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            Archive of numbers / Archive of headings
NUMBER:  ¹1   ¹2   ¹4   ¹5   ¹6   ¹7   



¹ 6(2015)

CONTENT


DRINKS
Review of Russian Alcohol Market
Research of Information Analytical Company “VVS”

Review of Russian Cider/Perry Market
Research of the Company “Euromonitor International”

Review of Russian Soft Drinks Market
Research of Information Agency “CredInform”


TEA & COFFEE
Review of Russian Tea Market
Research of Information Agency “CredInform”


CONFECTIONERY
Review of Russian Confectionery Market
Research of the Company “ID-Marketing”


MEAT
Review of Russian Sausage Market
Research of Information Analytical Agency “INFOLine”


DAIRY PRODUCTS
Review of Russian Cheese Market
Research of the Company “Market Analitika”

Review of Russian Ice Cream Market
Research of Russian Union of Ice Cream Makers


PACKAGE
Review of Russian Market of FBB Packaging
Research of the Company “Abercade”


FOODSERVICE
Franchising in Russian Food Service
Research of the Company “RBC.research”


FINANCE & LOANS
Russian Market of Lease Service in H1 2015
Research of Rating Agency “RAEX” (“Expert RA”)


TRADE SHOWS
The 24th International “WorldFood Moscow” exhibition

Review of Russian Cheese Market
Research of the Company “Market Analitika”

