Exporter Guide Annual 2011

An Expert's View about Agriculture and Animal Husbandry in Russia

Posted on: 30 Dec 2011

U.S. was the seventh largest supplier to Russia by value of agricultural, fish and forestry products.

THIS REPORT CONTAINS ASSESSMENTS OF COMMODITY AND TRADE ISSUES MADE BY USDA STAFF AND NOT NECESSARILY STATEMENTS OF OFFICIAL U.S. GOVERNMENT POLICY Required Report - public distribution Date: 12/16/2011 GAIN Report Number: RSATO1126 Russian Federation Exporter Guide Opportunities For Growth Approved By: Deanna Ayala, ATO Director Prepared By: Olga Kolchevnikova, Marketing Specialist With Alla Putiy, Oksana Lubentsova, Svetlana Ilyina, Marketing Specialists Report Highlights: The Russian economy has entered a “post-crisis” period of growth. Domestic demand, which collapsed in 2009, has nearly reached pre-crisis levels. In 2010 and so far in 2011 (Jan-Sept), the U.S. was the seventh largest supplier to Russia by value of agricultural, fish and forestry products. In 2010, the consumer oriented sector, including red meats, poultry, fruit, tree nuts, etc., accounted for 64 percent of total agricultural imports from the United States, worth more than $1 billion according to Russian customs statistics. That number is on track to be surpassed in 2011 as imports of U.S. consumer ready products are up 56 percent year-on-year for the Jan-Sep period. However, third country suppliers continue to be competitive in Russia. Market opportunities for U.S. products include red meats, poultry, fish and seafood products, tree nuts, fresh and dried fruits, food preparations/ingredients and pet foods. Post: Moscow ATO Note: The Exporter Guide is scheduled to be updated in Spring 2012, at which time readers will find full 2011 year data Author Defined: SECTION I. MARKET OVERVIEW Russia is one of the fastest growing economies in Europe with approximately 142 million consumers who have developed a strong appetite for quality, Western food products in recent years. Rising incomes and a growing middle class have particularly fueled demand for packaged food, as well as more casual dining options in the foodservice industry. These trends ultimately present great opportunities for U.S. food and beverage exporters looking to enter the large and increasingly advantageous Russian marketplace. In 2011, the Russian economy neared its pre-crisis level. Gross domestic product (GDP) has virtually reached pre-crisis levels. GDP for the 3rd Quarter of 2011 is estimated at RUB 10,405.2 bn vs. RUB10,459.5 bn in 3Q08 (at constant -2008- prices, seasonally adjusted, source: Rosstat), and the last quarter will likely be stronger than three years ago. This follows from 4 percent growth in 2010, a considerable change from its negative 7.9 percent rate in 2009. Real growth was 4.8 percent year-on- year in 3Q11, and 4.3 percent in the first nine months of 2011. The full year forecast is around 4.5 percent. The main economic drivers have been slightly higher than expected oil prices and healthy domestic demand. Reflecting more gradual recovery of domestic demand, retail and wholesale trade sales grew by 17.8 percent in 2010. The Russian government continues to focus on fundamental changes in the country’s economic structure over the long term. Their goal is to reduce dependence on the energy sector. Currently, the economy remains heavily dependent on oil and natural gas exports, which account for two-thirds of export revenues. European Russia, geographically west of the Urals, hosts over 75 percent of the total population (142 million people). 74 percent of Russians in 2010 lived in urban areas and over 11 percent of the total population lived in either Moscow (11.5 million people) or St. Petersburg (4.8 million people). There are ten cities in Russia (Novosibirsk, Yekaterinburg, Nizhniy Novgorod, Samara, Omsk, Kazan, Chelyabinsk, Rostov-on-Don, Ufa, Volgograd) with a population of more than one million people. These Russian metropolitan areas also represent the largest retail and HRI markets in the country. According to Rosstat, in 2010 the real disposable income of the Russian population increased by 10.2 percent, compared to the corresponding period in 2009. Despite this improvement, the average monthly salary remained low at US$693 (RUB 21,123). The minimum monthly wage stood at US$142 (RUB 4,330). The rate of unemployment in Russia decreased by one percent in 2010 to reach 7.2 percent, according to Rosstat. However, labor productivity has remained low due to obsolete manufacturing and management practices and poor infrastructure, as well as limited opportunities for continued qualification and re-qualification. Personal income tax is set at a flat rate of 13 percent for residents (for individuals spending at least 183 days in a given tax year in Russia) and 30 percent for non-residents. The