SVERDLOVSK OBLAST: MARKET FOR FOOD PRODUCTS AND FOOD PROCESSING EQUIPMENT

 

1.  SUMMARY.  THIS MESSAGE IS ONE OF A SERIES OF TELEGRAMS REPORTING ONCOMMERCIAL ACTIVITIES IN THE URALS REGION AND WESTERN SIBERIA.  IT OUTLINES POTENTIAL OPPORTUNITIES FORU.S. SUPPLIERS OF FOOD PRODUCTS AND FOOD PROCESSING EQUIPMENT AND GIVES BRIEFSUMMARY OF THE CURRENT SITUATION IN THE FOOD MARKET IN YEKATERINBURG ANDSVERDLOVSK OBLAST.  

 

2.  YEKATERINBURG AND SVERDLOVSK OBLAST (ANOBLAST IS AN EQUIVALENT OF A U.S. STATE) WITH A POPULATION OVER 4.5 MILLIONPEOPLE REPRESENTS A LARGE POTENTIAL MARKET FOR FOOD PRODUCTS.  DESPITE THE FINANCIAL CRISIS OF 1998AND THE SUBSEQUENT THREEFOLD DEPRECIATION OF RUBLE THE LOCAL POPULATION STILLCONTINUES TO SPEND OVER 60 PERCENT OF ITS INCOME FOR FOODSTUFFS.

 

3.  SVERDLOVSK OBLAST MANUFACTURES ONLY 60PERCENT OF THE FOOD TO REQUIRED FOR ITS INTERNAL NEEDS; THE REMAINING 40PERCENT IS EITHER IMPORTED FROM ABROAD OR DELIVERED FROM OTHER REGIONS OFRUSSIA.   IMPORTED PRODUCTSARE SUBJECT TO THE USD/RUB EXCHANGE RATE AND THEREFORE, ARE NO LONGER PRICECOMPETITIVE IN THE LOCAL MARKET. THE PURCHASING POWER OF THE POPULATION HAS DIMINISHED THREE TO FIVETIMES, COMPARED TO THE PRE-CRISIS PERIOD BEFORE AUGUST 1998.  THE DIFFERENTIAL IN PURCHASING POWERPRICED A WHOLE RANGE OF IMPORTED PRODUCTS OFF THE LOCAL MARKET.  

 

4.  THE POST CRISIS SITUATION PROVIDEDLOCAL FOOD MANUFACTURING AND FOOD PROCESSING ENTERPRISES WITH AN EXCELLENTOPPORTUNITY TO INCREASE THE VOLUME AND SCOPE OF MANUFACTURED PRODUCTS.  UNFORTUNATELY, MANY COMPANIES WEREUNABLE TO RESPOND IMMEDIATELY TO THIS OPPORTUNITY DUE TO LACK OF WORKINGCAPITAL, THE CONTINUED USE OF OLD, LOW CAPACITY EQUIPMENT AND LARGE AMOUNTS OFCAPITAL FROZEN IN LOCAL BANKS. MANY FOOD MANUFACTURING ENTERPRISES USED 1999 TO OVERCOME THE ABOVELISTED PROBLEMS.   SOME OFTHEM ARE CURRENTLY SEEKING EQUIPMENT AND TECHNOLOGY TO IMPROVE THE QUALITY OFMANUFACTURED PRODUCTS IN ORDER TO BECOME MORE COMPETITIVE IN THE LOCAL MARKET.AS OF EARLY 2000, THEIR MAIN COMPETITORS ARE FOOD PROCESSING ENTERPRISES FROMMOSCOW AND ST. PETERSBURG WHICH HAVE ALREADY RE-EQUIPPED THEIR FACILITIES ANDSTARTED MANUFACTURING WESTERN TYPE FOOD PRODUCTS WITH BETTER QUALITY, LONGERSHELF LIVES AND REASONABLE PRICES.

 

5.  ACCORDING TO LOCAL STATISTICS 75PERCENT OF THE FOOD PROCESSING EQUIPMENT USED BY LOCAL MANUFACTURERS IS WORNOUT.  42 PERCENT OF THE EQUIPMENTSHOULD BE URGENTLY DISMANTLED. LOCAL FARMERS OWN ONLY 45 PERCENT OF THE HARVESTING AND PROCESSINGEQUIPMENT IN USE. THIS AMOUNT IS 5-10 TIMES LOWER COMPARED TO WESTERNSTANDARDS.  

