# OPPORTUNITIES IN THE RUSSIAN PACKAGING SECTOR

 

By Sergey Minko

 

Russia’s packaging industry,which imports some $2 billion worth of foreign packaging materials andequipment annually, increasingly needs modern packaging materials and machineryto improve the look and quality of packaging and make domestic productsmore  competitive with importedpackaged goods. Currently, only a few U.S. companies participate in thismarket. 

 

Current Russian customs dutiesfavor the importation of finished packaging materials, rather than stimulatedomestic production from imported or domestic raw materials. Nonetheless, manyRussian companies are looking for ways to develop and improve local productionof finished packaging materials. Demand for both packaging materials andmachinery provides U.S. companies with trade and investment opportunities.  

 

Update on the Packaging Materials Sector

AlthoughRussia possesses the raw materials required for domestic production ofvarious packaging materials, current government tax and import duty policieshinder development of local production of packaging materials. The customs dutyfor imported finished packaging materials is set at 5-10 percent, while thecustoms duty for supplies to be used in creating the packaging is 15 percent.

 

Russia imports almost all types of packaging materials.Although Russian producers meet as much as two-thirds of demand in the overallpackaging materials market, over a billion dollars worth is imported. Companiesthat sell printed materials and packaging films are most successful in thismarket, selling $290 million worth to Russia in 1997. Foreign suppliers provide25 percent of the corrugated market ($75 million annually), 40 percent ofcardboard boxes ($82 million annually), 65 percent of cardboard, 45-55 percentof labels, and 70 percent of label paper. 

 

According to Yury Alpeev, marketing director of packagingmaterials company **Gotek**, before theAugust 1998 financial crisis, Russian companies imported foreign packagingmachinery and packaging materials worth $1.8-2.3 billion annually. Half of thisamount was packaging ($0.9-1.2 billion a year) and half was packaging materials($0.8-1.04 billion annually). In 1998, imports of wrapping films, PET bottles,stickers, and metal cans increased about 30 percent over 1997, but havedeclined 40 percent since the crisis. 

 

Among the major exporters to Russia in this sector are Italy(30 percent of total packaging materials), Germany (17 percent), and Finland(11 percent). Imports of U.S. packaging materials accounted for only 4 percent.One of the major U.S. export products to Russia is Scotch™-type packaging tape,accounting for $15.7 million. 

 

Packaging Industry Situation by Market Sector

The demand for packaging varies greatly by sector. Nearly allsectors need upgraded products and equipment, but only a few sectors areexperiencing vigorous demand at this time. 

 

*Confectionery*—Confectionerypackaging is one of the most developed segments of the industry. Although someleading confectioneries use modern packaging technologies and pack theirproducts very attractively, most confectioners lack modern packagingtechnologies to extend product shelf life. 

 

*Bakery*—Themajority of Moscow’s bakeries supply retail outlets with products packed inplastic bags or wrapped in plastic film, but little bread is distributed undersealed and branded product lines. Many regions are following Moscow’s exampleby requiring bakery products to be wrapped for sale, thus creating the need fornew packaging materials and equipment.

 

*Dairy*—Russiandairies rely heavily on modern packaging. Moscow is the leader in introducingdairy packaging technologies, while the bulk of dairy products produced in theregions is still packed in plastic bags and glass bottles. Therefore, mostdomestically produced dairy products are uncompetitive in the market. Milkprocessing plants could significantly improve production by purchasing Pure Pakor Tetra Pak-type milk processing and packaging lines. 

 

*Householdchemicals and paints*—Enterprises in this sector usually use simple plasticand glass containers for household chemicals and metal cans for paints. To bemore competitive with imported products, Russian producers must significantlyimprove quality and add convenience features such as handles, measuring scoops,and printed instructions. 

 

Prospects for U.S. Companies

The overall improvement of the Russian economy will provideU.S. packaging equipment companies and packaging producers with enormousopportunities to increase exports to Russia through direct sales, leasing, andinvestments. Many Russian companies welcome foreign investment, and someforeign companies have already invested in packaging raw material companies.For example, in 1998, **InternationalPaper**(Purchase, NY) acquired 80 percent of the Svetogorsk Pulp and PaperMill, which reportedly produces 293,000 tons of paper and cardboard annually. 

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Another sign of the favorable investment potential of Russiancompanies is the success of the Russian company Gotek (one of the leaders in producingcorrugated cardboard). Gotek uses modern equipment to provide packagingmaterials for major U.S. companies operating in Russia, including **Procter & Gamble**, **Mars**, **McDonald’s**, and **Coca-Cola**,and for several large Russian companies. Other Russian companies such as **Poligrafooformlenie**, **MKPG**, **Polipak**, and **Dozakl**haveattracted investments to renew their production facilities. Overall, Russianindustry experts believe that Russian packaging companies have the potential toattract up to $8 billion in foreign investment. 

 

Those U.S. packaging equipment and materials companies thatwant to expand their business in Russia or enter the Russian market should bemore aggressive. Strategies that have proved successful include participatingin local trade shows, establishing representative offices or representation byRussian dealers and distributors, and marketing products more widely andpersistently.

 

*SergeyMinko is a commercial specialist with the **ForeignCommercial Service** at the U.S. Embassy in Moscow.*

 

*Formore information on FCS Moscow services and the Russian packaging equipment andmaterials market, U.S. exporters may contact Sergey Minko at tel: +7 (095)737-5038, fax: 737-5033, email: [email protected], or visit **BISNIS Online** at www.bisnis.doc.gov/bisnis/isa/990702pk.htm.*