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5/2018


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DRINKS
Development Prospects of the Wine Industry in Russia
Research by the Center for Investigations of Federal and Regional Alcohol Markets
Review of the Russian Beer Market
Research by Credinform Information Agency
TEA & COFFEE
Review of the Global Coffee Capsules Market
Research by the Company Euromonitor International
CONFECTIONERY
Review of the Russian Cookies Market
Research by the Company IndexBox
MEAT
Review of the Russian Market for Meat Products
Research by the Company GfK Rus
OILS & FATS
Branding in the Russian Market for Bottled Sunflower Oil
Research by the Branding Company Labelmen
DAIRY PRODUCTS
Review of the Russian Dairy Market
Research by the Company Laboratoriya Trendov
FAST FOOD
Review of the Russian Market for Non-Sweet Snack Foods
Research by the Company NeoAnalytics
INGREDIENTS
Review of the Russian Market for Starch Products
Research by the Company ID Marketing
CANNED/PRESERVED FOOD
Review of the Russian Market for Canned Meat
Research by the Company AnalyticResearchGroup
EQUIPMENT & MACHINERY
Review of the Russian Market for Non-Cultivated Crop Processing Equipment
Research by the Company Eventus Consulting
RETAIL
Review of the Russian Food Retail Market
Research by INFOLine Information Agency
PACKAGING
Review of the Russian Market of Packaging for Liquid and Viscous Foods
Research by Experts
TRADE SHOWS
23rd International Specialized Exhibition RosUpak-2018
FOODSERVICE
Review of the Russian Market for Public Catering
Research by the Company NPD


Review of the Russian Dairy Market

Research by Consulting Company Foresight 24
CONSUMPTION
Consumption of milk and dairy products in Russia has been declining year by year, which is caused by a number of factors.
The crisis phenomena in the economy and the imposition of sanctions both contributed to growth in prices for dairy goods, especially in the segments of cheeses and functional dairy products.
A decline in consumption in physical terms has been taking place due to the presence of products in new packaging formats, which allow the reduction of a single purchase or one-time consumption for instance, kefir in 0.2-litre packages instead of 1-litre packages.
It should be noted that consumption of milk and dairy goods in Saint Petersburg and Leningrad region is substantially higher than in Moscow and Moscow region. The reasons include the more developed agriculture in Leningrad region (with the lower local population), development of farming and farm store chains, the presence of strong regional manufacturers, and the regions proximity to Finland, famous for its goods, which are now also produced in the Russian Federation.
Consumption in donor regions with a dairy agricultural specialisation is not leading in volumes. This is largely due to the fact that the share of domestic dairy production is high in these regions. For instance, in Rostov region household plots account for almost 85% of the raw milk production volume; in Tatarstan their share amounts to 32%; in Novosibirsk region said indicator equals 23%. In addition, a considerable volume of products is supplied to regions with a shortage of raw materials (raw milk) and related processed goods.
Purchases of milk and dairy goods in the third quarter of 2017 occupied 5.2% of all expenditures of Russian consumers (a similar value was observed in 2016). Consumption in urban and rural areas differs: according to the Federal State Statistics Service (Rosstat), consumer expenditures in these types of settlements amount to 5.1 and 5.9% approximately. The presence of children in the family has virtually no effect on consumption of milk and dairy products, as these are among products of mass consumption. A decline in the structural share of expenditures on dairy goods has to do with an increased role of expenditures on non-grocery products (vehicles, furniture and household equipment), the markets of which have been slowly recovering after the crisis.
Speaking of the distribution of milk consumption across population groups with different income levels, a significant decline in the share of expenditures with increased incomes can be noted. In the first (the least wealthy) group, 8% of expenditures fell on the products in question, whereas the tenth (the most wealthy) group demonstrated a share of 3.1%. This is connected with the fact that milk and dairy products are consumed across all population segments and are relatively inexpensive and accessible goods.
The data on the share of expenditures on milk and dairy goods in the total expenditures on food products indicate that the largest structural share falls on regions with the highest price levels and milk consumption volumes.

PRODUCTION
Production of all types of dairy goods except milk was demonstrating growth in 20162017, and the decline in milk output was minimal. For this reason, exports have been growing as well, compensating for the decreasing domestic milk and dairy product consumption against growing output volumes.

EXPORTS
Exports of dairy products have been slowly recovering following a significant drop in 2015.
Shifts in the structure of exports in value terms have been taking place. Growth in the structural share has been demonstrated by the following categories: cheeses and quark (+1.2 pp. in 20142017) and milk and cream (+5.6 pp.). This is caused by a reduction in the shares of yoghurt, kefir and other fermented goods (-0.8 pp.) as well as condensed milk and cream (-7.6 pp.).
In the category of non-condensed milk and cream, the largest volume of exports in 2017 fell on products with the fat content higher than 1% but lower than 6% (75.9%) as well as on goods with the fat content of over 10% (13.8%). The largest importers of non-condensed milk and cream in the past year were Ukraine (45.5%), Kazakhstan (31.7%), Belarus (6.9%) and Abkhazia (6.6%).
In the structure of exports of condensed cream and milk, products with the fat content of 1.5% and less occupied the share of 12.8% in 2017, whereas products with the fat content above 1.5% had the share of 6.8%. Milk and other cream varieties with the fat content of over 1.5% accounted for the share of 0.5%. Condensed milk and cream without added sugar and with other fat content occupied 23.3% of exports, whereas other varieties of condensed milk and cream with added sugar occupied 56.6%. Condensed milk and cream were mainly supplied to Russia from Kazakhstan (66.8%), Ukraine (13.4%) and Belarus (6%).
In the category of yoghurts, kefir and other fermented goods, shares in exports were as follows: yoghurts 20.5%; other dairy goods, flavoured and non-flavoured, with and without added sugar, with and without added fruit, nuts or cocoa 79.5%. The main importing countries in the category were Kazakhstan (33.7%), Belarus (15.5%) and Ukraine (8.7%).
In the category of whey, the main volumes of supplies fell on whey, condensed and non-condensed, with and without added sugar (65.7%). Other dairy goods with and without added sugar and other sweeteners occupied the share of 34.3% in exports. Imported whey was mainly supplied to Russia from Kazakhstan (45.5%), Ukraine (33.3%) and Belarus (10.1%).
The largest volumes in the butter category in 2017 were accounted for by natural butter (78%). Dairy spreads and other dairy fats occupied 15 and 7% of supplies respectively. The main countries importing goods within the category were Kazakhstan (49.2%) and Ukraine (37.1%).
In the category of cheeses and quark, the largest shares in imports fell on processed cheeses, grated and non-powdered (42.9%) as well as young cheeses (fresh and unripened) and quark (39.1%). The leaders in supplies of these products were Kazakhstan (49.2%), Belarus (15.2%) and Ukraine (12.5%).