 

6.  LARGE FOOD PROCESSING ENTERPRISES, PARTOF WHICH ARE STILL STATE OWNED DOMINATE MOST SECTORS IN THE FOOD INDUSTRY.   THERE ARE OVER 60 BAKERIES, BOTHPRIVATE AND STATE OWNED, 18 MEAT PROCESSING FACTORIES AND EIGHT BEVERAGECOMPANIES. NONETHELESS, THERE ARE OVER 1000 SMALL AND MEDIUM FOOD PROCESSINGENTERPRISES IN SVERDLOVSK OBLAST WHICH USE MODERN TECHNOLOGY AND IMPORTEDEQUIPMENT AND MANAGE TO FIND A NICHE IN THE LOCAL MARKET FOR THEIR NEWPRODUCTS.  

 

7.  WHILE SVERDLOVSK OBLAST IS CONSIDEREDTO BE A PRIMARILY  INDUSTRIALREGION,  IT TRIES TO SUPPLY ITSELFWITH BASIC FOODSTUFFS AND HOLDS FIRST PLACE IN RUSSIA FOR EGGS  AND POULTRY PRODUCTION AND VEGETABLEPROCESSING, THIRD PLACE FOR MEAT AND POTATO PRODUCTION AND FIFTH FOR MILKPRODUCTION.  

 

8.  THE FOOD PROCESSING SECTOR INSVERDLOVSK OBLAST STILL CONTINUES TO DECLINE.  THE TABLE BELOW WILL SHOW THE TENDENCY DURING THE LAST 5YEARS.

 

GROSS PRODUCTION INTHE AGRICULTURAL SECTOR (IN PERCENTAGE)

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                                                            1995                     1996                     1997                     1998

 

CATTLE BREEDING               86,0                      96,5                      98,5                      92,8

 

PLANTING                                        128,9                    91,6                      98,5                      92,8

 

9.  THE SITUATION IN THE AGRICULTURALSECTOR REMAINS VERY DIFFICULT DUE TO THE LACK OF FINANCING FROM LOCAL ANDFEDERAL AUTHORITIES.  SVERDLOVSKOBLAST STATISTICS PROVIDE INFORMATION THAT THE AGRICULTURAL SECTOR RECEIVEDONLY 18.5 PERCENT OF THE TOTAL BUDGET FOR THE FIRST SIX MONTHS OF 1999.  

 

10.  THE FOLLOWING TABLE PRESENTS THE GENERALTENDENCY IN SHARES OF PRODUCTION VOLUMES FOR DIFFERENT PRODUCT TYPES IN THEAGRICULTURAL SECTOR

 

SUB-SECTOR               1994                     1998                     1999(SIX MONTHS)

 

POTATO                             100.5                    79.3       

 

MEAT                                  76.6                      97.9                      89.7

 

MILK                                   76.6                      97.9                      93.5

 

EGG                                     95.6                      95.2                      91.3

 

VEGETABLE                      95.1                      89.6                      

 

CATTLE BREEDING 73.4               93.3                      -5.3

 

 

11.   THE PRODUCTION GROWTH IN THEFIRST SIX MONTHS OF 1999 WAS NOTICED IN BREAD AND BAKED GOODS (BY 4.1 PERCENT),BEER (BY 33 PERCENT), ALCOHOLIC BEVERAGES (BY24.7 PERCENT), MINERAL WATER (IN10.5 TIMES) AND MARGARINE (BY 39.1 PERCENT) COMPARED TO THE SAME PERIOD IN1998.

 

12.  THE DECREASE DURING THE FIRST SIXMONTHS OF 1999 IS OBVIOUS IN MILK (BY 3.6 PERCENT), BUTTER (BY 47 PERCENT),FLOUR (BY16.6 PERCENT) AND NON-ALCOHOLIC BEVERAGE PRODUCTION (BY 18.2 PERCENT),COMPARED TO THE SAME PERIOD OF 1998. 

 

13.  THERE IS A GENERAL INCREASE ACROSS THEOBLAST IN THE CONSUMPTION OF PRE-FABRICATED MEAT AND MEAT PRODUCTS, POULTRY ANDEGGS, AS WELL AS SOME MILK PRODUCTS. 

 

14.  THE OBLAST STATISTICS REPORTED AGENERAL REDUCTION IN FOOD RETAIL TRADE TURNOVER IN THE FIRST SIX MONTHS OF1999.  THE WHOLESALE MARKETS STILLPLAY AN IMPORTANT ROLE AND HOLD 23 PERCENT OF THE TRADE TURNOVER.

