In a year confounded by COVID-19, only a few industries posted gains, among them the agro-industrial complex. Russia was a top performer among food products exporters, with agro-industrial exports up 20% year-on-year to almost USD 30 billion by November 2021. Moscow is the hub of the country’s agro-industrial sector, exporting ice cream, chocolate, cottage cheese, and meat to buyers around the world, from the United States to Singapore.
With its high concentration of food processors, Moscow is the driver of Russia’s food exports. In the first eight months of 2021, agro-industrial exports reached USD 2.36 billion, a gain of 7.4% year-on-year, and Moscow-based companies exported a total of almost USD 140 million in confectioneries to 65 countries between January and August 2021.
“Food products are in high demand for obvious reasons,” explains Alexander Prokhorov, head of Moscow’s department for investment and industrial policy. “The agriculture industry tends to boom in response to crisis. No matter what happens to the economy, people have to eat. New production technologies have also fueled export growth over the past few years.”
From ice cream to poultry
Dairy is one of the capital city’s most promising export segments. Between January and August 2021, the local dairy industry posted a record export volume of USD 61.98 million, more than double its performance in pre-pandemic 2019. Due to the perishable nature of dairy products, the key consumers are CIS countries, the United States, and Canada. Dairy is also becoming more popular in Asian countries like China, Vietnam, and Indonesia due to higher incomes, urbanization, and changing diet patterns.
Local dairy producers’ milk and cream, cheese, cottage cheese, and cultured dairy products are popular abroad, but the hands-down winner is ice cream. Russia is consistently among the top 20 global exporters of ice cream, with more than half of that volume coming from Moscow. The capital city’s ice cream is especially popular in the United States, Canada, China, Kazakhstan, and Belarus.
The capital city is also exporting more confectioneries than ever before to buyers in 62 countries, with the CIS accounting for the majority of that volume. The Asia-Pacific region also shows serious potential as a consumer of local confectioneries, especially in China, Korea, and Japan.
The global trend toward healthy eating has impacted the confectionery industry in recent years. While consumers’ interest in lowering their sugar intake has held back exports of certain confectioneries, it has also created new opportunities for manufacturers of healthier sweets. This includes ice creams made from soy or almond milk, chocolate containing a higher percentage of cacao, and sugar-free confectioneries. Moscow-based companies are also ramping up production and exports of organic products like nutritional supplements, muesli, nut butters, fruit juices, and wheat bran.
Meat is another important export for Moscow’s agro-industrial complex, and meat exports rose 20.3% from USD 68.09 million in 2019 to USD 81.91 million this year. Local meat producers sell their products to 24 countries around the world, primarily in the CIS, but also in Southeast Asia, Africa, and Eastern Europe. Last year, Moscow-based meat exporters launched products in a number of new markets, from Turkmenistan, Georgia, and Moldova to Ghana and Singapore.
Poultry and poultry offal account for a significant percentage of Moscow’s meat exports. In 2020, the Resource Group’s poultry processors exported 117,000 tons of processed poultry meat to Saudi Arabia, the United Arab Emirates, and China.
“The key factor behind our decision to enter the Chinese market was its positive attitude toward Russian products,” explains Irina Klimova, vice president and marketing director at Resource. “Chinese consumers love imported foods and see them as higher quality than domestic alternatives. They also have high regard for products from Russia. KPMG recently did a study that showed that Chinese consumers see Russian products as being as good or better than goods from competing countries like Brazil, the United States, Thailand, and Chile. With that information in hand, we made sure to emphasize our export brand’s Russian origins. We used traditional Russian designs and the Russian flag on our packaging, and our brand is called URUSSA.”
Despite the healthy demand for Moscow’s agro-industrial products abroad, exporting food products is a complex process requiring serious up-front work. Most countries have strict requirements for imported food products, and almost every country has its own list of banned ingredients that vary by region. As an example, the additives Е236, Е237, and Е238 are banned in the European Union but can frequently be found among the ingredients of Russian products. A local company wanting to export food products to the European market would have to overhaul its whole process.
Each food item must also be certified for each specific export market. For instance, meat products exported to the Middle East must be halal-certified.
“We sell in the United Arab Emirates and in Saudia Arabia, so we had to be officially certified by both the ESMA and the SFDA,” Resource’s Klimova recounts. “It took a while, because halal slaughter requirements are exacting. We also had to completely overhaul our feeding program, since Saudi Arabian consumers prefer smaller birds.”
The Russian government covers up to 90% of the cost of necessary certifications for exporters. Although the direct cost of certification makes up a small share of the total cost of launching a product in a new market, the government’s financial support begins to add up as a company expands its export offerings.
Differences in food culture are another confounding factor for exporters. Halal requirements for meat sold in the Middle East are an obvious example, but less easily discernible differences affect sales, as well. One example is Americans’ lack of interest in caviar, which severely limits exports of Russian caviar to the United States. Other markets have their own hidden hazards. “I know of a case where a company launched sales in India of candy bars that had been very successful in Europe,” says Vyacheslav Valter, foreign sales manager at Diadar. “Unfortunately, they weren’t spicy enough for Indian consumers’ liking. When companies don’t do their research, they end up in the dark about local consumers’ tastes, what they like, and what foods they consider healthy. Companies that make decisions based on their experience with domestic consumers often make expensive mistakes.”
Researching the target market is a key step before exporting any product, not just agro-industrial products. Information about conditions in the industry, import profile, trends, competitors, demand, consumer habits, and many other parameters all go into drafting a company’s strategy for entering a new market and estimating its chances of success in that market. One place to get that research is the Mosprom Center for Export Support, where experts offer local companies detailed reports on target markets, including risk profiles, industry conditions, and a SWOT-analysis of the consumer market. The Center’s experts also assess the export potential of a company’s products in a specific region.
Moscow’s exports of agro-industrial products are increasing in response to efforts taken as part of a national program, launched in 2019, to boost non-resource and non-energy exports. Under the program, exporters of food products are able to access government financial support, including subsidies for certification and other costs like logistics.
“Government support has helped us export products for several years now,” says Klimova. “The cost of logistics goes up every year, but subsidies cover part of our costs in that area. We also have access to subsidies for certification and promotion, including trade show participation.”
Specialized subsidies also exist. For example, companies engaged in advanced refining of grain, oil crops, fish, and powdered milk products can be reimbursed for up to 20% of their costs to modernize their facilities provided that they undertake to increase their exports by 5% a year.
Moscow-based exporters of agro-industrial products have access to non-financial support, as well. The Mosprom Center’s specialists help local companies find potential partners in other countries and arrange talks with them, all free of charge. As part of the Center’s buyers programs, its experts offer pre-sale support, adapt presentation materials, and technical support during and after negotiations.
According to the Center’s experts, business missions are one of the most effective formats for finding partners in international markets. In the first ten months of 2021, the Mosprom Center has organized 13 business missions for 86 local producers and helped 29 exporters take part in international trade shows. Regions of interest include Latin America, the Middle East, Southeast Asia, and Africa.