Russia Trade Fact Sheet.Food&Beverages.2011.Western Cape Investment and Trade

trade fact sheet russia < food & beverages >

Contents 1. About Wesgro

trade fact sheet russia 1

2. Introduction

3. Market Size

3.1 Global trade and relative position of Russia

3.2 Global trade and relative position of Russia in relation to the food and beverages sector

3.3 Value, volume and growth analysis of the food and beverage sector in Russia

4. Competitor Analysis

4.1 International competition

4.2 Local competition: Local production and producers

5. Consumption/Demand

5.1 Local consumption patterns of food and beverages (locally produced and imported)

5.2 Trends in consumption and spending

6. Wine

6.1 Market size analysis

6.2 Competitor analysis

6.3 Consumption/demand analysis

7. Distribution Channels

7.1 Types of distribution channels available

7.2 Most preferred distribution channels

7.3 Regulations on distribution channels

8. Trade Regulation, Requirements and Standards

8.1 Tariffs

8.2 Import requirements and documentation

8.3 Standards and regulations

8.4 Logistics

9. Price

9.1 Price development

9.2 Price influencing factors

9.3 Methods of payment

10. Doing Business

10.1 Promotion

10.2 Business culture

11. Contacts

11.1 Sector/industry contacts

11.2 Embassies and consulate

12. Sources and References

Appendix

trade fact sheet russia

1. About Wesgro Wesgro is the official Investment and Trade Promotion Agency for the Western Cape, located in Cape Town, South Africa. We are the first point of contact for foreign importers, local exporters and investors wishing to take advantage of the unlimited business potential in Cape Town and the Western Cape. Our mandate is: • To attract and facilitate foreign and domestic direct investment into the Western Cape • To grow exports of products and services of the Western Cape through development of export capability, demand and market access • To market the Western Cape globally as a competitive and sustainable business destination

Investment Promotion, Facilitation & Recruitment Our services to investors include: • Investment Recruitment / Promotion • Business Facilitation including: Information on incentives, Site location, Accessing finance, Accessing incentives, and Professional referral service. • Aftercare • Advocacy

International Trade Our services to local exporters and international buyers include: • Export readiness assessment, training, mentoring programmes, experiential market visits • Outward selling missions as well as inward foreign buying missions • One-on-one foreign buyer and local producer meetings set-up • Africa to Africa trade focus • Access to international non-traditional markets (particular to Western Cape exports) • Assisting exporters with the dti Export Marketing & Investment Assistance scheme (EMIA) For further information and other research publications such as country briefs, trade and investment trends, destination intelligence, trade factsheets or how to become a member of Wesgro, please visit the Wesgro website at www.wesgro.co.za

trade fact sheet russia

2. Introduction Russia is the largest country in the world by land area, extending across the whole of northern Asia and 40% of Europe, and is home to some 145 million people. Russia possesses a wide range of mineral resources (together constituting about 15% of the world’s mineral deposits), including coal, iron ore, manganese, platinum, copper, tin, diamonds and gold, and is the largest producer of oil and natural gas in the world. In addition, Russia’s Siberian forests produce about 20% of the world’s timber. Since the collapse of the Soviet Union in the early 1990s, Russia has undergone a marked political and economic transformation, and today is a formidable player in the international trade arena. Prior to the onset of the global financial crisis in 2008, Russia had been enjoying a prolonged period of economic expansion, with annual growth rates in the region of 7%. Its burgeoning economy up to that point has mainly been attributed to high energy prices from 2000 onwards leading to strong returns from exports, higher disposable incomes and surging demand for goods and services to satisfy an increasingly affluent and consumer-oriented society. Food and beverages are amongst those imports most coveted by Russians who, for generations, had little access to high quality foreign products. Consequently, the agri-food sector is highly competitive with many foreign producers having successfully made inroads into Russia. However, with the Russian economy being so dependent on the export of oil and other commodities, economic growth is likely to be somewhat tepid for the next year or two as global demand conditions slowly return to normal. South Africa and Russia have enjoyed a cordial relationship for many years but trade between the two countries has been relatively restrained. For example, in 2008 South Africa’s agri-food exports to Russia constituted about 2% (in value terms) of total agri-food exports and represented about 1% of Russia’s total agri-food imports that year. The Western Cape is particularly well placed to give impetus to a food and beverage export drive to Russia because there is high demand for products such as fruit, fruit juice and wine, and also emerging opportunities for niche products such as herbal teas. A number of Western Cape producers operating in the agri-food sector have already penetrated the Russian market despite the latter’s acknowledged challenges, with fresh fruit, dried fruit and nuts, and grape wine showing significant growth. Whereas product quality and competitive pricing are key to developing sustainable business ties with Russia, so too, is the ability to navigate the complex distribution channels and regulatory structures that influence the workings of the market.

3. Market Size 3.1 Global trade and relative position of Russia 2

Russia has made strides in adopting a more open, market-oriented approach to doing business - both at a local and international level. This is confirmed in the country’s generally impressive economic growth rates over the past decade, its strong export and import performance, and the large number of foreign firms that have established or furthered their ties with Russia. Natural resources make up approximately 80% of Russian exports. Being the largest producer of oil and natural gas in a world in which industrial output has been growing at an unprecedented rate, has given Russia status in the eyes of the international community as well as very high returns from exports. Oil, natural gas and minerals dominate the export mix, followed by metals and metal products, machinery, equipment and means of transport, and chemicals. With so much attention having been paid to the development of the country’s energy sector, many of Russia’s other sectors have tended to be neglected. Manufacturing, for example, is relatively undeveloped and makes a small contribution to Russia’s export earnings - this despite the government’s attempts to invigorate the country’s automotive, aviation and ICT industries, amongst others. Agricultural raw materials and foodstuffs make up about 2% of Russia’s total exports.

trade fact sheet russia

As has been the case in South Africa, having abundant natural resources has produced some complacency in Russia as far as the development of value-added industries is concerned. Unfortunately, a heavy reliance on commodity exports makes the country vulnerable to ‘boom and bust’ cycles which follow swings in global commodity prices. This has been played out recently in the global economic downturn. In this regard, the value of Russia’s exports in 2009 could shrink by as much as 40% compared with the 2008 figure of USD472bn. Russia’s short-term recovery on the export front will be heavily linked to better growth prospects in its most important trading partners, i.e. the EU and China, as well as improved commodity prices. The fact that Russia has until recently been running up sizeable trade surpluses should help to cushion the impact of a sharp – yet no doubt temporary – drop in export earnings. Longer term, with the world turning its attention to alternative forms of energy given the adverse effects of industryinduced climate change, Russia could well be forced to redirect its export efforts towards more environmentallyfriendly industries. Russia’s main export markets (and their respective shares) in 2008 were the Netherlands (11.2%), Italy (8.1%), Germany (8%), Turkey (6%), Ukraine (5.1%), Poland (4.5%) and China (4.3%). In contrast, Russia’s import mix is much more heavily geared towards value-added goods with the main import categories being machinery, medicines, plastics, motor vehicles and other consumer goods, including processed food and beverages. Insufficient financial or technological investment in the country’s manufacturing, agricultural and other sectors has contributed to local producers not being able to keep up with growing domestic demand for various product categories, including raw materials used in domestic agri-food production. Furthermore, Russia’s harsh climate and remoteness from major shipping routes have stunted the country’s economic development to some extent, with certain regions being very sparsely populated and devoid of much industrial or commercial activity. A strong import culture has consequently taken root in the country, and western style consumer goods are gaining in popularity amongst Russia’s expanding middle class and wealthy segments. The steady appreciation of the Russian rouble after its near collapse during the Asian crisis of 1997-98 has also been a stimulant to import growth. However, the global economic downturn is expected to adversely affect Russia’s imports in 2009 with the overall drop in value compared with that of 2008 estimated to be about 30%. Russia’s main sources of imports (and their respective shares) in 2008 were Germany (13.5%), China (13.2%), Japan (6.5%), Ukraine (6%), the US (4.5%) and Italy (4.3%).

Russia is influential in emerging market circles and has rubbed shoulders with its First World counterparts in the G8 for several years. However, Russia remains the last of the big countries which has not yet joined the World Trade Organisation (WTO). Accession talks have been stop-start in nature, partly because of Russian fears that increased competition from foreign products in non energy-related fields will compromise local production. At a regional level, Russia belongs to the Eurasian Economic Community (EurAsEC) which purports to strive for synchronisation of import regulations and tariffs. Yet Russia has been known to restrict imports from other member countries. In a further development, 1 January 2010 saw the launch of a new customs union comprising three of EurAsEC’s members (Russia, Belarus and Kazakhstan) which makes way for duty- and quota-free trade amongst members and a unified tariff applied to non-members. In recent years, Russia has concluded assorted bilateral agreements and also affords a number of developing countries (including South Africa) preferential market access under its Generalised System of Preferences (GSP) scheme. (See APPENDIX : Comparison of Western Cape’s main food and beverage exports to Russia and the world 2004 – 2008.)