number of Russians living below the official poverty line is still high at 18.5 million but fell significantly during the period of high oil prices. Although the middle-class has grown substantially, the number is still matched by those living in poverty. (Also please see Appendix Statistics, Table A). Note: The Exporter Guide is scheduled to be updated in Spring 2012, at which time readers will find full 2011 year data Table 1. Russia – Economic Activity 2005 2006 2007 2008 2009 2010 Nominal GDP, billion rubles 21,609.80 26,917.20 33,247.50 41,428.60 39,100.70 44,939.20 Nominal GDP, billion dollars 753 1,022.30 1,354.30 1,410.00 1,293.00 1,474.38 Real GDP growth, % change y-o-y 6.4 8.2 8.5 5.2 -7.9 4.0 GDP per capita, US$ 5,182 6,710 8,813 11,304 8,682 10,315 Population, millions 143.2 142.5 142.1 142 141.9 141.9 Unemployment, % 7.1 6.7 5.7 7 8.2 7.2 Inflation, % 10.9 9 11.9 13.3 8.8 8.8 Source: Federal State Statistics Service, most recently CY data Although the Ruble is recovering and expected to continue, it is still weak against the Dollar and Euro compared to pre-crisis exchange rates and imported food prices have risen respectively. Figure 1 and 2 below show the exchange rate of U.S. Dollar to Russian Ruble in 2010-2011. Figure 1. Russia’s Central Bank’s exchange rate of $1 USD to Ruble from January 2010 to December 2010 Source: The Central Bank of the Russian Federation Note: The Exporter Guide is scheduled to be updated in Spring 2012, at which time readers will find full 2011 year data Figure 2. Russia’s Central Bank’s exchange rate of $1 USD to Ruble from January 2011 to November 2011 Source: The Central Bank of the Russian Federation Consumer price inflation is likely to reach around 6.2 percent in 2011 (down from 8.8 percent in 2010). Experts estimate that the inflation rate in the first half of 2012 might be lower than the inflation rate during the same period in 2011, due in part to a postponement in increases in regulated rates for public utilities. Russia's consumer markets are vast and still fairly undeveloped compared to Western markets, creating numerous opportunities for investors, despite the low disposable incomes and the concentration of wealth in major cities. In the past 15 years, investors in Russia’s consumer markets focused almost exclusively on Moscow and St. Petersburg, as the two cities offered a very high concentration of well- off consumers, while the rest of the country was relatively poor. However, as consumer markets in Moscow and St. Petersburg have become increasingly competitive and the population in other important cities, such as Yekaterinburg and Nizhniy Novgorod, has also experienced a notable increase in disposable incomes, more investors are looking into opportunities for investment outside the two main cities. Consumer spending on food has steadily increased from 2006 through 2011 by 114 percent with an annual growth rate of 17 percent. Approximately 31 percent of consumer expenditure in 2011 was allocated to the purchase of food and non-alcoholic beverages, totaling about $280 billion. Figure 3 shows Russian consumers’ expenditures by sector in 2011. Note: The Exporter Guide is scheduled to be updated in Spring 2012, at which time readers will find full 2011 year data Figure 3. Russia. Consumer Expenditure by Sector in 20111, % Source: Euromonitor International As a result of economic recovery in 2010 imports of agricultural products to Russia increased by 19 percent compared to 2009 and totaled $30.6 billion, according to Rosstat. In total, Russia’s imports have grown 130 percent since 2005, and demand for imports has not yet reached pre-crisis level. This indicates an opportunity for future growth, suggesting U.S. exporters can benefit from further increasing Russian import demand. Russia’s WTO accession in 2012 will also provide some additional opportunities for U.S. exports which will be clearer as details of the accession package are revealed. Table 2. Import of Agricultural, Fish and Forestry Products to Russia, 2007-2011 2007 2008 2009 2010 20112 Agricultural Imports, billion dollars 23.7 30.6 25.7 30.6 29.8 Growth Year on Year, % 26.1 29.1 -16.0 19.01 - 5-Year Average Annual Growth Rate, % 16.88 - Source: Global Trade Atlas Table 3. The U.S. – Russia Bilateral Trade, 2010 Russian Total Trade $559.9 billion Exports $336.5 billion Imports $211.4 billion Trade Balance $137.1 billion The U.S.-Russia Trade $21.6 billion Exports from Russia to U.S. $10.9 billion Imports to Russia from U.S. $10.7 billion Trade Balance $0.2 billion 1 Estimation based on January – November 2011 data 2 January – September, 2011 data Note: The Exporter Guide is scheduled to be updated in Spring 2012, at which time readers will find full 2011 year data The U.S.