Report Highlights:
Russia's food processing industry has been growing rapidly in recent years, with a significant output increase of 25 percent in 2003 which was valued at $32.5 billion. In 2004, reports are that the industry grew 18 percent, but final output figures are not yet available. Due to the growing preference for Western style food and beverages, rising consumer incomes, and a 145 million population, Russia is an excellent prospect for exporters to supply food processors. Consumer markets are not yet saturated with products. These trends are expected into the future keeping prospects bright for continued development. Most local food processors trying to compete in the market are quality-oriented, rather than price-oriented ingredient consumers. Many companies report that raw resources and specialized ingredients for meat, bakery, confectionary, juice, and dairy processing available from Russia domestically are not sufficient to satisfy their needs in the future. U.S. exporters may participate in a USDA sponsored U.S. pavilion in November 2005, at Ingredients Russia, in Moscow by writing atomoscow@usda.gov.
SECTION I.
MARKET SUMMARY
In the early 90-s, imported, manufactured products had a dominant position in the Russian food sector because of the hard economic situation in Russia and the near total stagnation of the food processing industry at that time.After the 1998 financial crisis the local food industry started to grow each year at a very rapid pace.Products manufactured locally in Russia were more affordable for local consumers, compared to imported products and local producers started to manufacture better quality products to seize a larger market share.From that time on, the local food industry has become one of the most dynamic sectors of the Russian economy, with an average increase of 15-20 percent per year.This pace is expected to continue in upcoming years.
The opportunities to supply the market are quite large.Respondents in a recent poll by Ernst and Young reported that, among companies participating, 46 percent source raw materials from foreign suppliers.As well, according to that survey, “some of the fastest growing segments are alcoholic drinks, soups, seasonings, baby and dietary foods, and water and non alcoholic drinks.Dairy products and confectionary products and snacks, historically large markets in Russia, will also continue to grow, but at a slower pace.”Russia’s imports of raw materials for processing is already quite large, in particular for the meat, dairy, fruits and vegetables, nuts, sugar, fish, and vegetable oils, exceeds $6 billion annually and is growing quickly.Trade potential for specialized ingredients in food processing is understood by examining essential oils.In this category, Russian imports are growing 18% per year and in 2003 were $113 million.At present growth this figure will double by 2008.
The factors that restrain faster growth in the food-processing sector are as follows:
·Low supply of processors with high quality raw materials;
·Very high prices of high quality raw materials;
·Continuous growth of prices for energy resources and railway transportation;
·Irregular payments and mutual debts between suppliers of raw materials, processors and food traders; and unreasonably high credit fees.
Overall net profit within the sector nearly doubled in 2003 in comparison with 2000 and reached $32.5 billion. The overall GDP share of the food processing sector ranks fourth and makes up 11-12 percent of the Russian economy.