3.2 Global trade and relative position of Russia in relation to the food and beverage sector Russia is a net importer of food and beverages, and imports have grown significantly since 2000. For example, between 2000 and 2008, agri-food imports increased in value from USD7bn to USD33bn. Today Russia is the second largest agricultural importer amongst the leading emerging markets (i.e. after China). Russia’s main imports are meat, highly processed products, fruit, nuts and vegetables.

trade fact sheet russia

Russia’s agricultural exports have also grown since 2000 but at a more sedate pace and from a relatively low base. Most of the export growth is attributable to grain exports (mainly wheat and barley). Other important export products are fish, beverages and spirits, and oilseeds (the latter, for example, being sold in large quantities to Germany for bio-fuel production). Russia’s transition from a centrally planned to a market economy since the early 1990s has fundamentally changed the country’s agricultural production and trade patterns. Interestingly, from once being a large producer of livestock and an importer of grain and oilseeds, Russia is today a major importer of livestock products and an exporter of grain. After 1990, the huge subsidies that had been given to the Russian farming sector (with livestock farmers being the main beneficiaries) were largely eliminated. As a result, meat output (mainly beef, pork and poultry) plunged and imports began to rise to compensate for the lack of capacity at a local level. With depleted livestock, the demand for animal feed declined and imports of grain, oilseeds and soybeans were significantly reduced. During the 1990s, Russian consumers also began to be exposed to a myriad of food products from other countries which they had previously been denied. Russia’s buoyant energy sector after 2000 and the infusion of new wealth and more sophisticated tastes have been particularly strong stimulants to import activity in the food and beverage sector. Other contributing factors have been the steady appreciation of the Russian rouble which has made imports more affordable, and a high inflation rate at home which has made many domestically produced products more expensive (and thus less competitive) than foreign equivalents. Today Russia is a formidable global food market, with agricultural produce and processed food and beverages accounting for about 13% (in value terms) of the country’s total imports. The EU (notably Germany, the Netherlands, Poland and France) is the largest foreign supplier of agricultural products to Russia. Ukraine, Brazil, China, Argentina, Australia and the US are also important suppliers. Russia’s main export markets for its agricultural products are Belarus, Kazakhstan, Ukraine, Egypt, Georgia, China, Italy, Japan and Saudi Arabia. Russia has relatively little arable land and its climate is also not conducive to large-scale agricultural production. Nevertheless, the government is keen to build up its livestock sector once more and rely less on imports. Russia is a large consumer of meat and during the 2000s, the government actively tried to reduce meat imports through the imposition of a tariff quota on beef, pork and poultry imports. Domestic poultry farming, for example, has been given a shot in the arm because of the quota system. The government has also been restricting or banning meat products from various countries under the banner of health concerns but the restrictions tend to be imposed in an arbitrary fashion and are widely suspected to have a protectionist motive. These measures are not expected to have too great an impact on meat imports as demand will undoubtedly continue to exceed supply for the foreseeable future. Competition in the food and beverage sector in Russia is fierce and the market is very fragmented, with tastes varying from one region to the next in line with fluctuating living standards.

3.3 Value, volume, growth analysis of the food and beverage sector in Russia 4

Russia’s agri-food sector accounts for about 12% of the country’s GDP and in 2006, total food sales in the local market were valued at USD70bn. The strong growth in this sector has been evident since the late 1990s and is set to continue well into the future, yet the local and international growth scenarios tell different stories. For example, from 2000 to 2008, the value of Russian agricultural production rose by 38%. Imports of agricultural products rose by more than 400% in value during the same period. As imports comprise both retail-ready products and ingredients for food and beverage items manufactured locally in Russia, foreign suppliers are afforded a wide range of export opportunities. The meat sector has shown strong growth in recent years with the expansion of the restaurant, hospitality and catering industries spiking demand for meat. A greater preoccupation with healthy living amongst more sophisticated Russian consumers has also prompted a growing interest in less fatty meats such as chicken, veal and beef fillets. It will be interesting to see what the long-term effects of the tariff quota system and renewed investment in livestock farming will have on the Russian meat sector.

trade fact sheet russia

The dairy sector has also seen strong growth and this trend is set to continue as consumers look for more variety in dairy offerings. About 15% of all processed milk products are imported, with condensed milk, natural milk, cream and butter being the leaders in this regard. Russia has a local cheese industry but it is fairly under-developed and the product quality is inferior to that of imported cheese. The fresh fruit and vegetable sectors have been expanding rapidly, with very high demand being evident in urban areas. About 70% of the fruit consumed in Russia is imported and South Africa is a leading supplier. Russia is also a large importer of vegetables and China is its main supplier. The confectionery sector is well established and has been growing steadily. Demand for chocolate-based products is particularly high. About 10% of Russian confectionery products are imported (mainly from large Ukrainian manufacturers) while the rest is produced locally, often by foreign-owned companies such as Nestlé (Switzerland), Kraft Foods (US) and Danone (France). The bakery sector has also been expanding in recent years to include more bread and pastry varieties, as is typical in western Europe. Some foreign companies are active in the Russian bakery market but most are Russian owned. Fishing has traditionally made a significant contribution to the Russian economy and the local fishing industry’s annual catch is one of the highest in the world. However, an ageing fleet, a rise in illegal fishing activities and a shortage of proper processing facilities in the country are threatening the competitiveness of the industry, pushing up local fish prices and dampening demand in some quarters. Higher income households are increasingly favouring processed fish and seafood delicacies and countries such as China and Thailand are becoming important suppliers in this regard. The beer sector has for many years been registering strong growth and beer is consumed in greater quantities than any other alcoholic drink in Russia. Russia has a proliferation of local (and very good) breweries and thus the market is heading for saturation leaving little room for foreign beer producers. Vodka has long been an iconic drink in Russia but in time vodka’s share of the market is likely to decline, as more refined drinks such as whiskey and cognac gain in popularity,. Soft drinks (from carbonated drinks to fruit juices) are popular in Russia and the sector is expected to continue growing as more people adopt western-style consumer behaviour. However, consumption is still not on a par with that in western Europe. Russians have always drunk tea in large quantities and in 2007 Russia became the largest importer of tea in the world, followed by the UK and the US. Coffee drinking, though restrained by comparison, has been showing reasonable growth over the past decade. Instant coffee is becoming the preferred variety.

4. Competitor Analysis 5

4.1 International competition Since state-controlled farming was abandoned in Russia after 1990, competition in the agri-food sector has become increasingly fierce. At an international level, the EU is Russia’s largest supplier of food and beverage products (by value) but a number of countries in the Middle East, South America and Asia are also exporting significant volumes to the country. The EU’s predominant position in the Russian market is attributed not only to the high quality of its offerings but also to its geographical proximity, and the fact that European countries started making serious inroads into Russia at the start of the transition period, and invested accordingly. Brazil is a leading supplier of beef, pork and poultry to Russia, competing with the high volumes of poultry exports from the US and Argentina’s beef exports. Lamb from Australia and New Zealand is very popular in Russia, while Lithuania and Germany are satisfying Russian consumers’ growing interest in veal. Up-market fish and seafood products mainly originate in the Scandinavian countries of Norway and Denmark (e.g. herring and salmon), as well as in China and Thailand.

trade fact sheet russia

Germany is a leading supplier of dairy products to Russia and dominates the cheese sector. Fresh milk imported into Russia mainly comes from Finland. New Zealand holds the largest share of the imported butter market in Russia, with Finland and Ukraine also being important players. Imported bakery items mainly originate in Poland and other eastern European countries because their close proximity to Russia helps to ensure fresh deliveries. Important fruit suppliers to Russia include Germany, Italy, Spain, Portugal, South Africa, Morocco, Turkey, Chile and China. The highest volumes of grapes, for example, come from Uzbekistan, Turkey, Chile and China, while Russia also sources the bulk of its apples from China. More exotic fruit varieties, such as figs and pomegranates, are mainly sourced from Middle Eastern countries, such as Iran. The Middle East and China are also important suppliers of vegetables to Russia. Ukraine, Germany and the Czech Republic are the leading suppliers of beer. France, the United Kingdom and the US, in turn, are responsible for the bulk of Russia’s spirits imports (e.g. bourbon, whiskey, cognac and brandy).

