Wednesday, 8 February 2017

Russia’s latest dairy update

Russia’s Minister of Agriculture, Alexander Tkachev, speaking at the VIII Congress of the National Milk Producers Union, said that despite difficulties the dairy industry has shown a positive trend in the last year.

Throughout the country, milk production remained at the 2015 level and amounted to 30.8mmt.

According to the Minister, a dairy farm yielding 5,000kg per cow should see a profit, with state support, up to 18%.

I recall my old university farm finance lecturer telling me not to use the term “profit” as it’s meaningless unless quantified; is that before or after tax, private drawings, loan repayment, re-investment etc.

The Minister went on to say that within five years Russia can reduce milk imports by 5-10% through state support for dairy farming which almost doubled in 2016 to about 26 billion roubles.

To encourage further investment in the industry, Russia has changed CapEx subsidy rules, increasing the amount of time over which the dairy can be built and increasing compensation up to 35% of the build cost.

Long term development includes attracting investment in to dairy farming (show me a business plan that doesn’t), build 800 new dairy farms by 2020 and to reach self-sufficiency in milk by increasing the average yield to 6,000kg per cow.

Couple of issues with that plan; cost of production per kilogram of milk is the measure of business profitability not yield per cow plus 800 new dairy farms will cost a truly enormous amount of money (my calculator couldn’t compute it when I tried to estimate it).

Apart from China, I don’t see anybody with that kind of risk benefit investment fund.