USD 65.57 EUR 75.98 GBP 85.52

Processors risking to end up without domestic raw milk

2014.12.12

Stefan Duerr’s comments on the milk market situation for the DairyNews News Agency.

The current situation in the raw milk market strongly resembles 2012. Raw milk prices are so low in relation to the cost structure that none of the producers are going to expand next year, and some of them will have to put their projects into cold storage. We are already considering shutting down one or two tie-stall farms.

The cost of milk is ok at the new operating dairies so far. But for tie-stall farms and dairies under construction the raw milk price today is not enough. Why? The price does seem high. But have a look at the cost structure and changes resulting from the exchange rate.  Fertilizer, hybrid seeds, machinery, and spare parts prices have gone up. And it is already difficult to find a loan rate under 16% in banks and sometimes it goes up to 20%.  Keep in mind that a lot of things have got more expensive: we purchase soybeans in US dollars, 700 USD for a tonne of soybean meal three months ago and 700 USD today are very much different.

Take a look at other products for comparison. Three months ago, sugar used to cost 22 rubles, now – 37 rubles. Pork used to cost 90 rubles, now – 150 rubles. These industries have responded promptly to the cost structure changes. But milk is still purchased at 23-24 rubles as before.
With such a shortsighted attitude the processors risk to end up without any milk next year. Unless the raw milk prices go up in the nearest time, the dairy herd can start decreasing. And we can keep this attitude if we do not aim at increasing milk production. But if we really want to increase the share of milk self-sufficiency, the price has to grow considerably. Under current conditions, we see 28-30 rubles for milk of VEMA (The East European Milk Alliance) Standard + VAT as a fair price.

I am an optimist, but at this moment, I have to admit that the industry is going downhill. I am sure that as a lot of other good enterprises we will get over it. We did survive year 2012 and we will survive this year as well. But I am also sure that a lot of businesses are giving up. And let the milk processors restrain their surprise when, in six months or in a year, they find themselves without any domestic raw milk at all.