4.2 Local competition - local production and producers In terms of local production, uneven investment over the years has resulted in the food and beverage industry in Russia becoming polarised. A number of industry players have modernised their operations and become quite competitive – sometimes with the help of foreign investment from well-known multinationals. Others have found it difficult to shed their Soviet character and are inefficiently run. The latter have tended to become victims of neglect (financial and managerial) and have found it difficult to compete with foreign business models and brands. It is mainly those local producers which have had strong international influence through a direct investment deal or have a foreign parent company, e.g. Nestlé, which are today able to hold their own against high quality and competitively priced exports from abroad. Although the Russian government appears to be gravitating more towards a policy of import substitution, particularly where the country’s livestock sector is concerned, it is unlikely that local producers will be in a position to seriously threaten their international counterparts in the years to come.

5. Consumption/Demand 5.1 Local consumption patterns of goods (locally produced and imported) The average Russian family spends about 35% to 40% of its disposable income on food and beverages – which is high by European standards.

Interestingly, the bulk of Russian consumers favour domestically produced food products over imports – not necessarily because of any sense of loyalty towards Russian varieties and brands but because local products are often assumed to offer better value for money. The more affluent and sophisticated segments of society are more drawn to imported food, particularly processed/packaged products because they offer variety and convenience. Supermarkets are responsible for only about 10% to 15% of retail food sales in Russia. A large proportion of food and beverages (both locally produced and imported) is still sold at traditional ‘open markets’ and street kiosks. These allow people to inspect the products on offer and engage at a personal level with suppliers or their representatives - in contrast to the self-service (and some would say clinical) approach of western-style supermarkets. Products marketed through traditional channels are also more competitively priced because they are supported by quite informal distribution arrangements. In addition, in the eyes of many Russian consumers, produce available in open markets is fresher than that sold at supermarkets. Supermarkets have higher cost structures (e.g. retail space is very expensive in Russia), tend to be frequented by middle class and wealthy consumers and are mainly found in those centres which are large enough to support a burgeoning supermarket culture, e.g. Moscow. Russians are big meat eaters, with annual per capita consumption averaging 75kg. Traditionally, beef and pork were the most popular meat varieties but rising living standards and disposable incomes have encouraged a growing

trade fact sheet russia

interest in perceived delicacies such as lamb and veal. Frozen meats are rapidly gaining a following but chilled meats are still the most popular. About a quarter of all meat consumed in Russia has undergone some form of processing. Consumption of milk and other dairy products in Russia has been steadily rising since the late 1990s. In fact, more than 90% of Russians regularly buy milk, and butter and yoghurt are staple grocery items for many. Cheese consumption in Russia is relatively low by global standards, i.e. 2 to 3kg per capita per annum. Annual per capita fruit consumption is about 72kg, with apples, bananas and oranges being the most popular fruit varieties followed by pears and then grapes. Local consumers are not particularly brand conscious when it comes to fruit purchases. Instead, they are drawn to quality as evidenced in a fruit’s general appearance and aroma, size and texture. Annual per capita vegetable consumption in Russia is close to 100kg per capita, and root vegetables such as potatoes, turnips, radishes, carrots and beets constitute staple ingredients in Russian dishes. Many Russians have a sweet tooth and spend up to 6% of their disposable income on chocolates and other confectionery items. Bread consumption used to be very high in Russia. Although it is said to be declining, other bakery items, such as buns, pastries and waffles, are being consumed in greater quantities reflecting a growing preference for premium products. Annual per capita fish/seafood consumption is just under 20kg. Fish is thus much less popular than meat and even confectionery in some households. Consumer demand for fish in Russia is driven by two main groups: lower and higher income groups with the former preferring standard fish varieties and the latter high quality imports and/or processed (e.g. canned, preserved, etc.) fish which is easier to store and prepare. Beer is a very popular alcoholic drink and annual per capita consumption stands at about 80 litres in large centres like Moscow. While consumers do enjoy some foreign brands (e.g. SABMiller’s Golden Barrel Beer has proved very successful), there are also many very good local breweries and Russian consumers are therefore spoilt for choice. Vodka has always been associated with Russia, and although consumption has marginally declined in recent years as more alcoholic alternatives have become available and people have been pursuing healthier lifestyles, it is still a very popular drink. Annual per capita consumption of vodka in Russia is currently about 15 litres – which is very high by most countries’ standards. More and more people are indulging in popular western-style carbonated and sports drinks, and fruit juices (many of which are imported). The most popular fruit juice flavours are apple, orange and multi-fruit.

Russians drink relatively little coffee, with annual per capita consumption being only about 0.7kg. This is in strong contrast to Germany’s 8kg and Finland’s 9kg, respectively. This modest consumption pattern does not necessarily signal that Russians have an aversion to coffee but rather that their taste for coffee in this area are not all that well developed. Nevertheless, an increasing number of coffee producers (both local and international) and more aggressive marketing on their part have lately helped to instil more of a coffee drinking culture in the country. Russians have one of the highest annual per capita tea consumption rates in the world, i.e. about 1.3kg compared with the global average of 0.3kg. More consumers have been gravitating towards tea bags (as opposed to loose leaves) because of their convenience, and switching to speciality tea products, such as herbal, fruit and black teas, as they have acknowledged health benefits. Cold, ready-to-drink teas such as those marketed by Lipton are also attracting a following.

5.2 Trends in consumption and spending Although the majority of Russians still fit the ‘traditional’ mould, characterised by simple lifestyles and spending patterns, there has clearly been a shift over the years towards greater affluence and sophistication as Russia has become more integrated with the world economy. The largest concentration of higher income consumers today can be found in Moscow (10 million inhabitants) and St Petersburg (4.6 million inhabitants) in the more developed,

trade fact sheet russia

western region of the country. Interestingly, Moscow is home to more billionaires than any other city and was recently judged by The Economist as having the most expensive hotel accommodation in the world. Other wealthy areas include Yekaterinburg, Samara, Kazan and Tyumen. Greater affluence has stimulated a growing demand for food products that encourage a healthy lifestyle, such as fruit and vegetables, and leaner meat varieties such as chicken and veal. Dairy products for the more health-conscious, i.e. those that are low in fat, vitamin-enriched and/or preservative-free, are also expected to take off in Russia. Organic foods have become more popular in recent years although Russia’s regulatory framework in respect of organic food is still ill-defined which can complicate import and distribution activities. Local and imported food products containing genetically modified (GM) ingredients are common although not universally popular and therefore subject to product testing and special labelling requirements. In Russia’s beverage market, changing demographics will continue to influence consumption trends. Despite the recent global economic slowdown, coffee consumption has not shown any noticeable decline. This is because people have been viewing coffee as a small ‘indulgence’ to be enjoyed (along with confectionery) during tough economic times. Tea has always been a very popular drink but herbal and organic teas are assuming greater importance. This has important implications for Western Cape producers of rooibos and other speciality teas. More and more, Russian consumers are associating high prices with high quality and this is creating exciting opportunities for foreign producers that are able to cater to premium market segments. For example, negligible quantities of vegetables and condiments are exported to Russia from the Western Cape and so this is another opportunity area. Interestingly, the population of Russia is declining and slowly ageing. Thus, marketing efforts will increasingly have to be geared towards a more mature consumer base.

6. Wine 6.1 Market size analysis Until 2008, Russia was one of the fastest growing wine markets in the world, with the wine consumption rate increasing by about 30% per annum. Although wine sales in the country are likely to be more subdued over the next year or two as economies recover, the Russian wine market presents interesting opportunities to producers of both premium and mass market wines. Today wine accounts for about 30% of total alcoholic beverage sales in Russia compared with only about 4% in 1989. The gradual shift towards ‘softer’ alcoholic drinks from vodka is expected to continue, particularly amongst younger, more affluent consumers. In 2006, wine sales in Russia had an estimated value of USD7.5bn.

About two thirds of wine consumed in Russia is produced domestically using grapes grown both at home and in the neighbouring countries of Ukraine, Moldova, Georgia and Armenia. The other third is imported. Russian vineyards currently satisfy only about 20% of the demand for grapes from domestic wine producers; hence, the heavy reliance on imported raw materials. Russia’s own wine industry has been neglected over the years and active vineyards today cover just 65,000 hectares, compared with the 200,000 hectares reminiscent of the 1980s. This is in stark contrast to the respective vineyard areas of leading wine producers, Spain, France and Italy, which range from 850,000 to 1.2 million hectares. Furthermore, grape farming and wine making in Russia provide employment for only about 0.2% of the economically active population. Until recently, about 50% of bottled wine imported into Russia came from Moldova and Georgia but the last few years have seen a growing preference for higher quality wines, and the semi-sweet Moldovan and Georgian wines are increasingly being viewed as ‘low-end’. This is clearing the way for more foreign competition. To succeed at selling wine in Russia, establishing an effective distribution channel is crucial. Most importers and distributors have a preference for suppliers that can provide a wide range of wines, from premium products for restaurants and high-end hotels, to cheaper wines for supermarkets and catering companies. One of the most successful distribution outlets for wine in recent years has been speciality wine boutiques. These stores, whose main focus is premium wines, have attractive wine displays and often offer marketing support to producers.

trade fact sheet russia

Supermarkets and hypermarkets currently account for only about 20% of wine retail sales in Moscow and 10% in Russia as a whole. However, they are expanding rapidly and should be viewed as an important conduit for western wine producers keen to access the Russian market. Traditional outdoor markets, in turn, still account for about 40% of total wine retail sales (including sales of imported wine) in the country.