Russian cheese market is dominated by import (about 70%). However, when import embargo was laid upon certain product categories this situation started to change. Importers are looking for the ways to supply cheese to Russia from South American and Asian countries amicable towards Russia (Argentina, Chile, Uruguay). In order to keep their market shares foreign manufacturers sign agreements with contract manufacturers in Russia, they also invest to renovation of Russian cheese plants. This situation might stimulate import displacement. However, low interest of investors to Russian dairy industry, various problems with raw milk supply and presence of fake dairy products in retail result in increased unit prices for dairy products and create favorable environment for unfair manufacturers.
Analysts of “Soyuzmoloko” highlight that problems of Russian dairy industry have caused development of the following negative trends:
* reduction of cattle livestock, by 100 heads in the beginning of 2015 against same time of 2014;
* declined production volume of whole milk products by 119 thousand tons on raw milk basis in 2014;
* increased share of fake dairy products due to growing application of vegetable fats and respective impressive increase of palm oil import;
* increased import of dairy products from Byelorussia.
Application of new technologies and renovation of industrial farms resulted in 245 kg increase of milk yield per cow in 2014, this index reached 4,021 kg. Meanwhile the problem of declining cattle stock is to be solved via opening of three milk cattle breeding centers.
Domestic production of cheese increased by 15.3% in 2014 and reached 494.3 thousand tons, according to Federal Statistics Service of Russia (FSGS RF). In Q1-Q2 2015 domestic production of cheese continued to grow and reached 283.9 thousand tons, by 27.6% more than during the same period of 2014.
Palm oil is a well-known substitute for butterfat; it is used for production of fake milk, quark and cheese. Industry experts highlight suspicious growth of cheese production and relate it to impressively increased import of palm oil to Russia. According to Federal Customs Service, during the first months of 2015 import of palm oil grew by 37%. At the same time import of raw milk declined by 34% in 2014. According to Russia’s Federal Veterinary and Phytosanitary Surveillance Service (Rosselkhoznadzor), share of fake dairy products in some segments reaches 50%. Increasing import of palm oil plays into the hands of unfair manufacturers of cheeses because use of palm oil cuts production costs by 30%.
More than 80% of cheese production in Russia is provided by three Federal Districts: Central FD is the leader with 40% of domestic production in volume while Privolzhsky FD and Siberian FD provide 21.6 and 21% of cheese production in Russia respectively.
According to FSGS RF, in Q1-Q2 2015 most impressive increase of cheese production was demonstrated by Northwestern FD (+48.1%) and by Privolzhsky FD (+42.2%). Production volume of cheese in Ural FD rocketed up by 3.3 times over same period of 2014 but in absolute terms production volume in this regions is small.
In January–June 2015 more than 60% of cheese production in Russia was provided by three cheese varieties: hard (25% of production volume), semi hard (20%) and processed cheeses (18%), according to FSGS RF. Soft cheese, brined cheese and smoked cheese provided respectively 5, 4 and 3% of production volume.
In 2014 manufacturer prices for hard cheeses demonstrated strong fluctuations. Manufacturer prices for hard and semi hard cheeses increased respectively by 12.6% and 10.7% during 2014. Prices were first of all underpinned by embargo laid upon import of certain food categories in August 2014. Growth of wholesale prices stimulated increase of retail prices. According to FSGS RF, in June 2015 the average retail price for hard and semi hard cheeses constituted 407.76 rubles/kg which was by 18.2% or 62.7 rubles higher than in the same period of 2014.
The average retail price for processed cheeses in Russia constituted 268.65 rubles/kg in June 2015; the average price increased by 21.5% or by 47.6 rubles over the same period of 2014.
According to EEC (Eurasian Economic Commission), by 2013 import of cheese and quark to Russia was growing gradually: +9.5% in 2012 and +2.6% in 2013. In 2014 political environment caused 46% decline of import, down to 178.6 thousand tons. In five months of 2015 import volume declined by 86.7% against similar period of 2014 and constituted 12.9 thousand tons.
In value terms import of cheeses and quark to Russia in 2014 declined by 42%, down to $ 973.4 million. During 5 months of 2015 import continued to decline (-88% against the same period of 2014) and constituted $ 62.3 million.
During recent 5 years export of cheeses from Russia was declining. According to EEC, in 2014 export of cheeses and quark constituted 8.8 thousand tons, by 15.4% less than a year before. During 5 months of 2014 export of the review category saw 17.7% decline against the same period of 2014 and constituted 2.7 thousand tons.
In value terms export was declining even faster. In 2014 export value in the review category constituted $ 30.3 million, by 22.7% less than a year before. According to EEC, during the first 5 months of 2015 export declined by 45.5% down to $ 6.6 million.
According to EEC, in 2014 Russia mainly imported cheeses from Netherlands, Lithuania and Finland; together these three countries provided about 40% of import volume. Embargo laid upon import of certain food categories had a strong impact on cheese import. All leaders of cheese import demonstrated negative dynamics in 2014. For instance, import from Holland declined by 56% in volume, from Lithuania – by 35%. Supplies of leaders of cheese import in 2013, Germany and Ukraine, went down respectively by 65 and 77% in volume. Russia increased importing cheeses from South American and Asian countries. For instance, in 2014 import of cheese from Argentina increased by 2.5 times in volume and by 2.7 times in value.
According to EEC, in 2014 Russia mainly exported cheeses to CIS countries. Despite political issues, Ukraine remains the most important market for Russian cheeses. Other important buyers are Azerbaijan and Turkmenistan. The named three countries receive about 60% of cheeses exported by Russia. In the group of the largest buyers of Russian cheese only Azerbaijan saw growth of supplies in 2014 (+6.7% in volume). Most impressive increase of cheese supplies from Russia was seen by Armenia (+24.2%) and Serbia (+48%).
