Steppe to produce dairy products as milk business expands

12/07/2019

The Russian government is supporting dairy farmers in an effort to stimulate milk production with the aim of becoming self-sufficient in dairy within a few years.

Since 2013, Russian milk production has increased by 3-4% per year, shrinking the gap between the country’s needs and domestic production. According to a report by Deloitte and Soyuzmoloko, in 2017, Russia was 82% self-sufficient for milk and is looking to become fully self-sufficient by 2020. Beyond milk, cheese is the most important dairy product with 935,000 tonnes per year, followed by butter with 260,000 tonnes, according to Dairy Global.

In addition to the import substitution efforts, Russia has an ambition to become a significant dairy exporter. In February, Russian Minister of Agriculture Dmitry Patrushev expressed confidence that by 2025 Russian dairy exports would hit USD 1 bn, as part of the country’s drive to increase food and agricultural exports to USD 45 bn annually by 2024.

Steppe expands dairy segment

Steppe, Sistema’s agricultural products business, is in the process of aggressively expanding its dairy business. Today the company owns and operates five dairy farms in the Krasnodar region in the south of Russia with a combined herd of 4,800 cows. Two new large farms are under construction: a 3,000 head farm in the Krasnodar region and a 3,100 head farm in the Rostov region.

In 2018, Steppe produced 46,500 tonnes of milk with an impressive average yield per cow of 10,000 litres per year. As the two new farms come fully online, Steppe expects to produce 120,000 tonnes of milk annually by 2022.

Vertical integration

As Steppe expands raw milk production, it is also beginning to move up the value chain into finished dairy products. Recently Steppe acquired a milk processing facility 45 kilometres from the new large farm in the Rostov region. The Orlovsky facility will be used to produce all-natural dairy products including cheese and butter..

Initially the facility will be used to test consumer preferences and produce sample batches of all-natural dairy products from top-quality raw milk. As the large Rostov farm ramps up to full capacity, Steppe plans to expand the newly acquired production facility and establish a fully vertically integrated dairy business – from raw milk generation to production of dairy products ready to be sold to end-consumers.

An emerging agro powerhouse

In addition to dairy, Steppe is one of Russia’s largest grain producers with an impressive land bank of 412,000 hectares. The company’s agrotrading division, launched in 2018, is delivering impressive results. Steppe is also a major Russian grower of cucumbers, tomatoes and apples, which the agro holding now sells under own retail brand.

In the first quarter of this year, Steppe’s revenue was up 148% year-on-year and operating income increased by 78%.