6.2 Competitor analysis Moldova is the main exporter of wines to Russia. Amongst western producers, the dominant players are Spain, France and Italy, while Argentina, Australia and Chile are the leading exporters from the ‘New World’. Domestic wine producers are nowhere near their more established international counterparts when it comes to production capacity and quality of output. Nevertheless, many are looking to modernise their facilities and techniques with a view to improving their wine quality and attracting higher prices in the market. Two up and coming Russian wine producers are Fanagoria and Aurora, both of which have been investing heavily in their operations. The Western Cape’s wine exports to Russia have shown strong growth in recent years (e.g. wine export revenues in 2008 exceeded those in 2007 by 164%). However, competition from other foreign wine producers, particularly in Europe and Australia, will remain fierce and South African producers will need to market their wines aggressively if they are to carve out a reasonable niche for themselves in Russia.

6.3 Consumption/demand analysis Recently, Russian consumers have been gravitating towards more expensive wine varieties from western Europe and also developing a taste for ‘New World’ wines (South African wine is included in this definition) whose price-toquality ratio compares favourably with more expensive European wines. At present, the bulk of the market is looking for good wines at reasonable prices. Red wines account for the largest share of wine consumption (53.5%) followed by white wine (33%) and rosé wine (13.5%). Semi-sweet wine remains the most popular variety in the low and medium segments of the market while dry wine is the preferred choice amongst the elite.

7. Distribution Channels 7.1 Types of distribution channels available

Russia’s distribution channels are, by western standards, under-developed which is exacerbated by the sheer size of the country, very divergent consumer preferences from one region to the next, and relatively poor transport infrastructure in the country. Nevertheless, the high demand for food and beverages has attracted many foreign producers to Russia and distribution arrangements continue to evolve in line with maturing market dynamics. Most foreign marketing efforts focus initially on Moscow and St Petersburg because of these cities’ size, capacity to absorb a wide variety of merchandise and relative sophistication. Traditional retailing through open markets and street kiosks still accounts for approximately three quarters of food retail sales in Russia. Yet as lifestyles become more westernised and convenience-driven, so the supermarket concept is becoming more popular. Demand for most consumer products is concentrated in major cities, such as Moscow and St Petersburg, which have many large food retail stores (both locally- and foreign-owned), including X5 Retail Group, Metro Group, Auchan and Metro Cash & Carry. Yet there is no one retailer that dominates the whole Russian market. In fact, in 2006, the top 10 retailers in the grocery sector together only accounted for some 10% of total market share. It is not common for foreign producers of food and beverages to rely solely on an agent when marketing goods in Russia because agents do not provide promotional or logistical support. Typically, producers conclude agreements with local distributors which then transact with established retailers or intermediaries in the informal market. Distributors understand the language and local business culture, and often provide useful auxiliary services such as customs

trade fact sheet russia

clearing and warehousing. The majority of professional and well-connected distributors are based in Moscow and St Petersburg, but often employ agents to undertake selling in the more remote parts of the country. Russia is also home to a number of foreign-owned food companies which have their own manufacturing facilities, e.g. Danone (France) and Parmalat (Italy), and supply the local retail sector. Ingredients for manufacturers’ products are sourced both locally and internationally. Establishing a wholly-owned subsidiary of a foreign food manufacturing company gives the latter a high level of control in the market because products/ingredients are typically imported from the home country. Some foreign manufacturers operate branch offices in Russia which complement the work performed by local distributors. A branch office gives a company direct access to and a better understanding of the market but in terms of Russian law, it is not a legal entity itself but simply a body representing the interests of a foreign legal entity in Russia. As a result, a branch office cannot conclude any commercial dealings in its own right.

7.2 Most preferred distribution channels Foreign suppliers of food and beverage products or raw materials are well advised to sell directly to one or more Russian-based distributor/s which undertake/s to on-sell to retailers or other intermediaries. A local distributor will not only act as the interface between the producer and a highly complex and competitive market environment but will be an important ally when Russia’s legendary bureaucracy presents itself. Of course, the key to working well with a distributor is to select wisely in the first place. Distribution margins are in the region of 15% but this depends on the actual services being provided. In Russia, regular personal contact with one’s distributor is essential as e-mail and telephone calls are not enough to sustain a productive and enduring business relationship. Another convenient channel (particularly for SMEs) is to sell raw materials/ingredients to an established (preferably western) food manufacturer in Russia which then assumes the responsibility for selling final goods to retailers. Thus, a Western Cape company might supply fruit for yoghurt production or nuts for processed snack bars, and so on. Alternatively, a company might export retail-ready products to a distributor in, say, Finland which has experience of and connections in Russia, and assumes the risk and expense of getting the goods into Russia. Either option could entail sizeable and regular orders, and producers would have to have sufficient capacity to take such a route. Ultimately, to become a serious player in the Russian food and beverage sector, it is necessary to establish production facilities in the country. Whether this is achieved via a joint venture or a full or partial acquisition, the company would still need to be well-connected on the ground and be extremely au fait with the dynamics of the market.

7.3 Regulations on distribution channels

Russia’s market environment is still evolving and government laws aimed at regulating the actions of distribution channel members and policing unrestrained competition are somewhat ad hoc. For example, the Russian government has recently tightened up on visa requirements for foreign workers in a bid to provide more employment opportunities to Russian citizens. In addition, if a business entity is interested in tendering for work involving government procurement, such an entity must be registered with the Russian government. It is for this reason that many foreign companies enter into consortia with Russian companies to improve their chances of being considered for government procurement projects. Despite these government interventions, opportunistic pricing strategies are very prevalent and regularly go unchecked. For example, it is often the case that meals at restaurants are outlandishly expensive by western standards once excessive mark-ups by the various players in the food and beverage distribution channels have been included.

trade fact sheet russia

8. Trade Regulations, Requirements And Standards 8.1 Tariffs Russia’s tariff policy over the past decade has been designed to allow agricultural product imports to grow but not excessively. From an average agricultural import duty of 10% in 2000, it rose to 18% by 2008 – which is not excessive by global standards. Meat imports, however, have been subject to much more strenuous control and are regulated by tariff quotas which are re-defined every year – much to the chagrin of foreign meat producers who find it difficult to plan ahead. Imported alcoholic beverages also attract excise tax, with the actual rate varying according to the degree to which a product is perceived as being ‘luxury’ or ‘unnecessary’. All imports are subject to a customs processing fee which is 0.15% of the customs (CIF) value of a consignment. Finally, all goods imported into Russia (through official channels, at least) are subject to Value Added Tax (VAT), with many food items attracting 10% VAT rather than the standard 18%. VAT is calculated on the sum of the consignment value, the applicable customs duty and any excise tax. (See APPENDIX : Russian tariff structure for selected South African food and beverage products.)

8.2 Import requirements and documentation The import process is subject to a plethora of rules and regulations as prescribed by various government agencies tasked with ensuring products’ compliance with Russian technical, health and safety standards. An overview of the latter are provided in (c) below. Customs clearance in Russia can only be effected by the consignee in an international trade transaction and such consignee must be a company registered in Russia. All customs charges and VAT must be paid to Customs before a consignment of goods is released, while in the case of certain products (e.g. spirits), the relevant charges must be paid in advance, i.e. before the conveyance transporting the goods has entered Russian territory.

The main documents required for customs clearance of food and/or beverage imports in Russia are: • contract of sale/purchase between the exporter and importer • bill of lading/transport document • commercial invoice • certificate of origin • certificate(s) of conformity • import licence (if required) • hygiene certificate • document confirming proof of payment of customs duty • document confirming the importer’s registration with the Russian government Russia is a member of the ATA Convention but in reality, relatively few customs posts are able to handle carnets (documents which facilitate duty rebates to exporters in the case of goods, e.g. samples, being imported temporarily into a country and then returned to their country of origin).

8.3 Standards and regulations Despite Russia’s intentions to meet the requirements for accession to the WTO, the standards and regulations pertaining to foodstuffs imported into the country remain complicated and the associated procedures for compliance are mired in bureaucracy. There also tends to be a lack of uniformity in the requirements from one product group to the next, and they change frequently. It is therefore important to keep track of the latest developments through regular research.

