The Russian food embargo and the devaluation of the ruble have driven up the price of milk fat and the cost of processing. In response, processors have been turning to palm oil as a substitute for milk fat, driving imports to nearly one million tons and making the country one of the top importers of the edible oil in the world.
Russian palm oil imports increased 37% last year compared to 2014, as the country’s milk production fell by 2% according to data from the Russian State Statistical Service. Meanwhile, Russian cheese output increased by 33% indicating a high level of substitution. Indeed, a study by Rosselhoznadzor at the end of last year concluded that 78% of all cheese produced in Russia are compromised, with some samples containing no milk fat at all.
The Russian government is considering imposing a duty of US$200 per ton on palm oil, however, it is believed that this plan is flawed and will negatively affect the market and increase the pace of inflation.