Leading Trade Opportunities in the Russian Market 2005

Report Highlights:

Exports of U.S. agricultural products to Russia are growing due to the revolutionarychanges in Russia’sretail and food processing sectors.  Russia importsover $12 billion in food and agricultural products each year, and imports aregrowing by roughly 12 percent annually. In 2004, U.S.agricultural exports to Russiagrew to over $850 million, up 40 percent year-to-year, reversing a downwardtrend; from 2001 to 2003 U.S.exports dropped due to a series of market access barriers.

Executive Summary

Economicimprovement over the last five years has increased consumer purchasing powerand demand for quality products -- pushing the retail food market to $68.1billion in 2003, 25 percent more than in 2002. Final 2004 figures are not available, but food retail sales wereprobably above $83 billion, up 22 percent. Russiais the fastest growing retail food sales market in the world, with thepotential to again double in size by 2008, just as it did since 2001.  With this growth and the participation ofmultinational retailers, the retail market has become more competitive, andquality in now counts even more in purchasing decisions.  In fact, suppliers now face penalties forfailing to provide either the agreed quantity or quality to retailers.  This creates a natural advantage for U.S. highquality consumer ready products, especially poultry, meat, snacks, nuts, freshand frozen fruits and vegetables, wine, beer, seafood, among many others.

Diversification of Trade

As shown intable 1, Russia’s importsfrom the United States,while dominated by poultry, have begun to diversify.  Red meat (beef and pork) exports were down in2004 due to the ban Russiaimposed on U.S. exportsafter the discovery of BSE in the United States in 2003.  This ban hit hardest beef liver importedprimarily by Russiafor use in the meat processing industry. While overall red meat exports were off, U.S. pork is doing quite well,jumping 640 percent last year.  As agroup, food ingredient exports were down in 2004, due only to non-economicreasons related to one specific component. All other food ingredients saw staggering 88 percent growth.  Tree nuts (such as almonds), seafood, andsnack foods all grew impressively last year and have a bright future.  While fresh fruits and wine sales appear inthe table to be only quite moderate, official statistics underreport this tradedue to heavy transshipments to Russiathrough Europe.  In fact sales are quite brisk for each item,as explained in more detail below.

Poultry

Although U.S. chicken leg quarters continueto dominate the Russian import market for poultry meat, the Russian governmenthas imposed a safeguard measure that significantly limits market access.  The safeguard quota, which will be in effectfor three full years, is set at 1.05 MMT per year, with pro-rated amounts inthe first and final years.  For 2005, thetotal volume of the quota for the United States is 771,900 MT.

Beef

In2003, Russiaintroduced new tariff rate quotas (TRQs) for beef under codes 0201 and0202.  Although the United Statesdoes not ship beef under these categories due to the current BSE-related tradeban, when the market reopens, US exporters can be expected to take advantage ofgrowing demand in the HRI sector.  Thehigh demand for less expensive beef cuts (offals) is expected to remain strong,and would likely resume at levels equal to the $30 million dollars in 2003

Pork

Despitea decline from pre-1998 crisis levels, Russiais one of the top ten export destinations for U.S. pork.  In the near future, high-quality importedpork is likely to take advantage of the growing demand in the retailsector.   However, the TRQ on pork couldlimit U.S.exports in the short term, which are capped by a country-specific allocation of53,800 MT.  U.S.suppliers are also facing extremely tough competition from Brazil due tovery competitive pricing.  The bestexport opportunities in the near future will include unprocessed andsemi-processed pork products for further processing (i.e., hams andpicnics).  These products are popularbecause Russian processors are keen to locate sources of inexpensive rawmaterials for further processing into sausages and other products.