-Russia Ag. Trade* $1.51 billion Exports from Russia $0.16 billion Imports to Russia $1.35 billion Trade Balance $1.19 billion Source: Global Trade Atlas *Note: Agricultural, Fish and Forestry Products Russia is among the top export destinations for U.S. agricultural products. Based on U.S. official export data, the U.S. share of agricultural, fish and forestry products in 2010 exceeded $1.22 billion. In 2011, exports are on track to surpass that figure considering Jan-Oct data shows exports up by 26 percent. Note: these figures are understated due to transshipments via Europe. According to Russian customs statistics U.S. agricultural imports in 2010 accounted for $1.35 billion – a figure that is up by 47 percent so far in 2011 (Jan-Sep). The U.S. remains the seventh largest supplier to Russia (by value of agricultural, fish and forestry products) with approximately 4 percent of Russia’s agricultural imports behind Brazil, China, Germany and others (please see Appendix Statistics, Table C). The U.S.’s top agricultural exports to Russia in 2011 include red meat, poultry, food preparations especially dairy products, nuts (almonds and pistachios), prunes, fresh fruit, fish and seafood, and other products. Total U.S. - Russia agricultural trade, approximately $1.5 billion, represents about 7 percent of total trade between the two countries. Figure 4. Value of U.S. Exports of Agricultural, Fish & Forestry Products to the Russian Federation (in millions of dollars), 2006-2011 Source: Global Trade Atlas. Note: These figures are based on U.S. Customs export data, and will differ from Global Trade Atlas data on Russian imports from the U.S., which are based on Russian Customs import data U.S. suppliers have actively explored the Russian market. The Russian chapter of the American Chamber of Commerce includes more than 850 members successfully operating in Russia. Between them are such American companies as Kraft, Mars, DuPont, Wrigley, Cargill, PepsiCo and many others. Note: The Exporter Guide is scheduled to be updated in Spring 2012, at which time readers will find full 2011 year data Despite the success of U.S. businesses operating in Russia, competition is increasing for Russian consumers. For many staple products, domestic production meets demand. Imported food and agricultural products have difficulty competing with domestic products due to the high cost of foreign exchange, high import duties and/or difficult regulatory framework and generally efficient production of unsophisticated food products. Imports add to the variety of foods available on the market and also include products that are either not grown in the country or for which domestic production is insufficient to meet domestic demand. In addition, economic vulnerabilities and existing trade barriers (particularly non-tariff measures) can affect trade flows. Exporters should review some of the advantages and challenges of the Russian market (please see Table 4 below) when considering their marketing strategy. Table 4. Russia: Advantages and Challenges for U.S. Exporters Advantages Challenges Population of 141.9 million people who are potential The relatively low purchasing power of consumers. The U.S. is the seventh largest importer many Russian consumers, particularly in the in Russia (by value) of food and agricultural regions and the consequent reduction in products. demand for durable goods, premium grocery, and non-grocery goods. Russia’s retail sector began to stabilize in 2010, Economic vulnerability, dependence on oil which creates a number of opportunities for and mineral extraction for most wealth. prospective U.S. exporters. The ongoing Substitution of imports for domestic development of the mass grocery retail industry will products due to consequences of the crisis allow producers to route products to the market and Russian Government policy of self- more efficiently. sufficiency. Distance is one if the major barriers complicating logistics for the retail chains. In general retailers are open to new products in order Strong competition with suppliers of similar to attract customers. products from Russia and European Union. Significant number of consumers can afford Per capita spending in the regions outside purchasing high-quality food products. Moscow and St. Petersburg remains quite low. Urban lifestyle changes increase demand for semi- Rapid development of local manufacturers finished and ready-to-cook products. of ready-to-cook products creates tough competition for similar imported goods. American-made food and drinks are still new for the Growing number of domestically produced majority of the population, and popular among the products; lack of knowledge of American younger generation. products. Existence of large importers experienced in Language remains an obvious barrier for importing food products to Russia. many entrepreneurs from both small