Opportunities for farmers, growers and processors arising from Russian sanctions

This article gives details based on original research by Volga Trader of the opportunities created by Russia banning the import of food from United States of America, Canada, Australia, Norway and the European Union.  The details will help farmers, growers and processors to decide whether to pursue this unique opportunity to enter a wide open new market.  Opportunities for individual countries are also addressed, including surprisingly the United Kingdom which may have an opportunity for sheepmeat.

So first, what happened?  Led by the USA, a group of countries imposed sanctions on state owned banks controlled by Russian Government officials believed to be responsible for the decision to annex Crimea from the Ukraine by referendum.  These sanctions were quite technical.  They restricted the ability of Russian banks to raise finance for credit periods of more than 90 days.  Rosselkhozbank, the main agricultural bank, finances the storage of Russian agricultural produce in the winter.  It needs interbank loans of more than 90 days.  Its difficulty in raising long term finance prompted the Russian Government to declare a ban on imports of food from the USA led countries.  Early announcements suggested that all imports of food were banned from USA, Canada, Australia and Norway.  Actually, it turns out that the sanctions are the same as those against the European Union.  Generally, the categories where imports have been banned are businesses where Russian producers have strong industry associations that have been demanding protection from foreign suppliers.  The total opportunity for new suppliers to replace these lost food imports is over 13 billion euro.  The sanctions are in place for a year.

Dimitry Medvedev, the Prime Minister and former President, said when discussing the list on 7th August that the list was very unlikely to be expanded.  Volga Trader believes that this is because all the major trade associations for food producers have already been satisfied and the large supermarkets, who are also powerful, will protest strongly against more supply chain disruptions.  Further counter sanctions are likely to be in other industries such as pharmaceuticals and automotive components not food.

The table of affected food groups below is based on Volga Trader’s original research and goes into more detail than the press statements by the Russian and EU administrations.  It allows the potential exporter to target opportunities more precisely.    The sources for this table are based on the Russian Federation Presidential Decree 560, a question and answer session speech by Prime Minister Medvedev and Minister of Agriculture Nikolai Fyodorov and EU export statistics.  This table does not include all food imported from the USA, Canada, Norway (mostly farmed salmon) and Australia as the amounts are small, typically less than a tenth of the imports from the EU unless noted in the discussion.

The column   “Imports as a share of the Russian market” is an indication of the stress felt by Russian importers as they seek to replace the lost sales.  It uses figures from Medvedev’s speech which was based on tonnes of food.  There are other versions of these figures in circulation which are based on value or different splits of HS codes.  In these the share of imports is often higher.  Where the share of market held by EU and US imports was high, supplies are now extremely short and buyers are looking for new suppliers to avoid going out of business.  The remaining data concerns the value of the now banned imports from the EU.  The HS Code is the customs classification for the type of food and the value of imports is in millions of Euro, the quantity is in kilotonnes.

Sanctioned EU exports to Russia, 2013 exports from the EU

Generic Type Imports as share of Russian market by tonnage HS Code Description Imports from EU Value m€ Imports from EUQuantity kt
Meat Beef 2.5% 0201 Beef, fresh or chilled 53 431 13 726
0202 Beef, frozen 57 123 18 653
Pork 13% 0203 Pork, fresh, chilled or frozen (plus an additional €197m from the USA and Canada) 968 574 369 920
Poultry 7.9% 0207 Poultry including offal (plus an additional €247m from the USA) 78 74
0210 Salted meats 20 442 3 737
Fish Fish 13.3% 0300 Fish and shellfish (plus an additional €1.3 Bn from Norway) 153 761 110 631
Dairy All Dairy 1% 0401 Fresh milk 52 750 37 959
0402 Concentrated and sweetened milk 80 826 26 656
0403 Buttermilk, yogurt, kefir etc 51 377 29 604
0404 Whey and other milk constituents 34 490 27 482
0405 Butter 144 199 35 363
Cheese 30% 0406 Cheese and curd 985 114 257 230
Vegetables All 5.8% 0701 Potatoes 40 94
0702 Tomatoes 255 230
0703 Onions 41 90
0704 Cabbages 49 118
0705 Lettuce 42 34
0706 Carrots 35 91
0707 Cucumbers & Gherkins 40 35
0708 Leguminous 1 -
0709 Other 200 140
0710 Frozen 54 111
0711 Preserved for processing - -
0712 Dried vegetables 9 2
0713 Dried legumes 4 4
0714 Other roots and tubers - -
Fruit All 14.7% 0801 Coconuts 2 2
0802 Other nuts 8 1
0803 Bananas 123 59
0804 Dates, figs 45 34
0805 Citrus fruit 126 152
0806 Grapes 64 47
0807 Melons 8 8
0808 Apples 523 991
0809 Apricots, cherries 249 215
0810 Other fruit, fresh 196 119
0811 Fruit & nuts, processed 26 45
0812 Fruit & nuts, preserved 34 19
0813 Dried fruit 11 2
Sausages 1601 Sausages (from this HS Code only 00) 55 148 13 652
Malt extract 1901 Malt extract (From this HS code only 9100 & 9200) 15 8
Processed food 2106 Milk preparations made from vegetable fat.(5 subcodes from this HS code) No data No data

Updates to this table will be available on the Volga Trader website http://www.volgatrader.com/food-and-farming.html .

