The projected retail price is expected to rise to RUB50/litre (US$1.60), according to Svetlana Mentyukova, senior manager of PepsiCo Russia, who now own Wimm-Bill-Dann, Russia’s largest milk processor. During the past four years, the price of raw milk in Russia has risen by 50 per cent.

According to Mentyukova, one of the reasons for this rise in milk price is the ever declining level of profitability of milk processing companies.

The current profitability rate is about seven to 12 per cent as raw milk prices continue to rise. Wimm-Bill-Dann executives believe that forthcoming sharp price rises may significantly reduce local consumer demand which in turn will negatively affect the entire chain.

Consumption growth of dairy products remains largely restricted by high prices as well as import controls, which limit supply even while production is flat or declining.

Milk production is poised for 0.3 per cent growth in 2012 while the dairy herd continues to shrink, albeit at a slower pace than historical rates.

From January-August 2011, production of cheese and whole milk products (milk, kefir, sour cream and other) decreased by 3.5 per cent and 3.4 per cent respectively.

As a result of these higher milk prices, cheese and butter production is expected to fall further as more factory use is expected to focus on milk powder production. In turn, cheese and butter imports are forecast to rise while milk powder imports are expected to decline.

Ongoing strong imports of cheese and butter are anticipated for 2012.

Belarusian fluid milk and dairy products will continue to take a larger share of the Russian market as they maximise bilateral preferences.