Discount retailers continue their expansion in a Russia plagued by falling purchasing power, due to the lower ruble and economic strain for consumers. The effect has been compounded by the country's ban on fresh produce imports from sanctioning Western countries, and the fact other nations have been unable to adequately fill the gap in quantity and quality. At www.freshfruitportal.com we speak with RK Marketing and FruitNews.ru director Irina Koziy about recent comments regarding processing opportunities from the Kremlin, the gray trade, Moldovan apples and the importance of keeping trade relationships.

"In such difficult times there is a general advice to purchase the volume of the product that you really need immediately, piece by piece, consignment by consignment," Koziy says.

She highlights three main factors affecting the Russian market at the moment.

"They are the exchange rate, the import ban and of course the general economic downturn that is also visible in consumers' reactions to products, the types of fruits that they select, and the volume of fruit they purchase.

"It's not even just the more luxurious types of fruits that are disappearing from the shelves, but the middle cost products like unusual apple varieties, berries, or fruit that used to be consumed by the middle class."

She says the environment has been conducive for discount stores and challenging for larger supermarket chains.

"Of course the retail business in Russia keeps opening new stores, new locations, and it’s especially important for stores in the lower cost segment like Magnit, Pyaterochka or Dixi.

"Those chains have the highest potential for growth because consumers are trying to move down to cheaper products with lower margins.

"I would say that more upscale retailers, and supermarket chains for example, are experiencing some problems right now."

She says the ban meant apple shipments to Russia fell by 44% from August to December last year, reaching 250,000 metric tons (MT) compared to 450,000MT for the same period in 2013. In terms of total fruit imports in 2014, the figure dropped by 9.2% to 5.67 million MT.

"So almost half of the [apple] market disappeared. Of course fruit prices are high, the quality is very low, there are are very few varieties available on the store shelves, so it’s a significant issue from my point of view.

"The volumes are increasing from other countries but just not enough to supply to supply all the needs that Russian consumers.

"There is also a question of quality as the majority of the Russian retail chains and the majority of Russian consumers are more used to more European quality."

When asked about recommendations for fruit exporters to the Russian market, the expert has one main motto - keep your relationships.

"It's important to maintain relationships with the Russian partners because the economic and political difficulties will pass and the market will remain there; it’s an important market for the majority of its suppliers anyway.

"Of course it makes sense to be very cautious about the companies you are dealing with or the volume of shipments that you are making, or the credit terms that you are providing."

In terms of specific changes in the Russian produce import market, Koziy says there is some degree of relief from the recent re-opening for certain Moldovan apple shippers.

"It helps a little bit but the volumes are not that large from Moldova. I would really welcome some Polish apples in the market.

"However, Moldova is still the number two supplier with more than 10% of the imported apples’ market share in Russia so it makes sense. There is a list of the companies but for me any new supplier for the market in the current circumstances is a very positive sign."

The shady gray market trade

When it comes to other nearby countries, Koziy echoes the industry consensus that the gray trade has been happening, but it's important to clarify just which types of companies are taking part.

"With all those gray schemes it’s usually very small companies, or as we call them 'one-day companies' that are getting involved in that," Koziy says.

"Significant market players are trying to avoid any risks or shipping something illegally, because it’s important for them to keep their name, their brand, their reputation.

"We see it both on the Russian side and on the exporter side. Significant European exporters for example don't want to deal with those one-day companies from Belarus for example, when they see that the product is going to be transported to Russia."

She says gray trade control is an important issue, but it is easier said than done.

"At the same time it's hard to track every shipment. There's a huge volume, lots of shipments, lots of consignments, lots of paperwork."

Confusion over Kremlin's processed fruit import comments

Kremlin spokesperson Dmitry Peskov recently told local reporters the food import embargo may be loosened somewhat by opening up processing opportunities for fruit, however the wording has allowed for open-ended interpretation.

"It's very hard to say what it actually is because in the press we saw it as a very short quote that Mr. Petkov was saying, saying that Greek companies are going to provide Russian processors with their fruit. And if you read it word for word, the next part of it was that the processed product was supposed to be sent back to Greece...but I'm not sure why Greek suppliers would ever need that," she says.

"At the same time, if we look at it as them selling the processed product in Russia, this could be true because for example canned fruit are not prohibited for import to Russia under the ban; it’s a different H.S. code.

"But it doesn’t make sense to bring the product all those thousands of miles to Russia and process it here; there's going to be the cost of transportation and waste."

Koziy clarifies that Greek exporters contacted the Russian Government, requesting a reopening of the market for strawberries, peaches and oranges.

"The latter two are not that important. Strawberries are extremely important for Russia as Greek strawberries are at least one third of the Russian strawberry market, and the season is supposed to start in just a few weeks."

For Koziy, like most people in the sector, the situation is too unpredictable to speculate whether ban will remain in place after its indicated 12-month period expires in August.

"It's all the political side of it, and unfortunately I don't feel the situation or the problems are being solved at any end."

Room for growth

Thinking more long-term, Koziy believes there are still great opportunities to be had in the Russian produce market, both for international suppliers and the local industry.

"From what I see on the announcements, there are a lot of greenhouses that have been opened. It’s something that's been happening for the last few years. We'll see which of those projects were just announced and which will really take place, but it's a positive sign.

"If you look historically at the market and the production in Russia, it was increasing for the last decade – there were some drops depending on the climatic situation, but if we were to draw a line we would see an increase year-on-year.

"The volumes of the crop are increasing by a few percent every year, and we need 15 times more fruit in the market and approximately six times more vegetables than what Russia is currently growing, so there is still a huge potential both for internal growth and international suppliers.

www.freshfruitportal.com