 

15.  WELL-KNOWN BRANDS OF FOOD AND BASICFOODSTUFFS (FLOUR, SUGAR, COOKIES, TEA AND COFFEE, ALCOHOLIC AND NON-ALCOHOLICBEVERAGES) ARE SOLD IN THE WHOLESALE MARKETS WHICH ARE POPULAR AMONG THE ENTIREPOPULATION, INCLUDING FAMILIES WITH AVERAGE AND HIGH INCOMES.

 

16.  TO DATE, PRICING REMAINS ONE OF THEMOST IMPORTANT DECISION-MAKING FACTORS FOR THE MAJORITY OF THE POPULATION.  THOSE CONSUMERS WITH AVERAGE AND HIGHINCOMES OFTEN SEEK QUALITY IMPORTED PRODUCTS WITH LONG SHELF LIVES ANDDELICIOUS TASTES.  THERE ARESEVERAL STORES IN YEKATERINBURG AND IN ALMOST EACH SMALL TOWN OF SVERDLOVSKOBLAST WHICH SELL A VARIETY OF IMPORTED QUALITY PRODUCTS.  THE PRICES FOR SUCH PRODUCTS AREUSUALLY 30-50 PERCENT HIGHER, COMPARED TO LOCALLY MANUFACTURED GOODS.  

 

17.  THERE ARE A NUMBER OF PRODUCTS WHICHDISAPPEARED AFTER THE 1998 FINANCIAL CRISIS: LONG SHELF LIFE IMPORTED ROLLS,BUNS, COOKIES, SOUR CREAM, FLAVORED CURDS, PRE-FABRICATED MEAT PRODUCTS ANDFISH, SAUSAGES AND ETC.  THERE IS ANUMBER OF PRODUCTS MANUFACTURED LOCALLY, WHICH ATTEMPT TO SUBSTITUTE FOR THEMISSING IMPORTS BUT THEIR TASTE AND SHELF LIFE IS NOT QUITE THE SAME AS YET.

 

18.  GENERAL CONSUMERS STILL PREFER TOPURCHASE LOCALLY MANUFACTURED PRODUCTS WITHOUT PRESERVATIVES.  THE PART OF THE POPULATION WITH LOWERINCOMES GROWS VEGETABLE AND FRUITS AND SOMETIMES EVEN BREED CATTLE AND POULTRYIN SUMMERTIME FOR THE FAMILY CONSUMPTION. 

 

MARKET OPPORTUNITIESFOR U.S. COMPANIES

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19.  THERE ARE A NUMBER OF FOREIGN FOODMANUFACTURING COMPANIES LIKE PEPSI AND COCA-COLA, OPERATING IN SVERDLOVSKOBLAST WHICH SHOW THE POTENTIAL OF THE LOCAL MARKET FOR HIGH QUALITY,REASONABLY PRICED PRODUCTS.

 

20.  RUSSIA’S FOOD PROCESSING ENTERPRISES,ESPECIALLY THOSE LOCATED EAST OF MOSCOW LACK MODERN PACKAGING EQUIPMENT TOMANUFACTURE PRODUCTS WITH LONG SHELF LIVES AND WITH WESTERN QUALITY ANDPACKAGING.

 

21.  LOCAL FARMERS WILL EAGERLY LEASE ORPURCHASE USED SEEDERS, HARVESTERS AND OTHER FARMING MACHINES AND STORINGTECHNOLOGY, AND LONG LIFE PACKAGING EQUIPMENT FOR VEGETABLES.  

 

22.  THERE ARE COMPANIES WHICH WILL INVESTIN EQUIPMENT AND TECHNOLOGY TO MANUFACTURE PRODUCTS TO SUBSTITUTE LOCALLY MADEGOODS FOR MORE EXPENSIVE IMPORTS. THERE ARE REQUESTS FOR SOY PROCESSING EQUIPMENT TO MANUFACTURE MILK,TOFU, AND YOGURT.   LOCAL MEAT AND SAUSAGE FACTORIES USE SOY IN THEIR PRODUCTION AND THEYCAN MANUFACTURE SOY MEAT WHICH IS TWO-THREE TIMES CHEAPER, COMPARED TO THENATURAL MEAT PRODUCTS.  

