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markets and customers. Although compared
to total EU production these export
volumes are not very significant (as
we have seen the largest share was recorded
with cheese at 2.9%), producers
had to find new customers. In addition,
the Russian dairy imports from the
EU accounted for almost 25% of total
EU dairy exports. Consequently, the redirection
of Russia sales was meaningful
in overall terms of EU dairy export
activity, thus the subsequent temporary
decrease in export demand might have
also contributed to the broad-based
decreasing European dairy prices.
The European Union has decided to
extend the economic sanctions against
Russia by the end of July 2020. Nevertheless,
some EU members, most
notably Italy, Hungary, Greece, France,
Cyprus and Slovakia are sceptical about
the sanctions, and have called for a
review of them. In addition, due to
the recently introduced additional US
import tariffs on a wide range of EU
products, some key export products
(e.g., Italian hard cheese) are facing
tough sales conditions. Therefore, it
is not surprising that some voices are
getting louder and louder to reconsider
the EU’s overall stance on the economic
sanctions against Russia.
Lately, we have been hearing from
several trusted sources that the parties
might consider changing their positions.
It is not clear if this situation is
28 · February 2020 ¦ international-dairy.com
L’INTERFORM
With over 50 years of experience and a team of dedicated and knowledgeable
professionals, L’INTERFORM is one of the l eading independent brokers of dairy
commodities in Europe and has direct relationships all over the world with major
sales segments such as purchasing organizations for retailers, wholesalers,
food service suppliers, and industrial transformers. Throughout its history, our
firm has introduced many renowned manufacturers of Europe’s dairy industry
and their brands to the Italian market and continues to represent exclusively
selected European dairy businesses in Italy.
In recent years, L’INTERFORM has expanded its scope of p ractice and since
2017 has been p roviding comprehensive financial risk management and advi -
sory services for the d airy and b roader agricultural commodities sectors.
solely driven by economic factors or if
political considerations are also in play.
It is extremely difficult to foretell the
behaviour of actors in such situations,
as decisions are often short-sighted and
politically motivated (e.g., please see
an example of this in the below box).
As a result of the economic sanctions,
the Russian dairy industry has gone
through considerable transformation by
increasing domestic production (in several
cases via government support), and
by decreasing import volumes. Nevertheless,
in 2018, Russian butter import
still amounted to some 90,000 tons,
cheese to 250,000 tons and SMP to
95,000 tons. Consequently, the end of
the Russian export bans would represent
significant business opportunity for well
positioned European dairy companies.
How China has executed a U-turn in its
Canadian pork import policy
China’s recently introduced and suddenly lifted import ban o n Canadian pork
is a good example of how sovereign countries in today’s economically and
politically dependent world can execute U-turns in their tr ade policies from
one day to the other. Following Canada’s arrest of Huawei’s CFO on US fraud
charges in December 2018, China initiated economic restrictions (as a retaliation)
against Canada after claiming to have discovered falsified certificates
for meat exports. Independently from these developments, the Chinese pork
industry has been hit s everely by the A frican swine fever, which has outgrown
itself into a national pork crisis during the cour se of 2019. Half of the C hina’s
pig population has been wiped ou t despite increased imports. In ad dition,
pork prices have almost doubled, while China still faces meaningful shortages
of pork meat. Seeing this situation, Chinese authorities decided in November
2019 to lift Canadian pork import bans f rom one day to the other. Despite a
politically motivated import ban, at the end, China was forced by economic
developments to change its po litical stance towards Canada, and lift im port
bans on Canadian pork.
EU dairy prices have been historically,
and also lately very competitive
in international markets. Consequently,
a potential end of economic sanctions
could open the Russian market to EU
exporters. We believe EU exporters are
well positioned to gain significant export
market share (several tens of thousands
of tons) at the expense of Belarus
(butter import from Belarus represents
76% of total Russian import compared
to pre-sanction levels of 30%). The
same economic reasoning also holds
for cheese, but at a larger scale. The
EU used to enjoy almost 60% cheese
export market share, while Belarus now
has 83% market share compared to ca.
20% prior to the sanctions. EU-originated
cheese is currently very competitive
internationally, therefore, for EU
cheese producers Russia could again be
a very important export market. With
regards to competition from other exporters,
the potential market size is
close to 200,000 tons. However, we
believe EU cheese producers can rather
easily challenge newly established Russian
producers as well.
Once economic sanctions against
Russia are lifted (or not extended beyond
their currently anticipated deadline
of 31st July 2020), we also expect
European dairy prices potentially to increase
in the short term, most probably
for cheese, but at smaller scales also
for butter and SMP. This potential impact
has consequences for proper dairy
price risk management as we experience
a growing number of potential
risk factors (both positive and negative)
facing dairy producers.