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Review of the Russian Cheese Market

Research by the Company Global Reach Consulting
The Russian cheese market has been going through difficult times. The shortage of raw materials, the lack of access to technologies, the declining consumer purchasing power, and a number of other factors create difficult conditions for domestic manufacturers.
Since cheese is not a necessity good, the volume of its consumption is largely affected by the standard of living of the Russian population, which has been declining in 20162017. Russians real disposable household incomes decreased by 1.4% in JanuaryJuly 2017 compared to the similar period of 2016.
Prior to the sanctions, the structure of cheese imports was remaining relatively stable. Products were supplied from more than 30 countries, 60% of imports falling on Europe, in particular Italy, Spain, France, the Netherlands, Finland, Lithuania and Poland. Today, Belarus is the largest supplier of cheeses to the Russian market in 2016, more than 186 thousand tons of cheese and quark were imported into Russia from this country, which amounted to 85.8% of the total volume of Russian imports of these products in physical terms. Belarus is followed by Serbia with a large margin the share of the latter in the structure of cheese and quark imports equalled 4.2% in physical terms in 2016.
Due to the situation formed, Russian companies began to increase their output volumes. In 2014, the volume of cheese and cheese product output in Russia increased by 14.7%. In 20152017, growth in indicators could be observed as well, even though less significant. Production growth in 2016 equalled 1.4%, and the volume reached 597 thousand tons, whereas in the first half of 2017 it grew by 6.5% to the similar period of the previous year. Such a striking difference in production growth indicators in 20142017 has several reasons. Analysts believe that growth in 20142015 was largely due to increased volumes of output of cheeses in the low-price segment as well as cheese products, which resulted in consumers dissatisfaction with the quality of domestic goods. The decline in production growth rates in 2016 was caused by decreased real household incomes and increased production costs. It should also be noted that growth in supplies from countries imports from which is not banned occurred in 20152016.
The main factors hindering the process of cheese production growth include the existing shortage of raw materials, equipment and technologies. These conditions make Russian cheesemakers dependent on imports. For instance, imported equipment purchased or leased from abroad is used for cheese production. In addition, part of the ingredients, such as rennet, are also bought abroad. Ruble devaluation forces market participants to raise their prices, which ultimately inhibits market development.
The shortage of raw materials also results in cheese products dominating in the structure of cheese production in Russia in 2016 their share reached 24.4%. Hard cheeses are second in the production structure, occupying the share of 23%. Semi-hard and processed cheeses account for 21.1 and 17.1% respectively. Soft cheeses have a share of 5.7% in Russian production. Other types do not exceed 4% total in the structure.
In 2017, Russian cheese market participants were actively announcing expansions of existing production facilities and launches of new ones. A number of market players expanded to new product categories, such as soft cheeses (e.g. mozzarella). In October, a production line for premium white mould cheeses was launched by Firma (Firm) Kaloriya (Calorie) LLC (Krasnodar). The company announced that it was ready to increase its cheese output to 30 tons per month. By the end of 2017, a contractor will be chosen for the construction of a new factory in Moscow region, where the launch of mass production of soft mould Cabembert and Brie cheeses as well as semi-hard ripe Iberico cheese is planned.
Since the imposition of the food embargo, the range of cheeses produced in Russia has expanded significantly. Private cheese factories have emerged, producing premium cheese varieties in small amounts. A significant increase in the range took place in the mid- and high price segments as well however, product quality has remained lower than prior to the sanctions. This is due to the fact that European cheeses familiar to Russians are produced with the use of complex recipes that Russian manufacturers are yet to master. Said cheeses include Maasdam, Brie, Camembert, Parmesan and others.
Nowadays Belarussian producers are the main competitor of Russian goods in the segment their main advantages include a developed raw material base and established production, which allowed them to fit into the current situation and increase production volumes as well as supplies to Russia. Apparently, re-marking goods of European production played an important role in the increase of cheese supplies from Belarus. It was particularly noticeable shortly after the sanctions were introduced, when Belarus was supplying premium cheese varieties not typical for Belarussian cheesemaking (such as white mould cheeses), marked as domestically produced. At the moment it is difficult to determine the proportion between cheeses actually produced in Belarus and re-marked goods.
In this connection, the Government of the Russian Federation increased the subsidies for Russian milk producers and announced its readiness to allocate funds to support cheese manufacturers. In Moscow region, applications are being accepted from those wishing to receive grants for cheese production expansion or modernisation.
The near future of the Russian cheese market depends on two main factors. On the one hand, the food embargo contributes to market development; on the other hand, the shortage of raw materials does not allow domestic producers to effectively increase output volumes. This gives reason to assume that growth in the amount of counterfeit cheese in the dairy market will be proportional to the increase of palm oil imports. According to forecasts by market participants, production of cheese in Russia may increase by 1.52%, and further market development will depend on whether the food embargo is cancelled or prolonged.

Anna Berdysheva,
Department of Business Planning and Marketing Research
Global Reach Consulting