Agencies forecasting lower financial stability of Russian dairy industry

MOSCOW. March 14 (Interfax) - The Economic Development Ministry and the Agriculture Ministry have analyzed the status of Russia's dairy industry, including raw milk production and processing industry, on the government orders and have concluded that the industry will see a decline in financial stability and some enterprises may even go bankrupt unless the industry receives additional support.

A source from a financial and economic agency told Interfax that the conclusion was drawn in a letter of the Economic Development Ministry sent to the government office at the beginning of March.

In addition, the growing fodder prices threaten with lower milk yields and capacity utilization.

According to the letter, prices for main elements of raw milk production costs have been growing a lot. For instance, in December 2021, feed wheat prices grew 24.7%, premix prices went up 64.3%, and compound feed prices increased 16.9% in December 2021, compared to the average price for 2020. The share of feed in the cost structure of farmers is about 55%, while the share of raw milk in the cost structure of processors is 74%.

According to the documents enclosed with the letter, the cost of raw milk production grew 11% year-on-year over the first nine months of 2021, while the profitability reduced by 0.8 percentage points to 11.9%. The processing industry reported a 17.2% rise of production costs and a 2.8% decline of profitability to 5.1%.

The letter authors say that a larger government support would be necessary to stabilize the situation in the industry with compensatory and incentive subsidies, as well as concessional lending and reimbursement of part of the direct costs incurred. The proposed measures also include support to the industry with subsidies for the purchase of feed.

As reported earlier, the government is considering the possible allocation of additional 10 billion rubles for buying fodder for dairy cattle.

The situation in the industry was analyzed after the Central Bank raised the key rate to 9.5%. The key rate was urgently raised to 20% on February 28.