8.3.1

trade fact sheet russia

Bodies regulating the importation of food and beverages

The main bodies regulating the importation of food and beverages into Russia are: • The Federal Service for Technical Regulation and Metrology (formerly known as ‘Gosstandart’) which is responsible for ensuring that imports conform to national standards and certification criteria. • The Federal Veterinary and Phytosanitary Surveillance Service (commonly referred to as the VPSS) which is responsible for ensuring that imports are not infected with contagious animal diseases and plant pests; and that consignments do not pose any other threat according to Russia’s health and phytosanitary standards. • The Federal Customs Service of Russia which regulates import activity through a system of customs duties and other charges, and manages all customs control activities. • The Ministry of Industry and Trade which regulates import activity via non-tariff barriers, e.g. licences and quotas. 8.3.2

Certification

The Russian government does not recognise too many international standards, including those pertaining to the ISO9000 system, and still relies heavily on testing to determine whether or not products are eligible to be imported into Russia. The majority of imported goods require a Certificate of Conformity (called a GOST-R) which is issued by an authorised agency of the Federal Service for Technical Regulation and Metrology after product testing has been performed. Imported products carrying the GOST-R mark are acknowledged as being in compliance with national safety standards. Food imports also require a Hygiene Certificate issued by the State Committee on Sanitation and Epidemic Control after product samples have been evaluated for compliance with sanitary and hygiene regulations. A Certificate of Origin is required which is used in the determination of import tariffs and is obtainable from the State Committee on Sanitation and Epidemic Control. Certain products, due to their inherent character, require additional certificates. For example, products of animal origin (including all meat and meat by-products, milk and other dairy products, fish and seafood) require a Veterinary Certificate. Such a document certifies that the product has been manufactured at a facility approved for export to Russia. 8.3.3

Licences and special permits

Import licences are required for various food products entering Russia. For example, in order to bring a product into the country at the appropriate tariff-quota rate for meat products, it is necessary to obtain an import licence from the Ministry of Industry and Trade. Products which are of animal origin (but excluding those which have undergone processing/manufacturing) also require a Veterinary Permit while products of plant origin require a Quarantine Permit. These permits are issued by different divisions of the VPSS following inspection of the cargo or on the strengths of relevant certificates obtained in the exporting country. 12

8.3.4

Labelling

A key requirement of all product labels is that they must reflect Russian text. A complete Russian translation could, for example, accompany an English version. The following standard information should appear on food products: • • • • • • • • • •

Product name Product type, grade or category Name, country, address of producer, packer, export and importer Weight (net and gross) or volume Nutritional value Ingredients Date of processing Storage condition Shelf life Conformity stamp

trade fact sheet russia

Certain product categories, e.g. alcoholic drinks, call for additional, product-specific information. About 30% – 40% of food products imported into Russia these days are made using genetically modified (GM) ingredients. A new law was passed recently in terms of which any product containing more than 0.9% of GM ingredients must make reference to its GM content on the label. 8.3.5

Packaging

Packaging (e.g. cardboard or paper boxes, plastic packets, bottles and cans) which comes into direct contact with food products must be certified, i.e. undergo inspection by the relevant authorities in Russia after which a Certificate of Conformity is issued. Imported meat, for example, must be packaged in material with low permeability so that moisture is retained and the colour is preserved.

8.4 Logistics Although Russia’s international trade activity has seen dramatic growth over the past decade, the country’s transport infrastructure has not received adequate attention or investment. This has had a negative impact on the cost, time and risk associated with handling and moving goods in the country. Recent announcements by the Russian government, however, suggest that greater priority is to be given to the logistics sector with a view to Russia ultimately becoming an important hub for European-Asian trade. Because Russia’s ports are generally uncompetitive compared with those of other countries and many of its ships are elderly by international standards, cargo destined for Russia is often shipped on foreign vessels to foreign ports and from there trucked overland to their final destinations. For example, Finnish ports often receive cargo consigned to St Petersburg while the ports in the Baltic states of Latvia, Lithuania and Estonia often take cargo consigned to Moscow. One of the problems Russia faces is that most of its ports are situated so far north that ice breakers become necessary in the winter months, leading to very high port dues. Furthermore, most ports are unable to handle the very large container vessels that frequent major shipping routes these days. St Petersburg has long been Russia’s premier port on the Baltic Sea but it has become congested in recent years and lacks modern facilities and equipment. The newly constructed port of Ust-Luga, situated about 100km from St Petersburg, will bring much needed capacity to shippers. St Petersburg is the only Russian port to which there is a direct liner service from Cape Town and the route is served by MSC. There are weekly departures and the transit time is about 35 days. Road transport is used extensively in Russia for the carriage of cargo to and from locations in western Europe and Asia, as well as between centres in Russia. Yet the road network has also been neglected over the years. Huge investment is needed to elevate the road system to one that would be on a par with that of western Europe. Russia’s railway network is mainly geared towards the carriage of bulk products such as coal and oil and would not be a viable option for the transportation of food. 13

Airfreight might be a suitable option for relatively small, urgent consignments destined for Russia. Although there are no direct flights from Cape Town (or Johannesburg) to Moscow or St Petersburg, these two cities could easily be accessed from a number of western European cities. Moscow’s three international airports, i.e. Domodedovo, Sheremetyevo, Vnukovo, and St Petersburg’s Pulkovo, are the busiest airports in Russia. However, they are in need of modernisation to improve existing runways, passenger and cargo terminals, and air traffic control and communication facilities.

trade fact sheet russia

9. Price 9.1 Price developments Prices of food and beverage products vary depending on the chosen distribution arrangements and the region in which the products are being marketed. Even different cities in the same broad market region can reveal highly divergent pricing trends. Prices of goods sold in more traditional retail environments, such as open markets, tend to be much lower than in established supermarkets because most traders supplying the traditional retail sector operate ‘under the radar’, paying no taxes and sourcing goods on the black market. Modern supermarkets and hypermarkets have high overheads, and also have to adhere to strict product quality and labelling requirements which add to operational costs. Not surprisingly, the formal retail sector is characterised by very high levels of competition, and retailers use aggressive marketing tactics in a bid to expand their influence and achieve greater economies of scale. Although strong demand conditions in Russia and a shortage of locally produced food and beverage products have put upward pressure on prices over the past few years, the less favourable economic conditions currently being experienced could moderate price escalations in the short-term. (See APPENDIX : Price comparisons for selected food and beverage products.)

9.2 Price influencing factors Inflation has had quite a marked influence on pricing trends in the Russian food and beverage sector over the years. For example, between 2000 and 2008, inflation averaged 13% to 14% p.a. which means that local prices rose by more than 100% over the period in question. This has resulted in many locally produced goods being very expensive vis-à-vis imported alternatives sourced from countries with comparatively low inflation rates (e.g. 2% to 3% p.a. in the EU). In addition, the appreciation of the Russian rouble during the 2000s has helped import-dependent consumers as it has made imports more affordable but in the process has hurt Russian producers who have been competing with imports. In addition, Russia’s often convoluted distribution structures and practices have contributed to erratic pricing structures for food and other consumables. For example, excessive mark-ups, as well as bribery and inefficiency at different points along the distribution channel tend to inflate the prices of products to uncompetitive levels, often thwarting the efforts of foreign producers to gain entry to the Russian market. Supermarkets are less susceptible to excessive mark-ups because they are more likely to deal directly with producers. However, they carry high overhead and operational costs. It should be noted, too, that fully packaged goods imported into Russia attract much higher duties than semi-processed goods or raw ingredients. This pushes prices up at the end of the day for consumers.

The Russian government has a tendency to impose quotas from time to time on imported food products, notably beef, pork and chicken. This can lead to demand well exceeding supply and a correspondingly sharp escalation in prices.

9.3 Methods of payment Despite its size and impressive growth rates, Russia’s economic history has been volatile, with all-too-frequent currency and liquidity problems. These factors, together with a challenging market environment make Russia a risky country in which to do business. The standard method of payment for first-time exporters to Russia is the documentary letter of credit. Even if credit is forthcoming, however, not all Russian banks’ letters of credit will be acceptable to, and thus confirmed by, South African banks. Exporters are therefore advised to obtain clarity from their bank in this regard. (Standard Bank has a growing presence in Russia and could be a valuable source of advice.)

trade fact sheet russia

Cash in advance would obviously be the preferred method for exporters but it may not be practical or appealing to a Russian importer. Open account and bank collections are not uncommon payment methods in Russia but they are used only when Russian importers and their foreign suppliers have developed a strong and trusting relationship.

