In the context of anti-Russian policy, one of the important vectors within the framework of the national security strategy is the formation of food self-sufficiency of the population with all key types of food. The introduction of the food embargo was the first important step in the framework of the creation of the food security system, as a result the country's domestic production potential began to grow dynamically.
In 2023, more than 569 million tons of raw cow's milk were produced in the world out of 986 million tons of total milk production (including milk of other agricultural animals). For comparison, the volume of cheese and butter production in the same year exceeded 22 and 11 million tons, respectively.
Fig.1. The main producers of raw milk in the world by 2023, %
Source: Agroexport data, FAO-OECD
Russia is the fifth largest producer of cow's milk in the world. According to the July report "Dairy Products: World Markets and Trade" of the US Department of Agriculture (USDA), in 2023, milk production is expected to increase compared to last year's level in China (by 4.6%), Brazil (by 3.6%), India (by 2.6%), New Zealand (by 2.1%), Mexico (by 2.1%), the USA (by 0.9%), Great Britain (by 0.6%), Russia (by 0.5%). Cow's milk production is projected to decrease in Argentina (by 2.6%) and the European Union (by 0.3%).
Table 1 - Top 10 countries for cow's milk production in the world
| Countries | 2021, th. tons | 2022, th. tons | 2023, th. tons | Growth, % |
| EU | 144833 | 144378 | 144100 | -0,3 |
| USA | 102646 | 102722 | 103596 | +0,9 |
| India | 96000 | 97000 | 99500 | +2,6 |
| China | 36830 | 39200 | 41000 | +4,6 |
| Russia | 32020 | 32150 | 33300 | +1,5 |
| Brazil | 24845 | 23660 | 24500 | +3,6 |
| New Zealand | 21995 | 21051 | 21500 | +2,1 |
| Great Britain | 15428 | 15500 | 15600 | +0,6 |
| Mexico | 12850 | 12980 | 13250 | +2,1 |
| Argentina | 11900 | 11904 | 11600 | -2,6 |
Source: USDA
The consumption rate for dairy products, according to international standards, should be 390 kg per year, and in Russia this index is 175 kg per year.
Fig. 2. Milk consumption per capita in the world, l/year
Source: Agroexport data, clal.it
By the end of 2023, Russia is on the global dairy market:
The 5th place in the world in terms of cow's milk production after India, the EU, the USA and China
on the 3rd place in the world in terms of cheese and cottage cheese production (1.18 million tons)
on the 5th place in the world in terms of butter production (314 thousand t);
on the 9th place in the world in terms of production of skimmed milk powder (111 thousand t);
on the 9th place in the world in terms of production of whole milk powder (69 thousand tons).
The Russian market
Since 2017, Russia has recorded an annual increase in raw milk production. According to Rosstat, over the past six years, the country has increased the production of various types of milk by 9.3%, to 33 million tons.
Fig. 3. Dynamics of milk production in Russia in farms, million tons
Source: Rosstat
Only in January - October 2023, the gross milk yield in Russia exceeded the level of the corresponding period of last year by 4.2% and amounted to 21.7 million tons. The main volume of production is still accounted for by large-scale farms.
The dairy industry continues to remain attractive for investments. Primarily due to the implementation of new projects in agriculture, milk yield is steadily increasing at an average level of 3-3.5% annually, and in large-scale farms (former collective farms) the growth rate this year has approached 7%. According to the forecasts of the Milk union, by the end of January - December, milk production in Russia will increase by 3.5% (+0.9 million tons), to 25.4 million tons.
The leading federal district of the Russian Federation in the production of milk is the Volga Federal District (28% of production for the period from 2018 to 2023), in second place is the Central Federal District (23.6% of production).
In January – June 2023, the largest gross milk yield was received in the Republic of Tatarstan (1.1 million tons; plus 8.6% per year), Krasnodar Krai (884.7 thousand tons; plus 8.9%) and the Republic of Bashkortostan (833.7 thousand tons; plus 1.2%). They have consistently remained among the top three dairy regions since 2011. Such results can be achieved by a large number of dairy cattle: These regions are among the top eight regions of the Russian Federation in terms of the number of cows.
