The growth in the cost of milk production and the withdrawal from the market of small and inefficient farms leads to an acceleration of consolidation processes in the industry. Over the past five years, the 30 largest players have increased their output by 1.5 million tons, occupying 15% of the market, and in two or three years their share may grow to 20%. Business will be complicated by the abolition of state subsidies for part of the cost of building farms.
From 2015 to 2020, the 30 largest commercial milk producers in total increased their production by 1.5 million tons, which corresponds to 50% of the total market growth. This is evidenced by data from a joint study by the National Union of Milk Producers (Soyuzmoloko) and Streda Consulting.
The general director of Soyuzmolok Artem Belov expects that by the end of 2021 the volume of production will increase by 3%, to 24.2 million tons, and the increase in production costs will lead to further consolidation of the market. Alexey Gruzdev, head of Streda Consulting, notes that the 30 largest players have increased their market share from 10% to 15% in five years, and in the next two or three years it may grow to 20%. According to him, the consolidation is ensured by the expansion of production on the part of large players.
So, according to the study, “Econiva” Stefan Duerr increased the production of commercial milk by 22%, to 924.7 thousand tons. Owned by the family of the ex-head of the Ministry of Agriculture Alexander Tkachev Agrocomplex them. NI Tkacheva increased production by 15%, up to 312.1 thousand tons. The structure of the Singapore-based Olam International Group of Companies Rusmolco increased supplies by 43%, to 131 thousand tons, which allowed the group to oust Doronichi APH from the third place (growth of 1%, to 125.5 thousand tons).
Stefan Duerr notes that consolidation processes in the dairy industry are not as noticeable as in poultry or pig breeding, but they are going on. According to him, this is due to the departure of small non-core players to crop production due to high grain prices. General Director of Rusmolco Management Company Sumanta De points out that the market is still highly fragmented and most of the production is provided by medium and small players, but in the medium term it is the segment of large industrial production that has great potential for growth. In the Agrocomplex named after NI Tkacheva said that they do not fix the consolidation of the market.
Aleksey Gruzdev adds that there are only a few cases of M&A transactions in the dairy industry. According to him, large agricultural holdings prioritize investments in favor of other industries. In addition, the industry has a measure of state support in the form of compensation for part of capital costs, which makes new construction more profitable, rather than buying a ready-made business, the expert points out. In his opinion, active acquisitions in the industry may begin after the abolition of subsidies.
According to Artem Belov, the growth of the cost of milk production by 18% per year can accelerate the consolidation. According to Soyuzmolok, because of this, small farms in the regions are moving into more profitable industries. Andrey Neduzhko, general director of the Steppe agricultural holding, adds that the greatest impact was made by the rise in the cost of feed: over the year, the protein and energy components increased by more than 80%, and vitamins rose by 60%.
Andrey Grigorashchenko, Deputy General Director of Damate Group of Companies, recalls that 30% of milk is still produced at outdated farms, and 48% at small enterprises and private farms, while the market shares of small and ineffective players are decreasing in favor of large ones. But the growth potential due to increased productivity in large complexes is already low – this figure is at the level of the leading EU countries, points out Artem Belov. According to him, the sector can grow at the expense of new large complexes, for which it is necessary to maintain subsidies for 25% of capital expenditures.
The largest producers of commercial milk in Russia in 2020
Sources: Soyuzmoloko, Streda Consulting.