 

23.  THE MAJORITY OF BREAD PRODUCTIONFACILITIES AND GRAIN MILLS ARE STATE OWNED.  THEY ALL LACK GOVERNMENT SUPPORT AND CORRESPONDINGLY NEWTECHNOLOGY AND EQUIPMENT.  

 

24.  SUPPLIERS OF U.S. MANUFACTUREDEQUIPMENT WILL HAVE TO ENSURE THAT THEY ARE PREPARED TO COMPETE WITH EUROPEANEQUIPMENT MANUFACTURERS, AS TRADITIONALLY IT IS CONSIDERED TO BE CHEAPER TO BUYTHIS TYPE OF EQUIPMENT FROM EUROPE. EQUIPMENT IMPORTED AS PART OF AN INVESTMENTIN A JOINT VENTURE IS ALLOWED THROUGH CUSTOMS WITHOUT ANY DUTIES BEINGCHARGED.  THIS EQUIPMENT CANNOT NOTBE DISMANTLED AND EXPORTED FROM RUSSIA DURING A THREE YEAR PERIOD.  

 

25.  SVERDLOVSK OBLAST’S GOVERNMENT IS READYTO GUARANTEE TAX BREAKS AND CUSTOMS ALLOWANCES FOR COMPANIES WHICH WILL INVESTIN MANUFACTURING FACILITIES OF NEWLY ESTABLISHED OR EXISTING ENTERPRISES.  

 

SUMMARY OF PROJECTSFROM THE LOCAL FOOD PROCESSING 

---------------------------------------------------------------------------------------COMPANIESWHICH SEEK A PARTNER OR A POTENTIAL INVESTOR.

---------------------------------------------------------------------------------------------

 

26.  THERE IS A NUMBER OF LOCAL COMPANIESTHAT HAVE EXPERIENCE COOPERATING WITH THE U.S. OR OTHER INTERNATIONALMANUFACTURERS.  SUCH COMPANIESUSUALLY CONTINUE TO SEEK COOPERATION WITH FOREIGN COMPANIES TO PURCHASEEQUIPMENT AND TECHNOLOGY, OR TO SET UP A JOINT VENTURE TO START MANUFACTURINGNEW PRODUCTS.  THESE COMPANIESUSUALLY HAVE A STABLE CREDIT HISTORY, KNOW HOW TO CLEAR GOODS THROUGH THECUSTOMS, HOW TO CERTIFY THEM, AND WORK IN CLOSE COOPERATION WITH THE LOCALAUTHORITIES TO RECEIVE SUPPORT AND PRIVILEGES FOR NEW PROJECTS.

 

--SEMIRECHIYE, PERMFISH PROCESSING ENTERPRISE, ESTABLISHED IN 1992 AND TOTALLY PRIVATE SEEKS APARTNER TO INVEST IN EQUIPMENT AND TECHNOLOGY FOR VACUUM PACKING FISH WITH LONGSHELF LIFE.  THE COMPANY IS ALSOINTERESTED IN OPENING A CANNED FISH GUILD. 

 

RUSLAN NEZHDANOV,DIRECTOR

SEMIRECHIYE

PERM

RUSSIA

TEL: 7 (3422) 28-94-88

FAX: 7 (3422) 94-46-61

 

--THE POULTRYENTERPRISES OF SVERDLOVSK OBLAST FORM “PTITSEPROM” (POULTRY ASSOCIATION).  PTITSEPROM UNITES THE 27 POULTRYENTERPRISES OF SVERDLOVSK OBLAST. THEY PRODUCE TWELVE PERCENT OF RUSSIA’S POULTRY MEAT AND FIVE PERCENT OFITS EGGS.  CURRENTLY SVERDLOVSKPTITSEPROM TAKES A LEADING ROLE AMONG POULTRY MANUFACTURERS IN RUSSIA.   THEY USE MODERN TECHNOLOGIES ANDHAVE INSTALLED EUROPEAN EQUIPMENT DURING RECENT YEARS.   SVERDLOVSK PTITSEPROM SEEKS AN INVESTOR TO DELIVER U.S.TECHNOLOGIES AND EQUIPMENT TO INCUBATE EGGS.  