In general, the maximum sales volumes were achieved in the republics of Tatarstan, Udmurtia, Krasnodar Krai, Voronezh and Kirov regions. The average milk yield from one cow per day was 20.4 kg, which is 1 kg more than a year earlier.
The leaders among the regions in cow's productivity are St. Petersburg, Leningrad, Kursk and Kaliningrad regions. In these regions, more than 26 kg of milk per cow was received.
Fig. 4. Top 10 regions of Russia for milk production in farms
Source: Rosstat, Ministry of Agriculture
Meanwhile, the number of cattle in Russia continues to decline. So, in all farms at the end of September there were 17.9 millions of livestock, which is 1.5% less than on the same date a year earlier, according to the Rosstat report "Socio-economic situation of Russia" for the first 9 months of this year. At the same time, compared with the situation at the end of May, when the livestock was estimated at 18.2 million, the reduction is even more significant. The number of cattle among agricultural producers decreased by 1.3%. As for the daily volume of milk sales by agricultural producers, according to the Ministry of Agriculture, as of the end of October, the index was 52.8 thousand tons, which is 4.6% (or 2.3 thousand tons) more than in the same period last year.
Along with the increase in the volume of raw milk production in Russia, a positive trend in the production of dairy products was noted as well.
In 2023, Russian dairy companies produced 5,735,606 tons of dairy products, which is 12.6% higher compared to the results of 2022. The average annual increase in production (CAGR) of milk (except raw) for the period 2018-2023 amounted to 1.4%.
Table 2 – Dairy production in Russia.
| measure unit | 2020 | 2021 | 2022 | 2023 | 2022/ 2021 |
2023/ 2022 |
|
| Milk, except raw | tons | 5 534 928 | 5 597 991 | 5 738 798 | 5 982 644 | 2,5 | 4,2 |
| Cream | tons | 194 815 | 237 086 | 249 408 | 284 312 | 5,2 | 13,9 |
| Dried milk and cream, freeze-dried | tons | 150 294 | 160 000 | 183 926 | 198 400 | 15,0 | 7,8 |
| Dry, freeze-dried, skimmed milk with no more than 1.5% fat content | tons | 95 240 | 95 728 | 111 960 | 128 211 | 17,0 | 14,5 |
| Milk and cream, dried, freeze-dried, including whole | tons | 55 054 | 64 272 | 71 965 | 82 638 | 12,0 | 14,8 |
| Butter, butter pastes, ghee, milk fat, spreads and mixtures of ghee, creamy and vegetable | tons | 304 931 | 307 371 | 342 937 | 386 200 | 11,6 | 12,6 |
| Butter | tons | 277 461 | 282 477 | 313 919 | 392 211 | 11,1 | 12,3 |
| Butter pastes | tons | 1 998 | 656 | 92 | 126 | -85,9 | 36,9 |
| Ghee | tons | 721 | 873 | 1 358 | 1 830 | 55,6 | 34,7 |
| Milk fat | tons | 1 747 | 2 981 | 6 284 | 8 420 | 110,8 | 34 |
| Spreads and mixtures of ghee, creamy and vegetable | tons | 23 004 | 20 384 | 21 283 | 22 180 | 4,4 | 4,2 |
| Cheese, cheese products and cottage cheese | tons | 1 254 380 | 1 342 768 | 1324 608 | 1592 438 | -1,4 | 20,2 |
| Cheese | tons | 571 565 | 647 628 | 656 007 | 692 120 | 1,3 | 5,5 |
| Cheese products | tons | 195 881 | 197 852 | 212 483 | 241 300 | 7,4 | 13,5 |
| Cottage cheese | tons | 486 934 | 497 288 | 456 119 | 497 412 | -8,3 | 9 |
| Milk and cream, condensed or with added sugar or other sweetening substances, not dry | th. cans | 719 997 | 671 280 | 678 986 | 694 620 | 1,1 | 2,3 |
| Condensed milk (concentrated) | th. cans | 378 174 | 345 266 | 379 761 | 411 622 | 10,0 | 8,4 |
| Condensed cream (concentrated) | th. cans | 2 630 | 2 095 | 1 342 | 1 694 | -35,9 | 26,2 |
| Condensed cream (concentrated) with sugar and flavoring components | th. cans | 1 890 | 4 764 | 3 907 | 4 328 | -18,0 | 10,7 |
| Condensed milk (concentrated) with sugar and flavoring components | th. cans | 337 303 | 319 155 | 293 976 | 318 739 | -7,9 | 8,4 |
| Fermented milk products (except cottage cheese and cottage cheese products) | tons | 2 745 475 | 2 738 526 | 2 516 312 | 2 829 320 | -8,1 | 12,4 |
| Casein | tons | 242 | 255 | 557 | 735 | 118,8 | |
| Whey | tons | 986 007 | 1 094 599 | 1 038 106 | 1 098 100 | -5,2 | 5,7 |
| Dairy products not included in other groups | tons | 840 491 | 844 694 | 745 782 | 832 439 | -11,7 | 11,6 |
| Ice Cream | tons | 449 274 | 527 347 | 467 464 | 493 637 | -11,4 | 5,6 |
Source: FRI data, open sources
In November-December 2023, the average producer prices for milk, except raw, was 55 959.7 rubles/ton.
