Russian Agriculture Markets and Economic Hardships

Russia is one of the major economies of the world. However, its performance over the last several years has been of slow growth. Similarly, the national currency (RUB) underwent a major devaluation during 2014 and domestic inflation is significantly high, above 10%. This article explores the status of Russia’s agriculture industry, particularly dairy production, taking into consideration the effect of ongoing political dynamics, such as the trade sanctions that are currently in place.

Russian Agriculture Markets and Economic Hardships

Though not a member of the Organization of Petroleum Exporting Countries (OPEC), Russia’s economy is highly dependent on its fossil fuel exploitation, particularly oil and natural gas. Historically, Russia’s main trade partners have been European countries who buy large amounts of fossil fuels. At the same time, Russia has traditionally purchased a good amount of agricultural goods from Europe. With a population of 142 million consumers, only 4.6% of the Russian economy is devoted to agriculture, consisting mostly of wheat, sugar beets, and sunflower seeds. Therefore, Russia relies on food imports in order to meet its domestic market demand. However, due to the ongoing political crisis in Eastern Europe, trade sanctions have been imposed on Russia by western nations until the end of 2017. These sanctions have severely limited agricultural imports from the European Union into Russia, thus benefitting domestic agricultural producers and allowing a market-entry window for other international suppliers, such as China and Belarus.

Russian milk production is divided between small peasant farms, which account for approximately 14% of production, medium-sized household farms, which represent about 46% of output, and large commercial operations, which make up 40% of the domestic supply. While the output of commercial operations has increased consistently over the last several years, due mainly to an increase in productivity per head of cattle, milk production in peasant and household farms has decreased substantially. For 2017, the total number of cattle for milk production throughout Russia is estimated to be at 7.3 million head, compared to 7.6 million during 2016 and 7.8 million head in 2015. Similarly, milk production is estimated to reach 30.2 million metric tons during 2017. Meanwhile, during 2016, milk production is expected to account for 30.3 million metric tons and during 2015 it was of 30.6 million tons. These numbers represent a slight reduction in aggregate production throughout recent years, which is mainly due to the prevailing uncertainty within the Russian domestic markets.

Furthermore, because of the trade sanctions, Russia has become reliant on non-EU nations in Eastern Europe, such as Belarus, for a large amount of its agricultural imports, including dairy products. In fact, during 2016, it is estimated that Russia imports 345.000 metric tons of liquid milk from Belarus as well as 235.000 metric tons worth of cheese products and 90.000 metric tons of butter. In contrast to previous years, Russian production of dairy goods, such as cheese and butter, is expected to remain stable or slightly decrease during 2017. The forecast of cheese production in Russia for 2017 is of 840.000 metric tons and butter output should amount to 245.000 metric tons.

(Read more about European Grape Production and Wine Markets)