10. Doing Business 10.1 Promotion The most successful companies operating in the food and beverage sector in Russia have developed strong promotion and positioning strategies and learned how to navigate the labyrinth of formal rules and loose alliances that make Russia a challenging market. South African products are not actively promoted in Russia and local businesses there are generally unaware of the benefits that could be derived from enhanced bilateral trade between the two countries. South African businessmen still tend to view Russia as a cold and distant country with communist-style business practices and this has suppressed the desire to develop stronger commercial ties with the country. The Western Cape, however, has taken the lead in terms of food and beverage exports to Russia and is therefore well placed to extend South Africa’s influence in the Russian market even further – not only through direct exports but also through more sophisticated market entry arrangements, such as joint ventures and direct investment. For a company which is venturing into Russia for the first time, exhibiting at suitable trade fairs is an excellent promotional vehicle. In this regard, the most important platform for domestic and international suppliers of food and beverages to introduce their products and brands to the Russian market is the World Food Moscow fair. Most visitors to the fair are wholesalers and retailers. Product differentiation is as important in Russia as it is in most other markets but local consumers are not as brand loyal as they are elsewhere in the world. Thus, suppliers of premium or specialised products often use high prices and tasteful packaging as differentiation tactics. Large producers, in turn, generally make use of innovative mass advertising to capture people’s attention and interest. While the use of traditional promotional channels is an important factor in achieving business success in the Russian market, so too, is having the ‘right connections’. A company attempting to operate on its own will usually face more inspection procedures and have to contend with more administrative delays than one operating through one or more local intermediary/ies. However, leaving promotional activities completely in the hands of a local distributor in Russia is not a recommended approach as distributors usually handle many suppliers’ products, and their attention is divided. Furthermore, it is important to note that, according to the latest World Bank Doing Business 2010 data, Russia was placed in 120th position out of 183 economies in terms of the overall ease of doing business. The country’s ranking in terms of the ease of trading across borders was even lower, coming in at 127th position of the 183 economies. 15

According to the Trading Across Borders section of the report, the average number of days to export to Russia is 36 days and the average cost is USD1,850 per container. Table 1: Import procedures of Russia Nature of Import Procedures Documents preparation

Duration (days)

USD Cost 25

200

Customs clearance and technical control

500

Inland transportation and handling

900

1 850

Totals: Source: Doing Business, 2010

trade fact sheet russia

10.2 Business culture

It is more difficult to describe the business culture in Russia than in, say, Finland or Spain because the Russian market is far from homogeneous and has both sophisticated and less developed elements. However, there are some typical behaviours and attitudes that foreigners are likely to encounter when doing business in the country. In the regulatory environment, Russia is notoriously bureaucratic and despite the Socialist political system having been abandoned in the early 1990s, there is still a great deal of state interference in commercial activities. This can frustrate businessmen from countries with a more free market orientation. In professional business circles, a strong marketing orientation has taken root and competition (for consumersâ&#x20AC;&#x2122; attention, for retail space, for positions in established distribution channels, etc.) is fierce. Negotiations with Russians can test peopleâ&#x20AC;&#x2122;s mettle as they are rarely the polite, sedate affairs to which westerners are accustomed. For example, it is not unusual for the Russian participants in a negotiation session to get quite agitated and stage one or two walk-outs as a way of getting the upper hand. Patience and persistence are very useful qualities when dealing with Russian businessmen. Specific courtesies which can help to smooth the way for productive business dealings are to dress conservatively, be punctual for meetings, show particular respect towards senior ranking individuals and present a gift at an appropriate time to signify a willingness to enter into a serious business relationship. Directness and strength of character are valued attributes in Russian business circles. The Russian market certainly presents huge business opportunities to Western Cape food and beverage producers, provided they do their homework and devise a market entry strategy which helps to minimise the risks of working in a complex market environment. Many will confirm that language barriers and established social/business cliques make it very difficult for foreign companies to enter the Russian market without at least one experienced representative looking after their interests.

trade fact sheet russia

11. Contacts Table 2: Key Government and Embassy contacts SECTOR/INDUSTRY Physical address

Telephone number

Website and e-mail address

Federal Service for Technical Regulation and Metrology 9 Leninskiy Prospekt Moscow

Tel: +7 (495) 236 0300 Fax: +7 (495) 236 6231

Website: www.gost.ru/wps/portal

Federal Veterinary and Phytosanitary Surveillance Service Orlikov Per. 1/11 Moscow 107139

Tel: +7 (499) 975 4347 Fax: +7 (495) 607 5111

Website: www.fsvps.ru

Moscow Chamber of Commerce and Industry 38/1 Sharikopodshipnikovskaya Str Moscow 115088

Tel: +7 (499) 132 0733 Fax: +7 (499) 132 0733

Website: www.mostpp.ru/eng E-mail: extrade@mtpp.org

St Petersburg Chamber of Commerce and Industry 46 â&#x20AC;&#x201C; 48 Chaikovskogo ul. St Petersburg 191123

Tel: +7 (812) 719 6644 Fax: +7 (812) 272 9713

Website: www.spbcci.ru/eng E-mail: nafiqad@mard.gov.vn

EMBASSIES AND CONSULATES Embassies Physical address

Telephone number

Embassy of Russia 316 Brooks Street Menlo Park Pretoria 0081

Website and e-mail address Tel: +27 12 362 1337 Fax: +27 12 362 0116

Tel: +7 (495) 926 1177 Fax: +7 (495) 789 9957

Embassy of the Republic of South Africa Granatny Per. 1 Building 9 Moscow 123001

Website: www.russianembassy.org.za E-mail: ruspospr.co.za

Website: www.saembassy.ru E-mail: tradsa@econsa.ru

Consulate Physical address Consulate-General of Russia 2nd Floor Southern Life Centre 8 Riebeeck Street Cape Town 8001

Telephone number

Website and e-mail address Tel: +27 21 419 2651 Fax: +27 21 419 2651

Website: www.capetown.southafrica.mid.ru E-mail: rusco@southernlifecentre.co.za

trade fact sheet russia

12. Sources and References

2010. The World Bank Group. Trading Across Borders in the Russian Federation. 2010. Produce Marketing Association. Global Market Profile: Russia. 2010. Austrade. Helping you do business in Russia: food and beverage. 2010. Sitpro. Russia Fact Sheet. 2010. CIA World Fact Book: Russia. 2009. USDA Foreign Agricultural Service. Russian Federation - Food and Agricultural Import Regulations and Standards. 2009. USDA Economic Research Service. Russiaâ&#x20AC;&#x2122;s Growing Agricultural Imports. Causes and Outlook. 2009. UK Trade & Investment. Russia Business Guide. 2009. UK Trade & Investment. Russia: Opportunities for UK-based companies in the ports sector. 2009. Bank of Finland Bulletin. Trade with Russia and its importance to Finnish companies. 2009. Bank of Finland Institute for Economies in Transition. BOFIT Forecast for Russia 2009 - 2011. 2009. Bank of Finland Institute for Economies in Transition. Russia, Finland and Norway - Economic Essays. 2009. Ernst & Young. Russian food and beverage industry survey. 2008. New Zealand Trade & Enterprise. Food and beverage market in Russia. 2008. USDA Foreign Agricultural Service. Russian Federation - FAIRS Country Report. 2008. USDA Foreign Agricultural Service. Russian Federation - Fresh Deciduous Fruit Report. 2007. Van Berkum, S, Roza, P and Belt, J. Long-term perspectives for the Russian agri-food sector and market opportunities for the Dutch agri-business. 2007. Kaipio, H and Leppanen, S. Distribution Systems of the Food Sector in Russia: The Perspective of the Finnish Food Industry. 18

trade fact sheet russia

899: 899A 899< 899@ 899B

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13. Appendix

Figure 1: Western Capeâ&#x20AC;&#x2122;s main food and beverage exports to Russia 2004 - 2008 (ZARm) 600! 496.3! 500!

400! 2004! 2005!

300!

:;;< :;;D :;;A :;;@ :;;>

!"#$%&'($%"# ::=>?= ::B:?C :<=;?> BB@A?D <BDD?@

!"#$"%&'()*"+#',)-&'.//0')&0'1"2"%)3"'"4*/%$#'$/'$5"'6/%70'899:';'899< 179.5! )$*+,& 4$,+*$,565$",5'($%"#'0'2%#& 7"&8 )$*+,'9"2,& 200! -++.,&/'+,*$&'0'1%"23,& =@A;?B =<>B?C CC=?: =BA:?A BB<> 114! 111.5! =@@:?C =B><?D C@@?< =<>=?< BAAB 100! 46.4! =A@;?B =BAA?D C<C?A =B::?> B<>B ::<>?= :=A<?: CA>?A =@=>?: <DC@ 0! :AB@?A :A>:?: =::A :;>;?A A==:?@ Citrus fruit!

Grapes!

Apples, pears & quinces!

Prepared/dried fruit & nuts!

2006! 2007! 2008!

Grape wines!

Figure 2: Western Capeâ&#x20AC;&#x2122;s main food and beverage exports to the world 2004 - 2008 (ZARm) 7000! 6112.7! 6000! 5000!

4355.7! 2004!

4000! 2637.6!

3000!

2005!

2682.2!

