By RK Marketing/Fruitnews.ru general director Irina Koziy

On June 25, Russian President Vladimir Putin extended the Russian food import ban for another year. The list of banned products from the countries of the European Union, the USA, Canada, Australia and Norway includes all fresh and dried fruit, berries, nuts, pulses, mushrooms and vegetables, as well as meat, dairy and seafood.

The weakness of local production of fruit and vegetables, and a high dependence for this particular sector on imported products, has resulted in the most significant challenges and changes in the Russian fresh produce market. FruitNews estimates approximately 90% of all fruits and about 40% of all vegetables in the Russian retail market used to be imported. Before the first implementation of the ban on August 7, 2014, around one third of all imported fruit and vegetables were supplied from countries that are currently under the embargo.

Russian state authorities constantly inform that the food import ban helps Russian fresh produce growers as well as suppliers from the developing countries – BRICS and other - by leaving more opportunities in the market opened for them. But does the embargo really help fresh produce suppliers from such countries as Chile? This issue that looks so positive at first glance is actually much more complicated.

First of all, over the last 10 months (August 2014 – May 2015) the Russian fresh produce market was affected not only by the import ban, but also by the general downturn in the Russian economy and rapid changes in the Russian ruble's exchange rate against foreign currencies.

The first signs of the economic challenges affecting the fresh produce market became visible in November-December 2013, when the volume and especially the value of imported fruit started to decrease compared to the same period in the previous season. At that time, Russian consumers started to look for possibilities to spend less with cheaper fruit or substituting fruit with less expensive vegetables where possible.

Under pressure from the Russian economy's unsolved problems and recent antagonism between Russia and the Western world, major economic factors like income and confidence in the future have gone down significantly. As a result, consumption preferences have changed towards less expensive items, washing out fresh fruit and certain types of vegetables from the everyday diet of many Russian citizens.

At the same time, the decrease in the value of the Russian ruble - which currently costs 60% less against the U.S. dollar and 34% less against the euro than it did a year ago - has made the majority of imported fresh produce less affordable for Russian shoppers.

As a result, the substitution level for the banned fruit and vegetables has not been significant. In some categories volume has gone down by more than just the amount of produce that used to come in from the sanctioning countries.

Russia's total fruit imports from August last year to May 2015 decreased by 28% to only 3.86 million metric tons (MT), while vegetable imports dropped by 40% to 1.7 million MT, which means the total fresh produce market went down by nearly a quarter. Data from 2014 shows that imports from countries that weren't under the ban - such as Ecuador, China, Egypt, South Africa, Azerbaijan, Chile, Pakistan, Costa Rica, Iran, Israel, Uzbekistan and many others - also went down despite expectations for substitution.

Only countries like Turkey, Belarus and Serbia were able to demonstrate significant growth of their fruit sales to Russia. The opportunities for vegetables suppliers seemed wider in 2014, but this trend changed greatly in the first five months of this year.

The other issue is that European produce is still getting in the market, but through gray channels. As a result, companies that participate in the gray trade have been the most successful. So the volume by gray trade businesses is growing, while the ones that act according to the law have to decrease their business.

So, what should we expect from the Russian market in the next year? If none of the current trends will change, it is likely that the market will have to stay at a relatively small level. Of course, the Russian fresh produce market still provides certain opportunities for fruit and vegetable suppliers from countries that did not fall under the import ban. However, the current market need is not just to substitute the products that were banned for imports, but to substitute them with cheaper fruit and vegetables.

Thus, suppliers that can offer the most inexpensive fresh produce items are the ones that can win from the Russian import ban continuation, while the product quality is losing its importance as the purchasing decision factor.

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