Russia’s ongoing trade embargo is contributing to sluggish global prices for dairy products.
Analysts say there’s no real sign of a resolution any time soon, as diplomatic tensions between Russia and western nations continue to simmer.
Russia banned food imports from western nations, including the European Union (EU) and Australia, last August, in retaliation against sanctions imposed by those countries on Russia.
That meant European dairy and pigmeat producers lost their biggest export market.
European farmers say they’re now being paid below the cost of production for a variety of products including dairy, pigmeat, fruit and vegetables, and beef.
Rabobank analyst Michael Harvey said the embargo was flowing through to the global dairy market as well.
“Russia is the world’s second largest dairy importer behind China, and 80 per cent of that comes from the EU and that’s mostly in the form of butter and cheese,” he said.
Mr Harvey said global dairy prices were ‘quite weak’ anyway, off the back of sluggish demand and strong production in many parts of the world.
But the withdrawal of such a significant player from the market has certainly added downward pressure to prices.
“In terms of what we’re seeing in trade flow, we are seeing stock levels build in Europe to a certain degree,” he said.
“They’re not at alarming levels at the moment, but there is product that’s being put away, inventories that will eventually have to come back onto the market.
“We are seeing some of that product moving to other markets, particularly through the Middle East/North Africa region and parts of Asia.”
European Commission officials recently met with Russian delegates to begin preliminary talks about the possibility of relaxing sanctions, particularly on dairy products.
But it’s not at all clear that there’s a broad consensus for the EU to ease trade pressures on Russia, with European Council president and former Polish prime minister Donald Tusk warning last weekend against any ‘appeasement’ of Moscow.
Rabobank predicts dairy prices will recover somewhat towards the end of the year, but Mr Harvey said that could change if the embargo is extended beyond August.
“Our expectation is that Russia certainly won’t be lifting the ban before August, and there’s a risk they might extend it, so that’s the challenge,” he said.
“It just provides another headwind for that market to recover [from], which we think will happen, but it’s going to be a few months away yet.”
Source: ABC Rural
