Tatarstan dairy farmers seek state aid due to rising production costs — RealnoeVremya.com
Due to poor quality feed, yields have dropped, livestock will have to be changed. The high cost price has already put milk processors on the brink of profitability
Russia’s and Tatarstan’s biggest milk producers discussed industry issues amid the coronavirus pandemic and rising prices in Kazan on Feb. 24. The cost of production, according to the industry association Soyuzmoloko, has risen sharply. Processors say they are working almost at a loss, roundtable participants reported at the latest meeting of the board of directors of the republic’s Ministry of Agriculture and Food. Read the details in the material of Realnoe Vremya.
Dairy yields plummeted due to cheap feed
The coronavirus pandemic has “licked” 2% of the cattle population from all Russian farms and agricultural enterprises, Soyuzmoloko Analytical Department Director Aleksey Voronin said at the meeting. The reason for this is a decrease in the productivity and value of cheap food, which farmers have been forced to turn to due to rising prices. This has led to a drop in milk yields, and it is now almost impossible to restore the productivity of cows, assures the speaker.
“We have to change the whole herd. Under current conditions, it will be problematic to do so. Such momentum will be maintained for 1-2 years,” Voronin said.
As a result, milk production is declining, although the Ministry of Agriculture of Russia and the National Union of Milk Producers (Soyuzmoloko) have provided financial support to “dairy workers” for many years. For example, 37 billion rubles were allocated last year. In addition, a subsidy was introduced to compensate for the increase in feed prices, for which an additional 47.5 billion rubles were allocated.
“Today, the situation has not changed, not to say that it has worsened. In fact, the subsidy per liter of commercial milk doubled in 2021. In 2022 it will be maintained, the support will not be lower than last year’s volumes,” Voronin said.
“We broke the barrier of 1 million tonnes of dairy exports for the first time”
However, milk producers can only count on this aid in the second half of the year. In the meantime, support remains via CapEx (capital expenditures – the company’s costs for the acquisition of non-current assets), but only for the creation of MTK. Last year, only 5.3 billion rubles were allocated for these purposes.
This year, the state plans to offset a quarter of the direct capital expenditure costs and also promises a 25-40% discount on the cost of the leased item. Preferential leasing “for export-oriented production” is distinguished in a separate direction.
Preferential loans were granted last year for the purchase of animal feed, product labeling (it has become compulsory for cheeses and ice cream), the “digitization of the dairy chain”. Soyuzmolok representatives believe that such “digital” support will be in demand, given the rising cost of production: digitalization is one of the tools for optimizing costs.
The power to distribute “subsidies per kilogram of processed milk” to producers of cheese, whey and other dairy products has been transferred to the regional level.
Subsidies have played a role: the increase in milk production at the beginning of 2022 amounted to almost a third. However, as the union admits, the “low base” of the 2020 pandemic year also played a role here. At the same time, the volume of imports of dairy products decreased by 2-3%, or 300,000 tons.
“For the first time, we have crossed the barrier of 1 million tonnes of dairy exports, twice as much as a few years ago, when no one believed in exports. Previously, we exported only to post-Soviet countries, but last year the share of foreign countries was already 14%,” said Aleksey Voronin.
Large investors reduce the number of cattle in Tatarstan
The union agreed that the specialization of territories is a serious problem, but reassured: Tatarstan is “exactly a dairy region, and it can grow by 2 times, and nothing will prevent it”. Alexey Gruzdev, CEO of the company Sreda-Consulting, which is engaged in the analysis of the dairy market in Russia, noted that the republic today is the first in the production of dairy raw materials, large farms, both manufacturing and processing, are concentrated here.
“Yes, the big investors are reducing the number of cattle, the productivity of the cows is decreasing. But in 1-2 years, I hope these problems will be solved. Agrosila will have a new complex and other participations. There is no such concentration of players in any other region,” the analyst said.
According to him, the main problem of the industry, both in Tatarstan and in Russia, was the rising prices of raw materials, which led to a decline in the profitability of milk processing. Due to the strongly changed pricing environment, “the problems have escalated”, which has forced the players in the sector to carry out a “structural transformation”. According to Gruzdev, in 2020-2021 the cost of raw materials increased, and in the second half of 2021 commodity prices increased. The profitability situation seems to have stabilized and operating profitability is “rather good”.
“Tatarstan will not only be an oil-producing republic”
According to the analyst, when the major players in the milk processing market rushed to the republic, they opted for affordable and inexpensive raw materials. When production was put into operation, it turned out that the main competitive advantage of Tatarstan was reduced to nothing. The rate of milk production in the republic has decreased to become entirely Russian (which has not been the case in recent years). Now Tatarstan will have to “shop around” and reduce the cost of raw materials, thereby increasing yields. The task “has become much more complicated”. But it must be implemented now, when a favorable moment has developed for the republic to balance the dynamics of the development of production and processing. First, there is scope for consumption growth in the region itself (unlike the Ural regions). Second, it is possible to engage in import substitution.
“We can smile and say: who is there to replace Belarus? If we don’t take cheeses, we can move Belarus. It grows aggressively. The positions of Belarusian processors in the Central Federal District are strong. But the strength of their brand is not enough to compete with Russian manufacturers. A million tonnes is a really serious number that no one believed two years ago. Russian exports have “taken off”, the situation on the world market is good, Russia can seriously increase its milk exports. Besides Russia, there is actually no one to meet the increased demand,” Gruzdev explained.
At the same time, Tatarstan has huge potential in terms of climate, share of rural population and “desire to work with animals”. But it must increase the efficiency and depth of raw material processing, increase the profitability of this processing. Then “Tatarstan will not only be an oil-producing republic – white gold will begin to bear fruit.”
Tatarstan dairy farmers ask for help
“Those who have abandoned dairy farming and do not meet efficiency requirements are turning to crop production. There is a natural evolution of the market. Yes, we are not in New Zealand, we will never have savings on grass, we have different grass, the cows are different. They won’t just eat grass. The industrialization of farms in Russia is inevitable,” Gruzdev said.
At the same time, he noted that for a liquid farm it is necessary to have at least 800 head of cattle in order to somehow get a return on investment. Farms with smaller livestock only show a certain profitability because they work on “depreciated equipment and livestock” or subsidize this part of agro-industry to the detriment of the same crop production.
Denis Pirogov, the general director of the Tatarstan Milk Producers’ Union, called in his final speech to increase state support for the industry, “while sanctions and counter-sanctions are in force “. Recall that when the Russian Federation was a member of the WTO, the authorities promised up to 90 billion dollars to support the agro-industrial complex, then reduced it to 9 billion, and today “4 billion with kopeks at all”.
“According to price dynamics in Tatarstan in 2021, the price of dairy raw materials increased by 11%. And the average price per kilogram of commercial milk came out at 26 rubles 27 kopecks without GZHS. The cost of production has increased by 23%,” he concluded.