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13 Aug, 2009 13:33

Dairy sector battles downturn as farmers look for support

Russia has halted the import of Lithuanian dairy products after finding antibiotics in them. That’s bringing focus to Russia's domestic production and decline in consumption.

Russia's dairy market is contracting by as much as 10% year on year according to some estimates.

The decline in consumption is also reflected in a change in what type of products people buy, and where, according to Viktoria Grankina, Analyst at Troika Dialog.

"If prices go up by 40%, then people start trading down. And oftentimes, they switch out of packaged dairy products to unpackaged dairy products which I think is happening now."

Last year, milk prices increased 40% in Rouble terms. So far in 2009, they've declined – already 10 to 15%.

The industry is generally underfinanced – not getting subsidies from the government as their Western counterparts do. And that hurts small farmers – for whom it is difficult to get affordable financing.

Andrey Danilenko, representative from the National Milk Union says they won't be able to last without state support.

"We figure that some sort of critical measures are needed, and that maybe even a panel of the government and producers would be set up to negotiate. This isn't an issue of Russia being left without milk, but it's a matter of ensuring import independence for dairy products."

Currently, the majority of milk consumed in the country does come from local sources. Exports abroad account for only about 1% of production.