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Russian Dairy Industry: Challenges and Development Prospects

Published on: Jul 08, 2024

Reading Time: 5 min

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How the Russian dairy industry will develop and what challenges it will have to face.

Despite the many challenges currently facing the industry, the Russian dairy sector is continuing to grow and develop. Production and consumption of milk and dairy products are on the rise, exports are on the increase, and new foreign markets are opening up. Let us now examine the challenges currently facing the Russian dairy market and consider the potential for future growth.

A review of the key results for 2023 in the Russian dairy market

In comparison to 2022, Russia’s dairy sector saw an increase in cow’s milk production of 3% with an output of over 33.5 million tons. It is worth noting that for the fifth consecutive year, our country has witnessed annual growth in milk production. These figures have enabled Russia to secure fifth place in the global rankings of milk producers. The growth in milk production can be attributed to several factors, including an increase in the productivity of pedigree livestock, the construction and modernization of livestock breeding enterprises, and the implementation of effective state support measures.

Furthermore, the consumption of milk and dairy products is also on the rise. Compared to 2022, this indicator increased by 5%. There are several reasons for this trend, including a gradual increase in disposable income, a focus on proper nutrition, and a healthy lifestyle.

It is also worth noting the investment attractiveness of the dairy industry. According to Artem Belov, Director General of the National Union of Milk Producers (Soyuzmoloko), market participants invested over 100 billion rubles in the raw materials sector in 2023, while the volume of investments in processing exceeded 60 billion rubles.

In 2023, the volume of dairy exports reached approximately 215 thousand tons. A notable development in the past year was the expansion of the geographical reach of our exports. In addition to our traditional markets in the EAEU and CIS countries, we successfully penetrated new markets in the Middle East, Southeast Asia, and North Africa. The growth in exports of milk powder was particularly notable, with volumes increasing sixfold to reach 20,000 tons.

The volume of imports of milk and dairy products in 2023 remained consistent with that of 2022. The majority of imports originate from Belarusian producers, accounting for approximately 5.5 million tons.

Key challenges for the dairy industry

What challenges has the Russian dairy industry faced and may face in the future? Undoubtedly, the most significant challenge is the continued growth of production costs, which is relevant for both the raw materials sector and the processing industry. Alexei Voronin, Director of the Analytical Department of Soyuzmoloko, cites the following data: in the raw materials sector, the cost of production is set to increase by 17% in 2023, while in the processing sector, the figure is 9%.

Another significant challenge is the imbalance in the market and the resulting fluctuations in prices. The domestic dairy market faced a similar challenge last year when prices dropped significantly in the spring due to overstocking caused by weak exports and an unstable ruble exchange rate. However, the authorities were able to respond promptly to this situation by expanding export opportunities and providing 100% compensation of transportation costs for certain dairy products, including milk powder and whey.

The challenge of import substitution of foreign equipment is significant. In general, over the past two years, the situation in this area has improved, not only due to supplies from China and Turkey but also due to domestic developments.

Improving the situation with the number of dairy herds is also an urgent task. Lyudmila Manitskaya, Director of the Dairy Union of Russia, estimates its annual reduction at 100 thousand head. The solution to this problem requires a comprehensive approach involving livestock breeding companies, dairy market players, scientific organizations, and the government.

Russian companies have been grappling with staff shortages for years. The issue is now particularly acute, given the minimal unemployment. Some dairy market players are actively cooperating with higher and secondary educational institutions. They organize targeted recruitment and regular production internships and are ready to employ the best students in promising positions. This practice must be applied nationwide.

The regulatory burden on the industry remains an important issue. New requirements related to product labeling and environmental parameters appear regularly.

Prospects for the Russian dairy market

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It is likely that the Russian dairy market will continue to grow in 2024. This is facilitated by relative stability on both the external and internal circuits, increased consumption of milk and dairy products, and increased exports. Furthermore, in the planning horizon of 4-5 years, we should expect Russian and Belarusian producers to fully supply the Russian market with dairy products.

The government's monetary policy will also play a significant role in the development of the milk market. As of the end of June 2024, the key rate is 16 p.p. and may be raised as early as July 2024. With the high key rate, loans for corporate clients are becoming less affordable, which is hindering the modernization of production facilities in the current situation. Consequently, preferential loans for milk producers and farms, as well as the program of partial compensation of capital expenditures, which has already been extended, are of particular importance.

Despite the numerous difficulties and challenges, the Russian dairy industry continues to develop dynamically. A significant contribution to this process is made by the well-established horizontal ties between market players of different profiles, including equipment manufacturers, livestock farms, and dairy producers. Participation in industry events, such as the International Exhibition of Equipment for Milk and Dairy Production DairyTech, also facilitates this. In 2024, 163 companies participated, with 3,976 specialists visiting the exhibition.

If you are a manufacturer or supplier of equipment for milk and dairy products, participation in the 23rd International Exhibition of Equipment for Milk and Dairy Products DairyTech (21-23 January 2025, Moscow, Crocus Expo IEC, pavilion 1, hall 4) will allow you to address several key business objectives simultaneously: to identify new partners and customers, to expand your geographical reach, and to gain insights into market trends and prospects from leading industry experts.

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