Continued growth for Russian food sector

The report says that recent changes in exchange rates against the rouble have also improved import opportunities. This comes about after a difficult period for those foreign food businesses trying to import into Russia following the devaluation of the Russian currency in 1998. After this time, trading became extremely difficult for many food businesses and in a lot of cases trade had to be ceased.

It is also interesting to note that as the size of the Russian food processing business increases, so the number of players operating in the arena decreases. In the period 2001 to 2002, the number of food companies fell from an estimated 24,700 to 23,300, a drop of 5.7 per cent. This figure reflects both the maturation of the sector as well as an increasing amount of consolidation, with the larger players becoming all the more dominant.

Amongst the food areas with the greatest growth rates in 2002 were sausage meat, with a growth in production volumes of 17.9 per cent to reach 1443 tonnes; fruit juice, which grew a staggering 55 per cent to 2.1 million decalitres, and mineral water which grew by 28.7 per cent to reach 157 million decalitres, surpassing vodka sales for the first time.

The report also highlights how the larger players, which have been successful in attracting outside investment, have also done much to improve both food safety and quality in the last couple of years. In 2002 investment from outside sources stood at $552 million, whereas in the year-long period up to June 2003 that figure stood at $898 million.

Accompanying the growth of the sector is a growth in the market for both ingredients and raw food products. The report highlights that this is creating further opportunities for foreign suppliers, as local suppliers do not always have sufficient production standards or quality procedures.

The growing affluence of Russian consumers means that theya re becoming more quality conscious. As a result, there is an increased demand for better quality food products as well as more luxurious and expensive food items.

In recent years the sector has shown increasing signs of becoming far more organised, efficient and profit-driven. This is reflected by the organisation of vertically-driven agro-industrial companies, the steady revival of the Russian farm sector and the first ever listing of a local processing company on the New York stock exchange - dairy and juice maker Wimm-Bill-Dann.

Because of consolidation in the sector, the report also highlights how the increased size of production volumes is making the sourcing of processing supplies outside of Russia a more attractive proposition. This is because many foreign suppliers already have the resources and experience to deal with high volume orders and still maintain quality.

This trend for consolidation first manifested itself in the beer sector, but now the dairy, juice and confectionery sectors are all rapidly following suit, with a rash of foreign processors making their mark and a number of local players increasing their presence.

Consolidation has peaked in the beer sector, with around 71 per cent of the segment being carved up by the top ten companies. Similarly, both the confectionery and soft drinks segments have high levels of representation by the top ten companies, at 60 and 57 per cent respectively. But other sectors still remain surprisingly fragmented, with the top ten players only representing 21 per cent of the dairy market and 15 per cent in the meat market.

Although the report emphasises the potential for foreign food suppliers in the Russian market, it also highlights a number of areas that may prove challenging to doing business. Highlighting the disparity of income and continuing poverty in rural areas, the increasing self sufficiency of certain segments such as grains and edible oils and frequent changes in tariffs, the market is evidently full of opportunity but doing business there is not always clear cut.

To view the full report, which is geared up to US businesses trying to break into the market, please use this link​.