 

YURIY KLEINROK, HEAD

PTITSEPROM

9A, UL. PUSHKINA

620219, YEKATERINBURG

RUSSIA

TEL: 7 (3432)51-22-39, 51-51-81-28

FAX: 7 (3432) 51-51-09

 

--REMEKK, ANOTHER FISHPROCESSING COMPANY, ONE OF THE LEADING MANUFACTURERS OF FISH IN YEKATERINBURGAND SVERDLOVSK OBLAST, PRIVATIZED IN 1993, SEEKS USED EQUIPMENT (SLICINGMACHINES, VACUUM PACKAGING MACHINES, CANNING EQUIPMENT AND EQUIPMENT TOMANUFACTURE PLASTIC CONTAINERS TO PACKAGE PRESERVES FOR 3-6 MONTHS.)  REMEKK WILL BUY OR LEASE THEABOVE-MENTIONED EQUIPMENT, OR WILL WELCOME A PARTNER TO RE-EQUIP THE FACTORYAND TO START JOINT MANUFACTURING NEW FISH PRODUCTS.  CURRENTLY THE FACTORY SERVES OVER 40 PERCENT OF THE OBLAST’SFISH MARKET.  

 

VLADIMIR PESTOV,DIRECTOR

TRADE AND FISHPROCESSING COMPANY “REMEKK”

145-A, UL. MALYSHEVA

60049, YEKATERINBURG

RUSSIA

TEL: 7 (3432) 75-13-61

FAX: 7 (3432) 74-40-71

E-MAIL: ROOFRIMEKK.MPLIK.RU

 

--ATOMSTROYKOMPLEKS-MEDITSINA,A NEW COMPANY WHICH HAS ESTABLISHED WORKING RELATIONSHIP WITH CANADIAN COMPANYAND PURCHASE FOR USD150, 000 A SPECIAL EQUIPMENT TO MANUFACTURE SOYMILK, SOYYOGURT AND SOY CHEESE (TOFU) WITH SPECIAL NUTRITION ADDITIVES.  THERE ARE NO COMPETITORS IN THE SOYMANUFACTURING SECTOR IN THE URALS. THE COMPANY SEEKS A PARTNER TO EXPAND ITSPRODUCTION FACILITIES AND TO SET UP A JOINT VENTURE TO MANUFACTURE OTHER SOYPRODUCTS (MEAT, PASTA, SAUSAGES).  

 

-- URALMILK GROUP ISONE OF THE LARGEST ICE CREAM AND BUTTER MANUFACTURERS IN YEKATERINBURG.  IT ALSO PROVIDES WAREHOUSE SERVICES ANDPACKAGING, OWNS GROCERY RETAIL OUTLETS AND A CAFE. URALMILK GROUP MANUFACTURES25 TONS OF ICE CREAM AND 5 TONS OF BUTTER DAILY, WITH OVER 30 DIFFERENT TYPESOF ICE CREAM.  THE COMPANY HAS EXPERIENCEESTABLISHING RELATIONSHIPS WITH FOREIGN COUNTRIES, IMPORTING RAW MATERIALS ANDEQUIPMENT FOR ICE CREAM AND BUTTER MANUFACTURING.  THE COMPANY PURCHASED U.S. MANUFACTURED FREEZERS FOR ICECREAM.  THEY ALSO IMPORT FAT,CHEESE AND OTHER FOODSTUFFS.  URALMILKGROUP SEEKS A FOREIGN PARTNER TO INVEST IN EQUIPMENT AND TECHNOLOGY TO STARTTHE MANUFACTURE NEW PRODUCTS.

 

VLADISLAV DVORNIKOV,DIRECTOR

OAO “MAYSOMOLTORG”

75, UL. ANGARSKAYA

YEKATERINBURG

RUSSIA

TEL: 7 (3432) 52-01-56

FAX: 7 (3432) 52-02-37

E-MAIL:[email protected]

 

CONTACT LIST

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SERGEY M. CHEMEZOV,MINISTER 

MINISTRY OF FOOD ANDAGRICULTURE

1, PLOSHCHADOKTAYBRSKAYA

620031, YEKATERINBURG

RUSSIA

TEL: 7 (3432)56-41-07, 77-17-04

 

ANATOLIY TARASOV,MINISTER 

MINISTRY OF INTERNATIONALAND FOREIGN RELATIONS, SVERDLOVSK OBLAST.

1, PLOSHCHADOKTAYBRSKAYA

620031, YEKATERINBURG

RUSSIA

TEL: 7 (3432)56-42-91, 77-16-01

 

VERA SOLOVEYVA,MINISTER 

MINISTRY OF TRADE,FOOD AND SERVICES

8B, UL. 8THMARTA

620014, YEKATERINBURG 

RUSSIA

TEL: 7 (3432)51-56-52, 58-92-40, 51-63-29