Export and import
Russia remains a net importer of dairy products, although imports decreased in 2022-2023, as a number of foreign partners left the domestic market. According to the Association of Retail Companies (ACORT), the share of domestic milk in Russian stores as of December 2023 reaches almost 99%, and butter - 90%. Last year, Russia's milk self-sufficiency rate was 84.3%, which is only 5.7 percentage points below the target of the Food Security Doctrine.
The missing volume of dairy products is imported. Most of all, in January – November 2023, Russia imported cheeses and cottage cheese: 38.1% of the total imports of these products and 56.5% in value terms. Belarus has become the absolute leader - supplier of dairy products in the Russian Federation. It accounted for 91.4% of Russian imports of dairy products in volume and 86.2% in value. According to the Federal Customs Service of Russia, buttermilk, yogurt, kefir accounted for 41.2% of dairy exports (in volume) (in value - 31.1%). Russia exported cheeses and cottage cheese - 35.5% of the total value of dairy exports (in volume - 14.4%).
More than 40 countries imported Russian dairy products in 2023. Most of the dairy products were shipped to Kazakhstan (42.5% in volume and 46.7% in value), Belarus (13.7 and 13.4%, respectively), Uzbekistan (8.9 and 8.5%) and Azerbaijan (5.9 and 5.5%).
Fig. 5. Structure of dairy exports (in volume) from Russia by importing countries in 2023
Source: FCS, https://milknews.ru
Due to the increased production of milk and dairy products, it is important for Russia to expand export sales channels and develop new markets, in particular, the countries of the Middle East and Africa. According to the Rosselkhoznadzor, in 2023, Russian enterprises were able to supply milk and dairy products to Pakistan. Work continues to increase the list of Russian companies eligible for export to Egypt, China, Saudi Arabia and other countries. At the same time, China ranks first in the world in terms of total imports of butter, skimmed milk powder and whole milk and remains a promising market for Russian products.
State support for dairy production
To date, dairy cattle breeding is one of the main promising areas of animal husbandry, in the development of which the volume of investments increases from year to year. To stimulate this sector of the economy, the Ministry of Agriculture of the Russian Federation annually implements state support measures, which include concessional lending, compensating and stimulating subsidies for sold milk, subsidies for feed for dairy cattle, support for livestock breeding (subsidies for breeding stock, subsidies for the purchase of breeding young cattle in breeding organizations of the Russian Federation), as well as with 2023 – reimbursement of part of the direct costs incurred in connection with the introduction of mandatory labeling. At the same time, special attention is paid to supporting effective projects with high productivity of the dairy herd.