IMPORTS
All types of dairy goods demonstrated a reduction in imports, which was due to the consequences of the sanctions as well as the import substitution programme being implemented. The sharpest drop throughout the period from 2014 to 2017 was recorded in cheeses and quark (-47.8%), milk and cream (-40.6%) and whey (-36.9%).
The structure of imports underwent a number of changes in 20142017. As can be concluded from the above, during the period analysed, a decline in the structural share primarily took place in cheeses and quark (-6.4 pp. in 20142017), which used to be supplied to Russia in large amounts. Due to this, other types of dairy goods also demonstrated changes in their structural shares.
Based on the analysis of the imports and exports structure, one may conclude that Russias positions are strongest in exports of yoghurts, kefir, cheeses, quark and other fermented goods, whereas the main volumes of imports fall on cheeses and quark, butter and milk, and condensed cream. It is important to consider that the calculations of imports take into account data for imports of goods produced at foreign sites of the global market leaders, which are also present in Russian localised production, as well as products imported into the Russian Federation for the purpose of further reselling.
The main supplies in the category of non-condensed milk and cream in monetary terms in 2017 fell on non-condensed milk and cream with the fat content of more than 1% but less than 6% (57.7%) as well as milk and cream with the fat content of over 10% (38.8%). The largest supplier of these products was Belarus, accounting for 93.3% of imports.
The bulk of imports of condensed milk and cream was accounted for by goods with the fat content of 1.5% and lower (54.3%), whereas the share of products with the fat content above 1.5% amounted to 29.6%. The main countries exporting condensed milk and cream were Belarus (73.4%), Uruguay (7.4%) and Argentina (5.5%).
In the category of yoghurts, kefir and other fermented goods in 2017, yoghurts occupied 14.4% of imports. The share of imports of other dairy goods, non-flavoured and flavoured, with and without added sugar, with and without added fruit, nuts and cocoa, amounted to 85.6%. Belarus served as the largest exporter of these goods in 2017, accounting for the share of 95.9%.
In the whey category, the largest volumes of supplies fell on whey, condensed and non-condensed, with and without added sugar (86.6%). Other dairy goods with and without added sugar or other sweeteners occupied 13.4% of imports. The largest supplies of whey into Russia were provided by Belarus (75.9%). Significant shares were also demonstrated by Argentina (13%) and New Zealand (6.6%).
In the category of butter, the main volume of imports fell on natural butter (89.9%). Dairy spreads occupied 1.7% of supplies, whereas other types of dairy fats accounted for the share of 8.3%. The leading suppliers of these goods to Russia were Belarus (72.2%) and New Zealand (18%).
The largest shares in the category of cheeses and quark were occupied by young cheeses (fresh and unripened) and quark (15.9%) as well as other cheese varieties (42.9%). Said products were mainly exported from Belarus (23.2%), Ukraine (14.5%), the Netherlands (13%), Germany (8.9%), Lithuania (7.5%) and Finland (7.5%).
To sum up the aforementioned statistics, the largest volumes of dairy exports from Russia fall on post-Soviet states, whereas the bulk of imports was accounted for by Belarus. The shares of other countries are rather small due to restrictions connected with the sanctions.
The study allows us to conclude the following.
Per capita consumption of milk has been declining, which is primarily due to changes in the model of consumer behaviour in particular, demand shifting from kefir and milk to yoghurts in smaller packages, or the abandonment of certain product types upon them disappearing from store shelves as a result of sanctions imposed. Sadly, at the moment Russian alternatives in the dairy segment are inferior to formerly imported goods that they replaced (among other goods, this concerns cheeses).
Sanctions and the realisation of the import substitution programme led to significant shifts in dairy imports and exports. Against declining volumes of imported goods and the development of domestic production, the Russian dairy industry began to increase the volumes of exports not only to the post-Soviet states, which account for the bulk of exports, but also to other countries, such as Mongolia, China and the UAE.
Today, the main volume of dairy imports falls on Belarus, and the state of things is expected to remain unchanged during the following 23 years. Development of the dairy industry along with state support and the need to meet domestic demand will be stimulating growth in exports and the ongoing decrease of Russias dependence on imports in this group of food products.

Elena Ponomareva,
Candidate of Economic Sciences, member of the Russian Marketers Guild,
Managing Partner
Consulting C




.