According to “Market Analitika”, in 2014 volume of Russian cheese market constituted 664.1 thousand tons, by 11% less than in 2013. Per capita consumption of cheese in Russia in 2014 constituted 4.5 kg per person, it was the lowest rate in 4 recent years.
In 2014 per capita consumption of cheese in Russia declined significantly, by 12.5%. Meanwhile in 2012 and 2013 consumption rate was almost the same – respectively 5.3 and 5.2 kg per person annually. It should be mentioned that recommended consumption rate is 6.5 kg. In the majority of developed countries consumption rate of cheese is far higher. For instance, the highest consumption rate of cheese is in France, it constitutes about 26 kg/person annually*. Other heavy eaters of cheese are Greece (23.4 kg/person), Germany (22.9 kg), Finland (22.5 kg) and Italy (21.8 kg).
Currently about 450 domestic cheese making companies operate on Russian cheese market. The largest of them in terms of sales are “Danone Russia” OJSC, “Wimm-Bill-Dann Foods” LLC (Moscow) and “Molvest” CJSC (Voronezh). Analysts in “Euromonitor International” highlight that the named three companies control more than half of cheese sales in Russia.
According to industry experts, ban laid on import of some food categories including cheese is to have a positive impact upon domestic players. Production capacity of domestic manufacturers is forecasted to grow by 5-20%. Large Russian cheese makers renovate their production facilities. For instance, “Wimm-Bill-Dann” started “Rubstovsky Syrzavod (Cheese Plant)” on May 20, 2015 after renovation. Reconstruction of this plant increased its capacity of milk processing from 500 tons to 600 tons per day, so the plant is now able to increase production of cheese “Lamber” by 40%. Investment to renovation of this plant counted more than $ 20 million. In order not to loose market shares they already won foreign companies rent production facilities in Russia or invest to renovation of Russian milk processing complexes. For instance, thank to renovation “Valio” is to increase production of its contract cheese manufacturer MK (Dairy Complex) “Galaktika (Galaxy)” (Leningrad Region) by 3 times and of its own facility in Ershovo (Moscow Region) by 2 times.
Most important trends of Russian cheese market are:
* significant increase of fake products since introduction of import embargo: share of such products in market volume constituted 10% before the ban was laid and today it constitutes 20-30%, and even up to 50% in some segments;
* technological underdevelopment mainly affecting production of European cheese kinds and unfair manufacturers using vegetable fats in cheese production are the reasons why cheeses made in Russia do not meet quality requirements;
* 30% decline of cheese consumption in Russia in 2015 as compared to 2014;
* introduction to the market and growing popularity of the so called “cheese products” (cheeses made with substitutes of milk and butterfat) and respective shift of consumption to economy segment;
* increasing shift of manufacturers to smaller package formats with prices per kg kept at the same level;
* unfavorable environment in dairy industry for investors (durable payback of projects, low professional skills of employees in rural areas, deficit of raw milk).
Ban on cheese import is not enough to solve the problem of low investors’ interest to Russian dairy industry. Russian manufacturers can use the following trends and opportunities to improve their market positions:
* promotion of healthy living trend among consumers;
* participation in national social program “three dairy products per day” in order to increase recognition of their products and to accent their health benefits;
* renovation of production facilities and start of new production lines;
* state support of milk manufacturers is to create favorable conditions to increase supply of quality raw milk which can help to increase cheese production;
* development of dairy industry in the frames of Food Security Doctrine of Russia targeting increase of share of domestic manufacturers of milk and dairy products so that it reaches 90%;
* extension of product range of the offer, replacement of foreign cheese varieties import of which is banned;
* development of consumer loyalty to Russian cheese brands (brand recognition and knowledge, product quality). According to industry experts, in 2014 shares of foreign brands on Russian cheese market declined significantly and it will take certain time for them to recover even if foreign manufacturers start production in Russia.
According to Ekaterina Krypetskaya, General Director in “Market Analitika”, today cheese production is one of the most interesting food sectors in the context of import displacement trend. None of food industries in Russia was so dominated by imported products as cheese making. However, there are serious limitations for companies to use these new opportunities: quality of raw milk/ferments and level of cheese making technologies, outdated equipment and machinery of existing cheese making facilities. Until recent everything needed for cheese making except raw milk was imported to Russia. Quite a few cheese makers managed to keep or develop their own cheese making traditions and know-how. With the exception of several industrial kinds of cheeses, cheese production in Russia is impossible without buying formulations, ferments and equipment. It means that cheese making in Russia remains import dependent and will be like that until the state takes certain moves to support and stimulate this sector.
Companies with potential to fill the niche of quality cheeses are concerned with possible low profit and too long payback period on investments, for instance, in case ban laid upon cheese import is lifted soon. According to industry experts, it might take 5 to 6 years to fill this segment and improve technological potential of Russian manufacturers.
Other companies are trying to respond to decline of consumers’ purchasing power and shift to production of economy “cheese products”. As the worst option they mislead consumers offering fake products. Unfortunately, it is hard to fight this trend because it has economic benefits for manufacturers. As for consumers, it is easier for them to buy inexpensive product than to bother with investigation of its quality. This is another serious factor preventing proper development of Russian cheese market.

* Source: www.pirfood.ru.

Michail Sychev
Head of Research Department
“Market Analitika”

Ekaterina Krypetskaya
General Director
“Market

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