Russia's food processing machine market.doc

1、Russias Food Processing Equipment Market SummaryThe food-processing sector is one of the leading industries in Russias rapidly growing economy averaging 15-20 percent growth per year for the past several years. In 2003 total industry output was valued at 34.9 billion. Increasing consumer demand for

2、new and better products a population of 143 million as well as rising incomes has greatly enhanced the development of the food industry. Market Highlights and Best Prospects The food processing industry in Russia started to develop rapidly as a result of the 1998 ruble devaluation. This is due to th

3、e fact that imported products became unaffordable for the majority of Russians which necessitated domestic food producers increasing the production capacity of their factories. This in turn spurred demand for high quality food processing equipment. Local producers of food processing equipment were u

4、nable to meet the increased demand. Furthermore the quality of domestic equipment still does not meet modern high-tech criteria but prices tends to be highly competitive. Rapid growth of the Russian food industry has stimulated investments into the food sector. Russian companies took advantage of th

5、e economic crisis and rapidly began to improve the quality of their products expand their production facilities and renovate production equipment. Growth of food consumption in Russia has further fueled investments into the local food processing industry. By the end of March 2004 the total amount of

6、 accumulated investments reached 57 billion a 32.6 percent increase compared to the same period in 2003. Global producers of food and beverages such as Coca-Cola PepsiCo Mars Krafts USA Nestle Sweden Danone France Campina Netherlands Ehrmann Germany and Sun Interbrew Belgium have established local p

7、roduction facilities. Such international corporations have leading positions in the beverages confectionery yogurts pet food and coffee and tea sectors. While the market continues to be dominated by foreign investors several Russian entrepreneurs have contributed significantly to the development of

8、the sector. Consolidation through mergers and acquisitions by both domestic and foreign business groups is accelerating in the Russian food-processing sector. The brewery industry experienced the first consolidations which were made several years ago. Currently this trend is noticeable in the confec

9、tionery dairy and juice segments. In the mid 90-s large vertically integrated holdings such as the Cherkizovsky meat-processing plant and Wimm-Bill-Dann juice and dairy producers focused on the development of their production facilities using their own raw material resources. Amajority of the domest

10、ic players in the market are small and medium-sized companies. While large domestic companies are dominating the juice meat processing and vodka distillation segments the bakery dairy and grocery segments of the market still have not consolidated. Major obstacles to consolidation in the industry are

11、 the countrys vast geography uneven density of the population as well as underdeveloped distribution channels. However the structure of the market has dramatically changed over the past ten years. Today nearly 35-40 percent of all products are produced in Moscow and St. Petersburg. In 2003 the numbe

12、r of businesses in the food-processing sector totaled 22085.Among major new trends and processes that affect the entire food processing sector and specifically food processing equipment are production of new types of food products introduction of new high-tech machinery technologies and techniques a

13、nd improvement in quality. Russian food processing companies are seeking a wide variety of equipment and materials for bakery meat milk oil products production hard liquor soft drink bottling and packaging fruit and vegetable drying canning and freezing restaurant and retail outlet equipment fast fo

14、od enterprises and storage facilities for food products both refrigerated and regular. Meat Processing Sub-Sector Market Profile The meat-processing sub-sector is the largest food processing industry in Russia. It is currently valued at approximately 4.7 billion. In 2003 the total food processing in

15、dustry was estimated at nearly USD 34.9 billion. Despite the fact that deterioration of equipment in the food processing industry is not as high as in other industries the meat-processing sector needs large investments. Though production of meat products is growing the number of new enterprises in t

16、his sector is lower than in other food processing sectors. Increasing market competition as well as the consumers growing quality awareness are reasons why the sector must modernize. The potential in this sector of the market is large due to the need to replace and modernize equipment. This is evide