Food Ingredients/Food Processing

Russia's food processing industry hasbeen growing rapidly in recent years, with a significant output increase of 25percent in 2003 valued at $32.5 billion. In 2004, the industry grew by a reported 18 percent.  Due to the growing preference for Westernstyle food and beverages, rising consumer incomes, and a significant populationof 143 million, Russiais an excellent prospect for exporters to supply food processors.  Consumer markets are not yet saturated withproducts.  These trends are expected tocontinue, keeping prospects bright for U.S. exporters.   Most local food processors trying to competein the market are quality-oriented, rather than price-oriented ingredientconsumers.  Many companies report thatraw resources and specialized ingredients for meat, bakery, confectionary,juice, and dairy processing available from Russia domestically are notsufficient to satisfy their needs in the future.

Edible Tree Nuts

Domestic consumption continuesto expand for a wide variety of edible nuts, including almonds, hazel nuts, andpistachios.  Nuts are popular as bothsweet and salty snacks.  In addition, thefast-growing confectionery industry uses nuts in a variety of chocolates andbaked goods.  In particular, imports of U.S. almonds are expanding sharply, althoughdirect import figures do not reflect the actual level as large volumes of U.S. almonds are also imported through Western Europe.

Fish and Seafood

U.S. fishand seafood product exports will continue to grow and may reach $30 million in2005, up from $23.1 million in 2004. High-quality fish, in particular forretail sale and in the hotel/restaurant sector, are growing in demand.   Due to Russian industry’s strong exportfocus, the domestic retail market is growing and relies heavily on importedfish and seafood. U.S.seafood exporters interested in the market should contact USDA's Trade ShowOffice or FAS/Moscow offices to participate in the seafood pavilion at theWorld Food Moscow exhibition in September 2005

Fresh Fruit (apples, pears, citrus,table grapes)

U.S. exports of freshfruit are growing quickly.  During 2004, Russia boughtabout 105,000 boxes of apples worth $2.3 million, and 170,000 boxes of pearsworth $3.8 million.  This estimate isbased on industry representatives’ information, since U.S. exports are often transshipped through Europe, artificially lowering US-Russia tradefigures.  Due to a high quality-lowpriced crop, the sales potential for apples alone in 2005 is estimated to be atleast 500,000 boxes (about $12 million), and a significant portion of thatamount (reportedly, 300,000 boxes) has already arrived.  As a further indication of market potential,some importers report they are already getting purchase requests from retailersfor June shipment.  For pears, the marketis estimated at 300,000 boxes ($6.7 million) this year.  The retail sales sector in Russia isextremely modern and competitive. Quality matters and the United States is well positioned to take advantageof this growth as the world's highest quality, most consistent fruit exporter.

Wine

Fueled by stable economic growth overthe last six years, Russiais one of the most rapidly growing wine markets in the world with an average 30percent wine consumption increase per year. Although Russian consumers stilldrink a greater quantity of popular wine labels from CIS countries like Moldova, Georgia,and European wines from France,the popularity of New World wine is growingsteadily. U.S. wineexporters to Russiahave excellent prospects. Chileand Argentina are theleaders among the other ‘New World’ countriesin the Russian imports. In addition, this year French exporters are going toinvest about one million Euros in wine promotion to Russia, three times more than lastyear.

Other Products

In additionto the products described above, there is good market potential for a widevariety of other U.S. food and agricultural products, including:  raisins; prunes; exotic juices (for retailand further processing); wine; wild rice; popcorn (especially microwave);prepared/canned foods (including private label); microwave foods; intermediateproducts for further processing (soy products, dried potato products, essentialoils/flavorings, etc.); livestock genetics; and planting seeds.

U.S. exporters are invited to learn more aboutsales opportunities to Russiaby writing USDA’s Agricultural Trade Office at atomoscow@usda.gov or byparticipating in the U.S.company pavilions at World Food Moscow in September 2005 or Ingredients Russiain November 2005.  For questions relatedto market access, agricultural policy, USDA’s reporting program, and technicalassistance, write USDA’s Agricultural Affairs Office in Moscow, agmoscow@usda.gov.  You may also contact USDA offices in St. Petersburg agstpetersburg@usda.gov and in Vladivostokagvladivostok@usda.gov.

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