Russian food processing recovery offers ‘ample’ foreign investment opps – US report

The country, which is often referred to as an economically emerging BRIC (Brazil, Russia, India and China) nation, began gaining strength following the collapse of domestic processed food demand in 2009, according to the US Department of Agriculture report, The Food Processing Sector in Russia.

Around 15% average growth in the processed meat industry and 6% in the dairy industry between 2007 and 2010 have helped to drive this recovery, the report added.

However, demand for premium products has not completely recovered with the majority of consumers switching from imported products to cheaper, often Russian brands.

Attractive investments​

The country’s food processing sector experienced growth of around 10% each year before the latest economic downturn, with investments between 2005 and 2008 totalling more than 135bn rubles ($4.25bn, €3.3bn).

This demonstrates the “attractiveness of this sector for both Russia and foreign investors,” said the report.

However, the report adds that current restrictions prevent the import of certain food products from the US into Russia.

“Due to Russian veterinary and sanitary requirements as well as approved exporter list requirements, Russia does not allow imports of dairy and egg products from the United States.

The report adds that Russia’s accession into the World Trade Organisation, which is anticipated in 2012, will help to reduce trade barriers improve the flow of trade between the US and Russia.

“These same problems apply to many food products with animal-origin ingredients. This situation is due to the change upon WTO accession.”

“This leaves ample opportunities for US exports to Russia,” the report added.

Economic slowdown​

The last two global economic crises, in 1998 and 2008, have influenced the Russian processed food market.

The 1998 crisis initiated a growth in the local food processing industry, as products manufactured in Russia became more affordable than those that were imported – which in turn led to improved food quality and a larger share of the processed food market.

Further investment by Russian food processors resulted in more competition, with two-thirds of money being used to modernise equipment, increase labour productivity and efficiency and lower overheads – offering competition to potential investment from Europe, the Middle East and the US.

A report from FoodDrinkEurope earlier this year highlighted the trend of decreasing Western influence in the majority of BRIC nations, particularly Russia, India and Brazil.