The biggest single product affected is the import of fresh salmon from Norway which is losing over a one billion Euro of sales.  Pork in its various forms is also a huge part of the sanctions.  The opportunity to import other forms of meat as a substitute for pork is very large.  Meat and offal from sheep, goats, horses and at a competitive price, venison are all options.  The sanctioned dairy products represent a large share of the Russian market and retailers will soon be stressed to find replacement suppliers.

For fruit and vegetables, it is currently harvest time.  Russian farmers will be selling onto the market rather than into storage.  The large price rises will not take place for 2 or 3 months but now it the time for a supplier to find a partner and start making a deal even if it is closed slowly.

Philip Owen, sales director of Volga Trader said “Volga Trader can assist new suppliers to enter the Russian market.  We have comprehensive access to Russian import data and uniquely, the database technology to make it meaningful to suppliers.  We employ full time project managers in Russia who understand marketing and negotiation because of years of senior level experience.  We can get you in front of the buyer.”

However, he added words of warning.  “Export to Russia is not for beginners.  There are costs such as our fees, product certification to Russian standards, printing of retail packages in Russian and sometimes shipment to Russia which may need export finance.  You will need a budget of 10 to 20 thousand Euro to get the job done.  Most of it will be spent after you have found a customer so it is not all speculative.  Of course, on occasion, especially now at the early stages of sanctions, a Russian importer may offer to buy bulk produce, at EXW prices paid in advance so removing all problems but don’t rely on that. It is very much a benefit for the early movers.  Volga Trader can give you the extra resource so that you can make a serious effort to find Russia importers, wholesalers and distributors.”

He also said:

“The opportunities are large in Brazil which is already a major exporter to Russia.  The Russian Ministry of Health waived sanitary inspections at 90 Brazilian meat packing plants so that exports to Russia could be started.  Volga Trader has an active agent in Brazil.”

“South Africa is a member of the BRICS along with Russia.  Russia Customs authorities will make every effort to smooth the road for South African products.”

“Turkey has a land route to Russia which makes low cost vegetable exports possible.  A delegation from the Russian veterinary service has already visited Turkey to accelerate the process of certifying new suppliers, especially in the dairy industry.  Volga Trader has an active agent in Turkey to assist new exporters”

“The produce of New Zealand fits the gaps in the Russian supply chain very well.  New Zealand as a country is the single best match to this opportunity.  In addition, New Zealand was the first country in the world to apply for a Trade Agreement with the Eurasian Economic Union.  While Vietnam completed negotiations before New Zealand, New Zealand can now expect negotiations to complete rapidly.  New Zealand producers can then expect to enjoy particularly strong advantages in Russia with respect to certification and rates of duty.”

“Volga Trader already does business with suppliers in Malaysia, Singapore and Indonesia.  We understand some of the local issues and we look forward to assisting them with this opportunity.”

“Zambia has much underdeveloped export potential.  Some key Zambian products fit the Russian opportunity very well.  Volga Trader has a local agent in Zambia who can help inexperienced exporters to get into this business.”

“The United Arab Emirates is an important transit point for fresh produce.  The Dubai airport Flower Centre is a major facility for handling the transit of fresh produce and the UAE is a major trading hub for produce with much re-export.  Volga Trader has prospective clients here looking for orders from Russia.”

“A number of United Kingdom meat processors have recently been approved to slaughter sheep for the Russian market. There is now a big opportunity for sheep meat to replace the lost pork imports.  There is no sheep meat lobby in Russia demanding protection”

Please direct press queries to Jade Cayton at Dakota Digital. Email jade@dakotadigital.co.uk or Tel: 01623 428996 opt 3.

ABOUT VOLGA TRADER

Volga Trader assists companies to enter the Russian market by finding importers or by organizing investments. Volga Trader has an operations centre in Saratov Russia, the main port of the Russian Black Earth region and a centre of the Russian agricultural industry.  There is a sales office in Bridgend in the UK.  Philip Owen, Sales Director of Volga Trader can be contacted on +44 6567675,  +44 7808211497, press@volgatrader.com or at the website http://www.volgatrader.com.

The table of figures is Volga Trader original research and the source should be identified.

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