With 113 million hectares of arable land and a farm workforce of over 19 million, Russia has the potential to be one of the world’s major food producers. However, until the collapse of the socialist collective farming system in the late 1990s, the Russian food industry was largely isolated from foreign competition and innovation.

In the last ten years, however, this has fundamentally changed. The rapid infusion of wealth from the energy sector has transformed Russia into an open market economy, and made it today the fastest growing food market in Europe. In 2006 imports of food and agricultural products were valued at around US$22 billion and represented over 13 per cent of Russia’s total imports for the year.

Russia’s largest chain of supermarkets, the X5 Retail Group, in March 2007, predicted that retail food sales would continue to rise by more than 11 per cent year-on-year (YOY) and that the Russian food market could exceed US$227 billion within five years. Retail food sales grew by an astounding 45 per cent in 2006.

Russia’s potential as a leading global food market is well recognised in Europe and the US. Many multinationals, including Coca-Cola, Mars, PepsiCo and Kraft (USA), Danone (France) and Nestlй (Switzerland) have established manufacturing facilities in the country. Imported foodstuffs make up a large proportion of Russia's food market — up to 80 per cent in some categories.

Russian food companies are rapidly upgrading their production processes and developing brand recognition, as Russian consumers become increasingly quality conscious. This is creating wide ranging opportunities for Australian food producers — from the commodity trade to fully processed food lines.

Contact Austrade in Moscow and Vladivostok to determine how your company may participate in this extraordinary market growth.

Meat products: growing demand, changing tastes

Russia has become one of Australia’s most important meat markets. In 2006 Russian consumption of Australian meat was almost as large as Australian meat exports for the entire European Community (EU). During the 12 month period a 14-fold increase in beef and a three-fold increase in lamb and mutton sales were recorded. Russia also took around a third of Australia’s kangaroo meat production.

To place these record-breaking results in context, in 2006 the market was supported by highly favourable competitive conditions, with the US absent from the market and limited supplies of beef from the EU and South America. Nevertheless the results gave Australia a very strong lift in consumer profile, and expectations are high that Australian suppliers will continue to consolidate their position.

Russian domestic meat production capacity currently stands at around 4.7 million tonnes and local production remains in decline, with reduced numbers of cattle and sheep raised, providing further opportunities for Australian meat exporters.

According to the Russian State Statistical Service, the Russian national cattle herd (including cows) at 1 January 2006 stood at 21.4 million head — down from almost 40 million head in 1996. There was a similar greater decline in sheep and goat numbers over the same period, from 28 million to 18.2 million.

In 2006 it was officially estimated that total meat consumption in Russia was in the region of 6.2 million tonnes. The Russian Meat Association forecasted that meat consumption would reach 10 million tonnes by 2010. This growth trend is supported by rapidly increasing disposable incomes / private consumption that are projected to continue to grow by 13 per cent p.a. over the next 5 years.

There has also been strong growth in the Russian restaurant, hospitality and catering sector, and the emerging high-end restaurant culture is now leading many Russians to enjoy rarer meat delicacies, such as imported marbled beef, beef fillets, lamb and veal.

Imported meats from Australia, New Zealand and the United States enjoy great popularity in Russia. For example, the Finnish-owned premium supermarket chain Stockmann sources the bulk of the beef and lamb for its Russian stores from Australia.

Meat and Livestock Australia (MLA) and Austrade organise regular educational and marketing seminars in Russia. Austrade and MLA have hosted Russian meat and veterinary experts in Australia to demonstrate first-hand the high quality of Australian meat products.

Success story: Ausbay International

A good example of successful business development in the Russian meat industry is Ausbay International, a supplier of high-quality meat such as Angus beef, lamb, bobby veal, grain-fed beef and pork. Its clients include high-end restaurants, hotels and supermarkets.

Milk products: steady growth, established import culture

Consumption of milk and dairy products in Russia has been steadily increasing since the late 1990s, and in the five years between 2000–2005 the market grew at an average rate of 7.8 per cent annually.

The Russian milk and dairy market can be divided between natural milk and processed-milk products such as sour cream, cream, yoghurt, vitamin-enriched dairy, cottage cheese, milk desserts and butter. Market research by the Milk Alliance estimates milk consumption to be around 230 litres per person per year. This research also shows that 93 per cent of Russians regularly buy milk. Some 80 per cent prefer to buy Russian milk and processed products (such as kefir) and over 50 per cent frequently purchase yoghurt, cottage cheese and chocolate bars. On average, dairy products constitute 16 per cent of all groceries found in consumer shopping baskets.

Figures from the State Committee for Statistics (GosComStat) show that imports of milk and processed-milk products are increasing. According to the Milk Alliance, 15 per cent of all processed-milk products are currently imported. Condensed milk and cream (3 per cent), natural milk (3.8 per cent) and butter (39 per cent) are the most significant imports. Butter is imported from New Zealand (40 per cent), Finland (17 per cent) and Ukraine (11 per cent) in such significant quantities that there are few plants in Russia that specialise in butter production.

Cheese is also contributing to the overall market development. However, compared to other markets, cheese consumption in Russia is quite low, around 2–3 kg per person per year. Various estimates place the value of the cheese market at around US$800 million, most of which comes from imports, which stand at approximately 50,000 tonnes per year. Domestic cheese production is minimal and the quality is generally inferior to imported lines.

Unimilk and Wimm-Bill-Dann Foods are the two largest milk processing companies in Russia. Their main competitors are Campina, Danone, Ehrmann and Parmalat, each of which has made large investments in the Russian market and boasts their own processing facilities.

Consumer demand for milk and dairy products is expected to continue to rise strongly. Increased demand will be driven by regional market expansion, rising incomes and the introduction of new products such as vitamin-enriched, low-fat and preservative-free dairy products.

The Russian milk and diary market presents a significant opportunity for Australian exporters.

Fresh fruit and vegetables

The Russian market for fruit and vegetables continues to expand. Over the last five years, the share of fruit in the consumer basket of Russian citizens has grown considerably, especially in urban areas. According to some sources, fruit consumption per capita in Russia stands at 45.6 kg during the May-October summer season and 27.7 kg from November to April.

Two-thirds of all Russian fruit imports are accounted for by three types of fruit: bananas (27 per cent of all fruit imports), apples (22 per cent) and oranges (14 per cent). In addition pears account for around 7 per cent of the import market, and grapes around 5 per cent.

At present, the largest suppliers of fruit to Russia are South Africa, Turkey, Israel, Egypt, Chile and Iran (mainly exotic fruit like figs, pomegranate and persimmon).

The Russian demand for vegetables is largely met by domestic production.

With fruit consumption expanding, however, there are opportunities for Australian exporters yet to be fully assessed and exploited, particularly in tropical and counter-seasonal fruits.

Wine

Russia's wine market is growing fast, providing fantastic opportunities for Australian wine producers. See the Wine business opportunity profile for more detailed information.