e., 48.6 percent) of Russian fluid milk production (and less than one percent more than they accounted for during the first six months of 2013). Chart 2. Percentage of Russian Fluid Milk Production, January-June 2014, by Farm Type Source: Rosstat The percentage of milk production at large-scale agricultural establishments is far less than the share of production these establishments account for in some other Russian agricultural industries (e.g., more than 90 percent of Russian poultry production comes from agricultural establishments). Moreover, the percentage of milk production accounted for by agricultural establishments differs across Russia’s Federal Districts -- accounting for a high of 83 percent of production in the Northwest and a low of only 14 percent in the North Caucuses. Chart 3. Percent of Russian Milk Production by Farm Type, January-June 2014, by Federal District Source: Rosstat NOTE: The Russian regions accounting for the largest share of production, through September 2014, were the Republic of Tatarstan, Krasnodar Kray, Moscow Oblast, the Republic of Udmurtia, Altai Kray, and the Republic of Bashkortostan. Most of the small-scale farms, which collectively account for slightly more than 50 percent of the fluid milk in Russia, use less intensive production methods, are excluded from efficient distribution channels, and are more vulnerable to economic factors, such as fluctuations in prices. According to industry analysts, high interest rates for long-term loans (e.g., 8-15 years at 14-15 percent), delays in receiving state subsidies (from 3 to 6 months), and currency depreciation1 negatively impacted the economic strength of Russian dairy producers (particularly small-scale producers). The increased cost of doing business has had a direct effect on the volume of fluid milk production. According to the Russian National Union of Milk Producers (Soyuzmoloko) sectoral profitability (including for agricultural establishments) will not be reached without continued subsidies due to high production costs in Russia. Even though some state support measures offered to milk producers (e.g., per-liter subsidies, interest rate subsides for investment loans, grants for farmers, etc.) are available to both large and small-scale famers, most of these support programs aim to further consolidate the industry and were designed for the benefit of large-scale agricultural establishments. Rosstat reports that slightly more than 60 percent of all of the raw milk produced by all types of agricultural producers in Russia was sold for further industrial processing. However, Rosstat also reports that 92 percent of raw fluid milk produced by large-scale agricultural establishments was sold for further processing. Given that industry sources believe a substantial portion of raw milk produced by household farms is consumed on-farm, these farmers are often unable to collect subsidies, earn income on sales, etc. As such, small-scale Russian dairy farmers have limited access to financial resources required for herd maintenance, enhancing productivity, and modernizing operations, and cannot compete on the same economy-of-scale with agricultural establishments. Table 1. Russia: Fluid Milk Supply and Distribution, 1,000MT 2013 2014 2015 Dairy, Milk, Fluid Market Year Begin: Jan Market Year Begin: Jan Market Year Begin: Jan Russia 2013 2014 2015 USDA New USDA New USDA New Official Post Official Post Official Post Cows In Milk 8,425 8,250 8,200 8,050 7,850 Cows Milk Production 30,661 30,529 30,500 29,900 29,300 Total Production 30,661 30,529 30,500 29,900 29,300 Total Imports 316 316 330 375 375 Total Supply 30,977 30,845 30,830 30,275 29,675 Total Exports 27 22 30 20 15 Fluid Use Dom. Consum. 10,200 10,150 10,000 9,825 9,625 Factory Use Consum. 18,400 18,350 18,500 18,200 17,900 Feed Use Dom. Consum. 2,350 2,323 2,300 2,230 2,135 Total Dom. Consumption 30,950 30,823 30,800 30,255 29,660 1 Based on data from the Central Bank of the Russian Federation, between January 1, 2014, and October 25, 2014, the ruble fell almost 30 percent against the dollar. See, e.g., http://www.cbr.ru/eng/currency_base/dynamics.aspx. Total Distribution 30,977 30,845 30,830 30,275 29,675 NOTE: Official USDA data is available at http://www.fas.usda.gov/psdonline/psdHome.aspx Cheese FAS/Moscow forecasts 2015 Russian cheese production to increase by slightly more than two percent (compared to revised 2014 production forecasts), to 460,000 MT. Dairy processors are expected to continue to take advantage of the market opportunities for high-valued dairy products given, in part, the reduced availability of foreign cheeses because of a myriad of restrictions placed on traditional foreign suppliers. Given the forecasted decrease in domestic milk production in 2014, FAS/Moscow has decreased the 2014 cheese production forecast by nearly two percent, to 450,000 MT (however, based on full year data, this still amounts to a nearly five percent increase in production over revised 2013 levels). As previously noted, some traditional foreign cheese suppliers (e.g., the European Union and, to a lesser extent, Australia and Norway) have been restricted from the market as a result of an August 2014 ban on imports (see, e.g., RS1455), while others (e.g., Ukraine) have been restricted due to residue detections and labeling concerns. This has resulted in improved market opportunities for Russian cheese (see the trade section below for more information). As was the case in 2013, Russian cheese manufacturers are expected to continue to make use of imported fluid milk (e.g., from Belarus), as needed, to partially supplement for reduced domestic supplies. Overall 2013 cheese production levels have been decreased by nearly 6.5 percent to correlate with year- end statistics published by Rosstat. Table 2. Russia: Cheese Supply and Distribution, 1,000 MT Dairy, Cheese 2013 2014 2015 Russia Market Year Begin: Jan Market Year Begin: Jan Market Year Begin: Jan 2013 2014 2015 USDA New USDA USDA New New Post Official Post Official Official Post Beginning Stocks 12 12 8 8 10 Production 460 430 460 450 460 Total Imports 364 364 355 230 240 Total Supply 836 806 823 688 710 Total Exports 16 16 15 10 5 Total Dom. Consumption 812 782 798 668 695 Total Use 828 798 813 678 700 Ending Stocks 8 8 10 10 10 Total Distribution 836 806 823 688 710 NOTE: Official USDA data is available at http://www.fas.usda.gov/psdonline/psdHome.aspx Butter FAS/Moscow anticipated 2015 butter production to increase slightly over revised 2014 levels (by two percent to 240,000 MT).