17、nced by the fact that approximately 84 percent of meat processing equipment has been in service for more than ten years 14 percent for 10 to 20 years and 2 percent for over 20 years. Best Sales Prospects Awide variety of food processing equipment has potentially good sales prospects in Russia. Howev

18、er competition from domestic and European companies is intense. Market experts agree that it is difficult to determine which equipment is in highest demand. They do agree that companies are at various stages of modernization which implies that they are currently determining which equipment is needed

19、. Thus the potential for sales is virtually unlimited. For example currently a number of meat processors are upgrading their technological lines thus creating demand for such equipment. Nevertheless the following areas represent the best prospects for U.S. equipment suppliers at present: Slaughter H

20、ouse Equipment: All equipment but especially that for the processing of animal blood bones fat and other bi-products that are usually thrown away 20-30 percent loses during preliminary meat processing. Butchering and make-up machinery and shredders. Sausage Making Equipment: Machinery such as grinde

21、rs cutters mincers injectors heating and thermal equipment designed for processing over 10 tons of meat products per shift. U.S. companies tend top have an advantage in this area due to weak domestic competition. Vacuum Packaging Machinery: Vacuum packaging is progressively becoming the industry sta

22、ndard in Russia. Refrigeration Facilities: Plants with foreign investment are interested in creating modern storage facilities on site. Older central storage facilities need replacement or elimination. As modern retail stores and food service establishments become more prevalent the production lines

23、 and packaging for the following kinds of products are expected to be increasingly in demand. Avariety of meat products such as fresh meat cuts for supply to restaurants standardized pre-cut products for the food service industry fresh meat cuts packaged for retail sale as well as cured smoked canne

24、d or cooked products and delicatessen products. Semi-finished frozen meat products i.e. hamburgers pizzas TV dinners. Russian “pelmeni” meat ravioli and patties: Pelmeni shops are enjoying popularity and are being established at retail stores fast food restaurants and bakeries.Changes in the composi

25、tion of households are influencing consumer expenditure patterns and demand for high quality prepared foods and foods prepared outside the home are experiencing rapid growth. Import Market and Competition The meat processing equipment market in Russia is highly competitive. European companies are ag

26、gressively marketing their equipment among viable Russian meat processing plants. European equipment dominates the import market representing nearly 90 share. Major import markets are Germany Netherlands and Austria. In order to successfully market equipment U.S. manufacturers should be aware of how

27、 Russians tend to purchase equipment. Among key competitive factors that influence buying decisions for Russians are price reputation quality of equipment and machinery availability of financial sources and after sale service. Also it is advisable to aggressively market products and be able to provi

28、de engineering services. Further most meat processing equipment available on the market is under warranty from three to five years. Regarding marketing U.S. companies should have a representative office in Russia or work through Russian distributors. Marketing U.S. equipment from the U.S. is difficu

29、lt because most Russian buyers view several pieces of equipment from different manufacturers before making their final purchasing decision. Therefore it is important to have a company representative available to respond to questions. The company should also participate in domestic trade shows and ad

30、vertise in industry magazines. Such actions will help develop name brand recognition among Russian clients. Domestic production Although firms appear to strongly prefer imported equipment the market for domestically produced equipment is competitive. Russia produces limited meat processing equipment

31、 which is known for its simplicity and reliability. By value this equipment represents only 10-20 percent of the market. Currently small capacity equipment is highly competitive in the Russian market and only costs 20-30 percent to comparable imports. Domestic producers of such equipment offer readi

32、ly available parts and servicing. In addition the price for local machinery is ruble-denominated and is not subject to foreign currency exchange rate fluctuations that usually alter the final price of imported machinery. Though market experts report improvement of domestically produced meat processi

33、ng machinery Russian meat processing equipment manufacturers are not likely to make a breakthrough in production in the near future unless they can form joint ventures with foreign manufacturers. As mentioned earlier domestic manufacturers have insignificant shares in the market. However such factor