Starting in 2024, the Ministry of Agriculture will introduce new mechanisms of state support for milk producers in order to achieve self-sufficiency of at least 90% of Russian-made products by 2030, as stipulated by the food security doctrine. Next year will bring changes to the support mechanisms for milk, priority regions will be allocated, since not all regions can develop dairy farming. In these regions, producers will receive an increased subsidy for capital expenditures. In addition, it is planned to introduce a 50% subsidy for equipment for farms with a population of 200-400 cows, provided that the number of livestock is increased to 1 thousand cows or more. In 2022, the level of self-sufficiency in milk was 84.3%. Also, from January 1, 2024, for Russian exporters of dairy products, the amount of compensation for transportation costs will increase from 25 to 100%. The document defines milk, cream, whey, butter and cheeses as priority for transportation. The decision is due to the growth of stocks of long-term dairy products formed at processing enterprises, which leads to a decrease in the purchase price from milk producers.
Stimulating transportation will help to avoid negative trends in the domestic market. In 2023, measures to support the dairy industry were consolidated into a "stimulating" subsidy, and funding for the direction was increased by more than 2.5 billion rubles, to 14.5 billion rubles. There are increasing coefficients for efficient milk producers, and within the framework of a "compensating" subsidy, it is possible to reimburse part of the costs per kilogram of sold young cattle. It is proposed to extend the delay in the introduction of labeling of dairy products for farmers until September 1, 2024. The relevant draft government decree has been published on the portal of draft regulatory legal acts. The decision is due to the special social significance of dairy products and the need to support small forms of agricultural producers. The postponement of the connection to the labeling system will apply only to private farms and agricultural production cooperatives. Other market segments in which labeling is already mandatory will not be affected by this postponement. According to the Ministry of Industry and Trade, more than 80% of dairy farms operating in Russia have already registered in the labeling system, and a significant part of them are ready to fulfill mandatory requirements. Entrepreneurs who are already ready to work in the labeling system can voluntarily apply for labeling codes until September 1, 2024.
Dairy Producers
Dairy producers entered 2023 confidently and continued the growth started back in 2022. The total volume of products produced amounted to more than 33 million tons. As a percentage, most of it fell on drinking milk and fermented milk products - 60%, cottage cheese and cheeses - 25% and dairy by-products such as butter and cream - 15%.
The introduction of mandatory labeling of dairy products did not have a noticeable effect on the growth of the cost of dairy products in the industry as a whole. The contribution of this factor to the cost increase cannot exceed 1%. The specific values of labeling costs in the cost structure of dairy production depend on the technological solution chosen by the enterprise.
Table 3 - Rating of the top 10 milk producers by gross milk yield in 2023, thousand tons
| Rating | 2023 to 2022 | Company | Th. tons | Growth rate, % |
| 1 | 1 | Ekoniva | 1 190,0 | +7% |
| 2 | 2 | Agrokomplex | 324,1 | +5% |
| 3 | +5 | Agropromkomplektatsiya | 199,0 | +76% |
| 4 | +10 | Steppe | 149,1 | +71% |
| 5 | -2 | Rusmolco | 147,1% | -16% |
| 6 | -2 | Doronichi | 141,1% | +4% |
| 7 | -2 | Kirovsky Molochny Kombinat | 119,9% | - |
| 8 | -2 | Detskoselsky | 118,3 | +1% |
| 9 | 9 | Pokrovsky | 110,0 | -2% |
| 10 | -3 | Zelenaya Dolina | 109,2 | -5% |
Source: Soyuzmoloko, https://milknews.ru
As for milk processing, the growth in the volume of processing of the TOP 100 was 6.50%, at a time when the growth of the entire market was 2.11%.
The state became the largest milk processor by nationalizing Danone (2023), processing 1 million 774 thousand tons.
As a result, consumption and production of whole milk products, especially yoghurts, have significantly decreased. In the conditions of inertial growth of raw milk production, which continues due to the commissioning of new complexes, the construction of which was laid years earlier, increasing the efficiency of milk production and high technological equipment of the largest producers - recipients of state support, processors were forced to redirect milk to the production of cheeses, dried milk products, butter, etc., thereby accumulating reserves.
