The production of hard and semi-hard cheeses in Russia is growing with a decrease in demand

Russian cheese makers, who have invested in the expansion of production in recent years in order to increase the popularity of their products, have faced the opposite trend. Due to rising prices against the backdrop of declining household incomes, cheese consumption has not kept pace with domestic production volumes. Market participants hope that the resulting imbalance will not be long-term, and by the end of this year, demand will begin to increase due to increased exports and output of products in the middle price segment. It is in this sector, as experts expect, that competition among major players will intensify.

At the end of 2023, the consumption of hard and semi-hard cheeses in Russia will grow by 5% year-on-year, but this figure will be lower than the production growth rate, according to the forecast of the Center for Industry Expertise of the Russian Agricultural Bank. The first signs of this trend began last year, after which, according to Sreda Consulting’s calculations, consumption fell by 1.2%. At the same time, according to Soyuzmoloko Association and Sreda Consulting, cheese production in the whole market increased by 4.2%, to 682,000 tons. During the same period, the cumulative growth in production of the top 20 companies, which account for more than half of the total output in the country, amounted to 8.3% year-on-year, to 302 thousand tons.

The reason for the decline in consumption is the price of cheese, which, according to Sreda Consulting, increased by 20% in retail last year. “Production had to be increased against the backdrop of inflationary processes and stagnation of household incomes,” confirms Soyuzmolok CEO Artem Belov. This situation has continued since the beginning of this year. The rise in price is facilitated by the instability of exchange rates, since cheesemakers have to import some of the ingredients and equipment.

The growth of domestic production began after the introduction by Russia in 2014 of an embargo on the import of a number of food products, including cheeses, from the EU, the USA and other countries, as a countermeasure in response to the sanctions of these countries against the Russian Federation after the annexation of Crimea. Recently, large milk producers and agricultural holdings from other segments have begun to invest in cheese production, which shows high profitability, the Russian Agricultural Bank (RSHB) notes. The Ministry of Agriculture added that in the first half of 2023, the production of these products increased by another 16.8% year-on-year, to 376 thousand tons.

Soyuzmolok explains the increase in production volumes by the growth in the number of investment projects among companies from the top 20, which, at the end of 2022, was headed by YuKMP (39 thousand tons, or 0.3% more year-on-year), Foodland (30.3 thousand tons, an increase of 7.8%) and Wimm Bill Dann, a member of PepsiCo (23 thousand tons). Foodland CEO Maxim Polyakov says that growth was made possible by expanding the range and diversifying distribution channels. At the same time, a number of companies reduced production over the year – Kabosh by 10%, to 5.4 thousand tons, Molvest by 8%, to 12.7 thousand. The owner of Kabosh, Dmitry Matveev, explains the decline in production in 2022 year, the transition to the production of hard cheeses with a long ripening period.

Cheese producers interviewed by Kommersant also confirm a decrease in demand for products in 2022, but they expect to support it with products from the middle price segment. In the segment of mass production in the medium term, there may be an increase in the share of large companies, Andrey Dalnov, head of the Center for Industry Expertise of Rosselkhozbank, expects. According to his forecasts, by 2030 the share of Russian producers in the local market will be 80% against the current 75%, and cheese consumption will be 9 kg per person against the existing 7 kg.

Cheese makers, according to them, are also planning to level the resulting imbalance between supply and demand by increasing exports. According to the RSHB, more than half of all cheeses exported from the country come from Kazakhstan, about 10% – from Uzbekistan.

Ekaterina Rakitova