Milkiland plant has cheese banned by Russia

The Russian state consumer rights watchdog reported on April 7 that it has suspended supplies of dairy products to Russia from six Ukrainian producers, including Milkiland’s (MLK PW) Okhtyrka cheese plant. In an April 8 statement, Milkiland reported it has yet to receive official notification that explains the reasoning behind the suspension. The Okhtyrka plant accounts for 19% of Milkiland’s cheese production capacity. The company already announced a series of measures to minimize the ban’s negative effect on company fundamentals, including a shift to production of more dry milk products and increased efforts to diversify cheese sales to Central Asian and MENA markets.

Alexander Paraschiy: The Russian ban may result in up to an 8% drop in Milkiland’s EBITDA. Yet we believe the negative effect will be much smaller. In particular, Milkiland’s Polish asset, which generated a negative profit in 2013, has a chance to expand its sales to the Russian market and start generating healthy profit (it recently received the corresponding permit from Customs Union regulators). Moreover, this plant can partially take the niche of some other Polish producers, whose supplies have been reportedly banned by the Russian regulator. On top of that, the ban on the supplies of numerous Ukrainian cheese makers should result in declines of domestic prices of raw milk, which should in turn improve Milkiland’s raw material costs. Whatever the result may be, we have to admit that the risk of new, more painful, trade bans by Russia remains high.