Fig. 6. Shares of the 5 largest milk processors
Source: Soyuzmoloko, https://milknews.ru
In the European part, in the Volga region and in the Urals, cheese companies and factories showed a strong increase in processing volumes. Three Bryansk cheese-making companies have entered the top ten fastest-growing milk processing companies. These are the Bryansk Cheese Factory (Bryanskiy syrodelny zavod) (+124.4 thousand tons), Russian cheese (+55.3 thousand tons), Bryansk cheese factories (Bryanskiye syrovarni) (54.3 thousand tons). Permian UKMP continued to grow (+119.8 thousand tons), which became the largest national processor, surpassing Molvest and Komos. The Agrocomplex has also grown (+61.4 thousand tons) and Neva Milk (+52.4 thousand tons).
By the way, consumer packaging trends in Russia correlate with global ones: environmental friendliness, the trend towards reusable packaging, portioned packaging, and an increase in flexible packaging options.
Fig. 7. The prevailing types of packaging of dairy products from manufacturers
Source: data from the ProDairy conference: trends in the dairy industry, 2023
Today, experts give preliminary results among industry participants: the transition to domestic packaging manufacturers, temporary savings on colors, partial temporary shortage of products due to lack of packaging, transfer to other packaging formats, deterioration of colors, other cardboard, revision of packaging formats (if possible) - for those types whose manufacturers are confident in their import substitution. In the most advantageous position are those whose packaging is diversified by type.
Prospects and trends
Despite a number of difficulties, the dairy market is not losing its position and is trying to show growth in certain indicators. The state helps in this, which supports both the industry itself and the manufacturers of equipment for it. Various preferential lending programs for milk producers can lead to an increase in production volumes, an increase in demand for equipment for processing and packaging goods.
The All-Russian Dairy Forum identified five key long-term trends that should take the dairy industry to a new level.
According to analysts, global milk production will grow by an average of 2.1% in 2024. Most of this is due to the growth of production volumes in Belarus (+6%) and Russia (+3%). But against the background of lower purchase prices for raw milk compared to last year, producers are unlikely to increase profits even after increasing production.
The first major trend is the transition from an import substitution model to an export-oriented paradigm for the development of the dairy industry, and the dynamics here are obviously positive. Despite the fact that the possibilities of import substitution have already been practically exhausted, there is a shortage of domestic offers of equipment for the dairy industry (including processing) of proper quality in sufficient quantities for the industry and at an affordable price.
The second most important trend, experts say, is the consolidation of the industry. The efficiency of modern large farms is significantly higher than that of medium and small farms. The profitability of farms with a population of 200-400 heads is about 7% on average in the country. This is at the level of subsidies that farms receive from the federal budget. If we talk about farms with a population of 1.2 thousand or more, then the profitability is at least 20-25%. The situation in processing is similar: large-scale production of both exchange-traded and traditional consumer products is developing.
The third trend that will continue in Russia is the gradual reduction of milk production in household farms. It has been observed for the last ten years and is likely to continue in the foreseeable future.
Another important trend that businesses will face in the coming years is increased competition for government support due to the budget situation.
And the fifth key trend, which should be a priority for business both in terms of production and processing, is efficiency.
As for specific forecasts for the near future, according to experts, there is a possibility of developing both a positive and a negative scenario. There are a number of factors in favor of each option.
Under the first scenario, milk production growth in 2024-2025 will be at the level of 1-1.5%, followed by a reduction. This may be facilitated by a weak ruble, which will support exports if it is possible to conquer export markets. Attempts to develop the markets of other countries have been actively progressing throughout 2023. A positive factor in favor of the development of a good scenario is also the projected increase in world prices for dairy products in the near future. In a negative scenario, there will be a drop in raw milk production in the coming years, if it is not possible to conquer export markets.
Most experts agree on what comes ahead:
Increase in domestic production. Already, many companies are planning to invest a significant part of the budget in expanding production facilities and modernizing them. This should further reduce dependence on imports and help boost exports.;
Development of small and medium-sized enterprises. As a rule, such manufacturers specialize in niche and very high-quality products. Due to this, the market becomes more diverse and can satisfy consumers from different categories to a greater extent;
Integration of digital technologies. Due to this, many work processes will be optimized, the quality of products will improve and the cost of their release will decrease.
According to expert estimates, these trends will accompany the Russian dairy industry in the next 5-7 years, which will allow Russian producers to strengthen their positions in the global market and significantly increase the competitiveness of domestic products.