2006! 2080.6!

2007!

2000!

2008!

1226! 1000! 0! Citrus fruit!

Source: Quantec, 2010

Grapes!

Apples, pears & quinces! Prepared/dried fruit & nuts!

Fish!

Grape wines!

trade fact sheet russia

Table 3: Russian tariff structure for selected South African food and beverage products Selected product codes (HS2)

Product description

Number of lines

Total ad valorem equivalent tariff (estimated)

0201

Meat of bovine animals, fresh or chilled

15.03%

0202

Meat of bovine animals, frozen

15.86%

0203

Meat of swine, fresh, chilled or frozen

41.98%

0204

Meat of sheep or goats, fresh, chilled or frozen

11.27%

0205

Meat of horses, asses, mules or hinnies, fresh, chilled or frozen

11.25%

0206

Edible offal of bovine animals, swine, sheep, goats, horses, asses, mules or hinnies, fresh, chilled or frozen

12.35%

0207

Meat and edible offal, of the poultry of heading No 0105, fresh, chilled or frozen

208

50.30%

0208

Other meat and edible meat offal, fresh, chilled or frozen

11.25%

0209

Pig fat, free of lean meat, and poultry fat, not rendered or otherwise extracted, fresh, chilled, frozen, salted, in brine, dried or smoked

20.80%

0210

Meat and edible meat offal, salted, in brine, dried or smoked; edible flours and meals of meat or meat offal

12.11%

0301

Live fish

7.50%

0302

Fish, fresh or chilled, excluding fish fillets and other fish meat of heading No 0304

7.50%

0303

Fish, frozen, excluding fish fillets and other fish meat of heading 0304

7.50%

0304

Fish fillets and other fish meat (whether or not minced), fresh, chilled or frozen

7.50%

0305

Fish, dried, salted or in brine; smoked fish, whether or not cooked before or during the smoking process; flours, meals and pellets of fish, fit for human consumption

11.08%

0306

Crustaceans, whether in shell or not, live, fresh, chilled, frozen, dried, salted or in brine; crustaceans, in shell, cooked by steaming or by boiling in water, whether or not chilled, frozen, dried, salted or in brine; flours, meals and pellets of crusta

7.50%

0307

Molluscs, whether in shell or not, live, fresh, chilled, frozen, dried, salted or in brine; aquatic invertebrates other than crustaceans and molluscs, live, fresh, chilled, frozen, dried, salted or in brine; flours, meals and pellets of aquatic invertebra

7.50%

0401

Milk and cream, not concentrated nor containing added sugar or other sweetening matter

11.25%

0402

Milk and cream, concentrated or containing added sugar or other sweetening matter

11.19%

0403

Buttermilk, curdled milk and cream, yogurt, kephir and other fermented or acidified milk and cream, whether or not concentrated or containing added sugar or other sweetening matter or flavoured or containing added fruit, nuts or cocoa

12.28%

0404

Whey, whether or not concentrated or containing added sugar or other sweetening matter; products consisting of natural milk constituents, whether or not containing added sugar or other sweetening matter, not elsewhere specified or included

11.25%

0405

Butter and other fats and oils derived from milk; dairy spreads

11.96%

0406

Cheese and curd

114

13.22%

0407

Birds’ eggs, in shell, fresh, preserved or cooked

8.44%

0408

Birds’ eggs, not in shell, and egg yolks, fresh, dried, cooked by steaming or by boiling in water, moulded, frozen or otherwise preserved, whether or not containing added sugar or other sweetening matter

11.25%

trade fact sheet russia

0409

Natural honey

11.25%

0410

Edible products of animal origin, not elsewhere specified or included

11.25%

0701

Potatoes, fresh or chilled

10.23%

0702

Tomatoes, fresh or chilled

16.62%

0703

Onions, shallots, garlic, leeks and other alliaceous vegetables, fresh or chilled

11.25%

0704

Cabbages, cauliflowers, kohlrabi, kale and similar edible brassicas, fresh or chilled

11.25%

0705

Lettuce (Lactuca sativa) and chicory (Cichorium spp.), fresh or chilled

11.25%

0706

Carrots, turnips, salad beetroot, salsify, celeriac, radishes and similar edible roots, fresh or chilled

11.25%

0707

Cucumbers and gherkins, fresh or chilled

16.68%

0708

Leguminous vegetables, shelled or unshelled, fresh or chilled

11.25%

0709

Other vegetables, fresh or chilled

11.25%

0710

Vegetables (uncooked or cooked by steaming or boiling in water), frozen

11.25%

0711

Vegetables provisionally preserved (for example, by sulphur dioxide gas, in brine, in sulphur water or in other preservative solutions), but unsuitable in that state for immediate consumption

11.25%

0712

Dried vegetables, whole, cut, sliced, broken or in powder, but not further prepared

11.25%

0713

Dried leguminous vegetables, shelled, whether or not skinned or split

11.25%

0714

Manioc, arrowroot, salep, Jerusalem artichokes, sweet potatoes and similar roots and tubers with high starch or inulin content, fresh, chilled, frozen or dried, whether or not sliced or in the form of pellets; sago pith

11.25%

0801

Coconuts, Brazil nuts and cashew nuts, fresh or dried, whether or not shelled or peeled

2.05%

0802

Other nuts, fresh or dried, whether or not shelled or peeled

2.11%

0803

Bananas, including plantains, fresh or dried

3.79%

0804

Dates, figs, pineapples, avocados, guavas, mangoes and mangosteens, fresh or dried

5.46%

0805

Citrus fruit, fresh or dried

4.59%

0806

Grapes, fresh or dried

3.75%

0807

Melons (including watermelons) and papaws (papayas), fresh

3.75%

0808

Apples, pears and quinces, fresh

17.74%

0809

Apricots, cherries, peaches (including nectarines), plums and sloes, fresh

3.75%

0810

Other fruit, fresh

7.50%

0811

Fruit and nuts, uncooked or cooked by steaming or boiling in water, frozen, whether or not containing added sugar or other sweetening matter

7.50%

0812

Fruit and nuts, provisionally preserved (for example, by sulphur dioxide gas, in brine, in sulphur water or in other preservative solutions), but unsuitable in that state for immediate consumption

7.50%

0813

Fruit, dried, other than that of headingsÂ 0801Â toÂ 0806; mixtures of nuts or dried fruits of this chapter

7.50%

0814

Peel of citrus fruit or melons (including watermelons), fresh, frozen, dried or provisionally preserved in brine, in sulphur water or in other preservative solutions

7.50%

0901

Coffee, whether or not roasted or decaffeinated; coffee husks and skins; coffee substitutes containing coffee in any proportion

0902

trade fact sheet russia 16

1.93%

Tea, whether or not flavoured

7.45%

0903

Maté

0.00%

0904

Pepper of the genus Piper; dried or crushed or ground fruits of the genus Capsicum or of the genus Pimenta

3.75%

0905

Vanilla

3.75%

0906

Cinnamon and cinnamon-tree flowers

3.75%

0907

Cloves (whole fruit, cloves and stems)

0.00%

0908

Nutmeg, mace and cardamoms

3.75%

0909

Seeds of anise, badian, fennel, coriander, cumin or caraway; juniper berries

3.75%

0910

Ginger, saffron, turmeric (curcuma), thyme, bay leaves, curry and other spices

3.75%

1001

Wheat and meslin

5.00%

1002

Rye

5.00%

1003

Barley

5.00%

1004

Oats

5.00%

1005

Maize (corn)

0.40%

1006

Rice

16.48%

1007

Grain sorghum

5.00%

1008

Buckwheat, millet and canary seed; other cereals

5.00%

1507

Soya-bean oil and its fractions, whether or not refined, but not chemically modified

3.75%

1508

Ground-nut oil and its fractions, whether or not refined, but not chemically modified

3.75%

1509

Olive oil and its fractions, whether or not refined, but not chemically modified

10.00%

1510

Other oils and their fractions, obtained solely from olives, whether or not refined, but not chemically modified, including blends of these oils or fractions with oils or fractions of heading No 1509

11.25%

1511

Palm oil and its fractions, whether or not refined, but not chemically modified

7.02%

1512

Sunflower-seed, safflower or cotton-seed oil and fractions thereof, whether or not refined, but not chemically modified

12.17%

1513

Coconut (copra), palm kernel or babassu oil and fractions thereof, whether or not refined, but not chemically modified

2.08%

1514

Rape, colza or mustard oil and fractions thereof, whether or not refined, but not chemically modified

3.75%

1517

Margarine; edible mixtures or preparations of animal or vegetable fats or oils or of fractions of different fats or oils of this chapter, other than edible fats or oils or their fractions of heading No 1516

24.81%

1601

Sausages and similar products, of meat, meat offal or blood; food preparations based on these products

