FrieslandCampina is withdrawing from the Russian dairy market. The dairy cooperative sells the factory and the brands in Russia to the German Ehrmann. While the Russian dairy sector is undergoing strong development and is the world number 5 in terms of production of dairy such as butter, cheese and milk powder.
Due to the country's trade restrictions and relatively low dairy exports, Russia is not recognized as a major player in the global dairy market. Since the introduction of the trade restrictions, the Russian government has invested large sums to develop the dairy sector. As a result, Russia is now 84,1% self-sufficient, which means that exports are limited.
Soyuzmoloko, the trade association of the Russian dairy sector, reports this in an article on the website of the Dutch Agricultural Council in Moscow. The support measures from the government consist of loans with a low interest rate, but also subsidy programs for expansion. This also helps the large companies even more. In addition to expansion, Russia also aims to improve the quality of the dairy and the health of the dairy cows.
Dairy herd is declining
This policy has resulted in 3 huge dairy farms in Russia, which have a lot of influence. This is the German EkoNiva (3,8% market share), the Russian Agrokompleks (1,3% market share) and public companies (2,2% market share). The other companies have less than 0,8% market share in dairy production. The number of cows in 2020 was 8 million cows, in 2021 this is expected to fall to 6,5 million cows. Because the average production per cow is still increasing, an increasing milk supply of 31,8 million tons is expected for this year.
The number of family businesses in Russia is only 17% of the total and is decreasing every year. The differences in production per cow are also huge with a production between 1.802 (at hobby farmers) and 8.591 kilos of milk per cow per year, so the Russian dairy sector still has a lot of potential. The largest dairy processors in Russia are Danone (7,5% market share) and PepsiCo (7,2% market share). With this, there are many foreign companies that process dairy in Russia, making it difficult for local dairy processors to compete.
Russia focuses more on exports
Now that Russia is increasingly self-sufficient, exports are ramping up. For example, Turkey and China are two important export countries, but exports to other countries are also growing strongly. The question is when the trade restrictions will be lifted, so that trade with Europe can start again. These import and export barriers between the European Union and Russia have been put in place after Russia invaded Crimea in 2014. Trade easing could give the European, but also the Russian dairy market a boost. For the time being, trade policy relations between the EU and Russia are deadlocked.
Because Russia is growing steadily and is a major player in milk production, the country is expanding rapidly on the export market. Russia mainly focuses on the Asian market and can therefore compete with countries such as New Zealand and Australia. However, Russia is still a long way behind in terms of quality, which is why Asian countries still prefer other countries.
Russia is therefore an emerging player where much still needs to be done in terms of milk quality and growth, but with government support and perhaps in due course relaxation of trade restrictions, Russia can grow into an important player in the global dairy market.