34、s as lower costs for domestic labor taxes raw materials and energy resources also contribute to the competitiveness of domestically assembled equipment. Among the most successful domestically produced products are vacuum mincers and small meat processing lines which produce 1.5-2.0 metric tons of me

35、at per shift. Such equipment is successfully exported to CIS countries. Domestic manufacturers also produce equipment for small and medium-size meat shops vacuum linking machines smoking units cutters smoke generators and ice generators. Several companies have produced their own-patented technologie

36、s. From 2002 to2004 Russias export of meat processing machinery totaled 4.5 million. Third Country Imports In the food processing equipment sector European suppliers dominate the market. European firms consistently capture almost 90 percent of the market. Germany Netherlands and Austria have been th

37、e consistent leaders averaging 32.5 percent 25percent and 16.5 percent respectively. Denmark Spain and Italy are also very active in the market. U.S. imports have been relatively small representing only 2.7 of all imports from 2002 to 2004. U.S. Market Position U.S. food processing equipment was ver

38、y prominent in the years following the opening of the Russian market. However at that time competition in the market was not intense. As stated above the U.S. share of Russias imports of food processing machinery is insignificant. Although U.S. suppliers are currently unable to capture large market

39、share in Russia the U.S.s highly sophisticated accurate and reliable equipment is in general well received in the Russian market. Market experts expect that U.S. suppliers of filling packaging cutting boning slaughtering clipping as well as freezing and cold storage equipment will increase their mar

40、ket share in next 2-3 years. Furthermore the market situation remains favorable for American goods due to a more attractive dollar/ruble exchange rate and it appears as though more Russian companies are showing interest in American products. Amajor difficulty for U.S. companies is the low level of A

41、merican representation in Russia. Few companies maintain offices in Russia and American companies have little or no presence at industry trade shows. The Commercial Service in Russia encourages U.S. companies to exhibit at domestic trade shows in order to obtain better recognition among industry pro

42、spects. Exhibiting at trade shows is an important aspect of marketing in Russia. Russians prefer to shop at the shows because they can learn from a variety of technical experts and company displays. It is important to note that different types of customer contacts are effective in Russia. For exampl

43、e while some Russian companies prefer to contact U.S. manufacturers directly in hopes of obtaining lower prices by eliminating middlemen and distributors others want to deal only with American companies which are represented in the Russian market have offices and warehouses and can provide designing

44、 before and after sales services. Both methods have advantages and disadvantages. A trade show can bridge the gap and provide foreign companies the opportunity to make direct contact with potential clients. This is evidenced by the high participation of European companies in Russian shows which is a

45、 major source of their success in the market. European companies tend to be more successful as they are more assertive and better represented in the market than American companies. Nearly 90 percent of all foreign companies participating in Russias trade shows are from Europe. Market Access Import C

46、limate The climate for importing meat-processing equipment to Russia is favorable. There are no quotas or limitations on such equipment. Meat processing equipment is subject to certification. However an equipment importer is responsible for customs clearance and certification procedures. Customs Mea

47、t processing equipment HS Code 8435.50.000 is subject to 5 percent customs duty and a Value added tax VAT of 18 percent is added to the contract value after the import duty is paid. Representative Offices and Distributors Distribution and business practices may vary widely but representation in Russ

48、ia is vital. Acompany can open an office here or market their equipment and machinery through a Russian distributor preferably with extensive experience good knowledge of the market and excellent relationships with established end-users. In this highly competitive market most Russian customers are e

49、xperienced in shopping at an open bazaar where products are available for immediate purchase. Only advanced companies would contact an equipment supplier outside of the country. It is also important to have Russian-speaking staff. A majority of Russian company representatives speak only Russian. Many European and Asian companies are able to communicate with potential clients in Russian. Key Contacts Ministry of Agriculture: http:/www.mcx.ruMinistry of Economic Development and Trade: http:/www.economy.gov.ruList of Annual Food Processing Equipment Trade Shows:Meat Industry