Tatarstan dairy farmers ask for state support due to rise in production cost

Milk yields have fallen due to cheap feed

The coronavirus pandemic has “licked off” 2% of the cattle population in all Russian farms and agricultural firms, director of the analytical department at Soyuzmoloko Aleksey Voronin said at the meeting. The reason is a decrease in productivity and the value of inexpensive feed, which farmers were forced to switch to due to rising prices. This has led to a decrease in milk yields, and now it is almost impossible to restore the productivity of cows, the speaker assures.

“We need to change the whole herd. In the current conditions, it will be problematic to do this. Such dynamics will be maintained for 1-2 years," Voronin said.

Milk production, as a result, is declining, despite that the Ministry of Agriculture of Russia and the National Union of Milk Producers (Soyuzmoloko) have been providing financial support to “milkmen” for many years. For example, 37 billion rubles were allocated last year. Additionally, a subsidy was introduced to compensate for the increase in feed prices, for which another 47,5 billion rubles were allocated.

“Today the situation has not changed, if not to say that it has worsened. In fact, the subsidy per litre of commercial milk doubled in 2021. In 2022, it will be maintained, support will be provided no lower than last year's volumes," Voronin said.

“We broke through the barrier of 1 million tonnes of dairy exports for the first time”

However, milk producers can count on this assistance only in the second half of the year. In the meantime, support remains through CapEx (capital expenditure — the costs of the enterprise for the acquisition of non-current assets), however, only for the creation of MTK. Last year, only 5,3 billion rubles were allocated for these purposes.

This year, the state plans to compensate for a quarter of the direct costs of capital expenditures and also promises a 25-40 percent discount on the cost of the leased item. Preferential leasing “for export-oriented production” is distinguished in a separate direction.

Preferential loans were issued last year for the purchase of feed, labelling of products (it became mandatory for cheeses and ice cream), “digitalisation of the dairy industry”. The representatives of Soyuzmolok believe that such “digital” support will be in demand, taking into account the growing cost of production: digitalisation is one of the cost optimisation tools.

The authority to distribute “subsidies per kilogramme of processed milk” for producers of cheeses, serums and other dairy products has been transferred to the regional level.

Subsidies have played a role: the increase in dairy production by the beginning of 2022 amounted to almost a third. However, as the union admits, the “low base” of the pandemic 2020 year also played a role here. At the same time, the volume of imports of dairy products decreased by 2-3%, or 300 thousand tonnes.

“For the first time we have broken through the barrier of 1 million tonnes of dairy exports, which is 2 times higher than 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 are reducing the number of cattle in Tatarstan

The union agreed that the specialisation of territories is a serious issue but reassured: Tatarstan is “exactly a dairy region, and it can grow by 2 times, and nothing will prevent it”. Alexey Gruzdev, the 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 holdings, both manufacturing and processing, are concentrated here.

“Yes, large investors are reducing the number of cattle, the productivity of cows is decreasing. But in 1-2 years, I hope these problems will be solved. Agrosila will have a new complex, and other holdings. 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 Russia was a rise in prices for raw materials, which caused a decrease in profitability in milk processing. Due to the sharply changed price environment, “issues have escalated”, which caused the need for industry players to “structural transformation”. According to Gruzdev, in 2020-2021, the cost of raw materials increased, and in the second half of 2021, prices for commodity products went up. The situation with profitability seems to have levelled off, and the operating profitability is “mostly good.”

“Tatarstan will be not only an oil-producing republic”

According to the analyst, when the major players of the milk processing market rushed to the republic, they went for affordable and inexpensive raw materials. When the production was put into operation, it turned out that the key competitive advantage of Tatarstan had come to naught. The rate of milk production in the republic has decreased to all-Russian (which has not been the case in recent years). Now Tatarstan will have to go “to go round again” and reduce the cost of raw materials, increasing yields. The task “has become much more complicated”. But it must be implemented right now, when a favourable time has developed for the republic to balance the dynamics of production and processing development. Firstly, there is room for consumption to grow in the region itself (unlike the regions of the Urals). Secondly, it is possible to engage in import substitution.

“One can smile and say: who is there to replace, Belarus? If we don't take cheeses, then we can displace Belarus. It develops aggressively. The positions of Belarusian processors in the Central Federal District are strong. But their brand strength is not enough to compete with Russian manufacturers. One million tonnes is a really serious figure that no one believed in two years ago. Russian exports have “took off”, the situation on the world market is good, Russia can seriously increase the export of milk. In addition to Russia, there is, in fact, no one to satisfy the increased demand for it," Gruzdev explained.

At the same time, Tatarstan has a huge potential in terms of climate, the share of the rural population and the “desire to work with animals”. But it needs to increase the efficiency and depth of processing of raw materials, 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 support

“Those who have abandoned dairy farming and do not meet the requirements of efficiency are switching to crop production. There is a natural evolution of the market. Yes, we are not New Zealand, we will never have savings on grass, we have different grass, cows are different. They won't just eat grass. The industrialisation of farms in Russia is inevitable," Gruzdev believes.

At the same time, he noted that for a liquid farm it is necessary to have at least 800 heads of cattle in order to somehow get return on investments. Farms with smaller livestock show some profitability only because they work on “amortised equipment and amortised livestock” or subsidise this part of agribusiness at the expense of the same crop production.

Denis Pirogov, the director general of the Union of Milk Producers of Tatarstan, in his final speech asked to increase state support for the industry, “while sanctions and counter-sanctions are in effect”. Let us remind that when the Russian Federation was a member of the WTO, the authorities promised up to $90 billion in support of the agro-industrial complex, then reduced it to 9 billion, and today "4 billion with kopecks at all”.

“According to the dynamics of prices in Tatarstan in 2021, the price of dairy raw materials increased by 11%. And the average price per kilogramme of commercial milk came out at 26 rubles 27 kopecks without GZHS. The cost of production increased by 23%," he concluded.