27.91%

1602

Other prepared or preserved meat, meat offal or blood

23.16%

1603

Extracts and juices of meat, fish or crustaceans, molluscs or other aquatic invertebrates

11.25%

trade fact sheet russia

1604

Prepared or preserved fish; caviar and caviar substitutes prepared from fish eggs

11.96%

1605

Crustaceans, molluscs and other aquatic invertebrates, prepared or preserved

22.73%

1701

Cane or beet sugar and chemically pure sucrose, in solid form

49.80%

1702

Other sugars, including chemically pure lactose, maltose, glucose and fructose, in solid form; sugar syrups not containing added flavouring or colouring matter; artificial honey, whether or not mixed with natural honey; caramel

8.18%

1703

Molasses resulting from the extraction or refining of sugar

5.00%

1704

Sugar confectionery (including white chocolate), not containing cocoa

23.71%

1801

Cocoa beans, whole or broken, raw or roasted

0.00%

1802

Cocoa shells, husks, skins and other cocoa waste

3.75%

1803

Cocoa paste, whether or not defatted

5.00%

1804

Cocoa butter, fat and oil

5.00%

1805

Cocoa powder, not containing added sugar or other sweetening matter

5.00%

1806

Chocolate and other food preparations containing cocoa

21.55%

1901

Malt extract; food preparations of flour, groats, meal, starch or malt extract, not containing cocoa or containing less than 40 % by weight of cocoa calculated on a totally defatted basis, not elsewhere specified or included; food preparations of goods of

6.79%

1902

Pasta, whether or not cooked or stuffed (with meat or other substances) or otherwise prepared, such as spaghetti, macaroni, noodles, lasagne, gnocchi, ravioli, cannelloni; couscous, whether or not prepared

15.17%

1903

Tapioca and substitutes therefor prepared from starch, in the form of flakes, grains, pearls, siftings or similar forms

15.00%

1904

Prepared foods obtained by the swelling or roasting of cereals or cereal products (for example, corn flakes); cereals (other than maize (corn)) in grain form or in the form of flakes or other worked grains (except flour, groats and meal), pre-cooked or ot

15.00%

1905

Bread, pastry, cakes, biscuits and other bakers’ wares, whether or not containing cocoa; communion wafers, empty cachets of a kind suitable for pharmaceutical use, sealing wafers, rice paper and similar products

18.49%

2001

Vegetables, fruit, nuts and other edible parts of plants, prepared or preserved by vinegar or acetic acid

17.37%

2002

Tomatoes prepared or preserved otherwise than by vinegar or acetic acid

16.02%

2003

Mushrooms and truffles, prepared or preserved otherwise than by vinegar or acetic acid

11.25%

2004

Other vegetables prepared or preserved otherwise than by vinegar or acetic acid, frozen, other than products of heading 2006

11.98%

2005

Other vegetables prepared or preserved otherwise than by vinegar or acetic acid, not frozen, other than products of heading No 2006

13.24%

2006

Vegetables, fruit, nuts, fruit-peel and other parts of plants, preserved by sugar (drained, glacé or crystallised)

11.25%

2007

Jams, fruit jellies, marmalades, fruit or nut purée and fruit or nut pastes, obtained by cooking, whether or not containing added sugar or other sweetening matter

10.72%

2008

Fruit, nuts and other edible parts of plants, otherwise prepared or preserved, whether or not containing added sugar or other sweetening matter or spirit, not elsewhere specified or included

133

10.72%

2009

Fruit juices (including grape must) and vegetable juices, unfermented and not containing added spirit, whether or not containing added sugar or other sweetening matter

136

10.49%

2101

Extracts, essences and concentrates, of coffee, tea or maté and preparations with a basis of these products or with a basis of coffee, tea or maté; roasted chicory and other roasted coffee substitutes, and extracts, essences and concentrates thereof

15.06%

2102

Yeasts (active or inactive); other single-cell micro-organisms, dead (but not including vaccines of heading No 3002); prepared baking powders

16.05%

2103

Sauces and preparations therefor; mixed condiments and mixed seasonings; mustard flour and meal and prepared mustard

22.72%

2104

Soups and broths and preparations therefor; homogenised composite food preparations

9.64%

2105

Ice cream and other edible ice, whether or not containing cocoa

15.00%

2106

Food preparations not elsewhere specified or included

19.92%

2201

Waters, including natural or artificial mineral waters and aerated waters, not containing added sugar or other sweetening matter nor flavoured; ice and snow

28.33%

2202

Waters, including mineral waters and aerated waters, containing added sugar or other sweetening matter or flavoured, and other non-alcoholic beverages, not including fruit or vegetable juices of heading No 2009

36.10%

2203

Beer made from malt

106.63%

2204

Wine of fresh grapes, including fortified wines; grape must other than that of heading No 2009

18.24%

2205

Vermouth and other wine of fresh grapes flavoured with plants or aromatic substances

20.00%

2206

Other fermented beverages (for example, cider, perry, mead); mixtures of fermented beverages and mixtures of fermented beverages and non-alcoholic beverages, not elsewhere specified or included

20.00%

2207

Undenatured ethyl alcohol of an alcoholic strength by volume of 80 % vol or higher; ethyl alcohol and other spirits, denatured, of any strength

401.57%

2208

Undenatured ethyl alcohol of an alcoholic strength by volume of less than 80 % vol; spirits, liqueurs and other spirituous beverages

53.56%

2209

Vinegar and substitutes for vinegar obtained from acetic acid

15.00%

Source: Market Access Map, 2010

trade fact sheet russia

Table 4: Price comparisons for selected food and beverage products HS code

Supplying country

Imported value in 2008 (USD)

Imported quantity in 2008 (metric tons)

Unit value per metric ton (USD)

0401

Milk or cream, not concentrated or sweetened

Finland

10 063

6563

1533

France

2851

1674

1703

Germany

2718

1725

1576

36127

10733

3366

Germany

4292

1027

4179

Czech Republic

4098

2269

1806

3225

1792

1800

Ukraine

331941

62470

5314

Germany

204608

58871

3476

Lithuania

131360

34450

3813

Netherlands

25358

4218

6012

Germany

14893

2911

5116

9485

1401

6770

Netherlands

71348

11763

6065

Switzerland

43925

8412

5222

Germany

29484

14720

2003

Estonia

13464

3292

4090

Italy

36391

25655

1418

Vietnam

21390

18868

1134

5811

2295

2532

18357

12228

1501

Germany

3146

1816

1732

Ukraine

2455

1589

1545

0402 Ukraine Milk & cream, concentrated or sweetened

0406

Cheese & curd

0407

Eggs in shells

US 1901

Malt extract, food preparations of flour, meal, starch or malt

1902

25 Pasta & couscous

Republic of Korea 1904 Poland Breakfast cereals & cereal bars

trade fact sheet russia

1905

Bread, biscuits, wafers, cakes & pastries

Ukraine

69559

37478

1856

Germany

48012

16279

2949

Poland

27179

7624

3565

China

53703

95741

561

Italy

10015

13654

733

8785

15537

565

Hungary

89289

83366

1071

Spain

66497

67030

992

Ukraine

31808

23819

1335

China

42187

70151

601

Thailand

38846

68435

568

Poland

26248

12752

2058

Netherlands

69136

38695

1787

China

68399

62277

1098

Brazil

67282

26789

2512

France

31383

34146

919

Italy

5338

5803

920

Armenia

4977

12275

405

Austria

63478

39637

1601

Ukraine

25497

47127

541

Switzerland

16345

13029

1255

Ukraine

79971

259153

309

Czech Republic

41916

41823

1002

Germany

25827

22261

1160

2002

Tomatoes, prepared or preserved

Iran (Islamic Republic of) 2005

Prepared or preserved vegetables nes (excluding frozen)

2008

Prepared fruits nes

2009

Fruit & vegetable juices, unfermented

2201

Mineral & aerated waters

2202

Non-alcoholic beverages (excl water, fruit or vegetable juice)

2203

Beer made from malt

trade fact sheet russia

2204

Wine of fresh grapes

France

215811

76281

2829

Italy

151111

57217

2641

Spain

129151

153338

842

Brazil

El Salvador

France

312662

27372

11423

United Kingdom

221143

29229

7566

Ukraine

174307

123421

1412

922

1024

900

Germany

812

800

1015

Italy

673

412

1633

2207

Ethyl alcohol & other spirits

2208

Spirits, liqueurs, other spirit beverages, alcoholic preparations

2209

Vinegar & substitutes for vinegar

Source: Trademap, 2008

Disclaimer Wesgro has taken every effort to ensure that the information in this publication is accurate. We provide said information without representation, or warranty whatsoever, whether expressed or implied. It is the responsibility of users of this publication to satisfy themselves of the accuracy of information contained herein. Â ÂŠ Wesgro, 2010