and large companies. Despite improvements in English language competency of many Russians it’s still to be expected that many firms will not communicate effectively in English. Note: The Exporter Guide is scheduled to be updated in Spring 2012, at which time readers will find full 2011 year data Paying in dollars is advantageous for exporting to Russian government bureaucracy and Russia compared to Europe due to the lower cost of corruption. Contradictory and overlapping the dollar relative to the euro. regulations. Official government opposition to growth in food imports. Russian trade and investment policy is converging Current presence of non-tariff barriers such with international standards. as unscientific sanitary and phytosanitary restrictions. Investors are building more efficient storage Despite huge potential, regional markets facilities, improve infrastructure and logistics. require substantial upfront investment in infrastructure and facilities, and transportation infrastructure between cities and regions remains extremely poor. The Russian government has committed to spending Lack of reform in the Russian agricultural billions on infrastructure over the next 10 years, sector has led to high raw-material costs and particularly on railroads and highways, which should shortages for processors. translate to better logistics for expanding retailers. Russia’s accession to the WTO is expected by mid- Russia’s accession to WTO was postponed 2012. Russia will be obligated to bind its several times. Competition with food agricultural tariffs, adding more predictability to the products imported from EU and other trading relationship and opening export countries may rise. opportunities for the U.S. agricultural industry. WTO membership will also require Russia to abide by science-based sanitary and phytosanitary standards that will help facilitate U.S. farmers’ access to the market. Russia’s proposed accession to World Trade Organization (WTO) is expected to create changes that will provide more obtainable access for foreign companies to the market as well as much healthier competitive environment domestically. Through commitment to WTO rules and norms, the investment in and expansion into the Russian market will become more predictable thus reducing the “risk cost” of the entry ticket onto the market. Russia’s accession is expected to take place in 2012. SECTION II. EXPORTER BUSINESS TIPS General Consumer Tastes and Preferences As Russian consumers’ incomes rise and the country’s middle-class gradually expands, demand for better quality food is increasing. There are two distinct trends in Russia in terms of spending on food: a trend towards health-conscious eating and a trend towards convenience foods. Healthy meals are becoming increasingly popular, particularly among younger consumers who are more conscious of their fitness and appearance and more aware of the risks of heart disease and similar diet- related illnesses. Thus, spending on foods such as yoghurt, muesli and low-fat alternatives has grown faster than the overall food category. Overall spending on fish, seafood, poultry products and fresh produce is also increasing. Per capita consumption of fresh fruit and vegetables (with the exception of apples and grapes whose consumption was already relatively high) has risen considerably, largely due to Note: The Exporter Guide is scheduled to be updated in Spring 2012, at which time readers will find full 2011 year data greater availability of such products, as well as public campaigns promoting the benefits of a healthier lifestyle. Russian consumers also generally dislike artificial flavors and additives, and prefer to purchase products with natural colors, flavors and other natural ingredients. Non-GMO products are also becoming more important for the Russian consumer, although understanding of agricultural biotechnology is extremely low. At the same time, Russian consumers are increasingly time-poor and, as a result, they are demanding more convenience products, frozen processed food and ready-to-eat meals. Time dedicated to traditional food preparation and dining at home with family is commonly shifting to consumption of prepared meals or those at restaurants. In most Russian households, women have the responsibility for grocery shopping. Generally, long- lasting foodstuffs such as rice, pasta, coffee and tea are bought in large quantities a couple of times a month, while fresh products are bought on a daily basis, usually on the way home from work. When shopping for food, most Russian consumers are looking in three directions. First, they are giving preference to well known brands, rather than experimenting with the new ones. According to “GfK Russia” research, about 40 percent of Russian customers in a store first of all pay attention to their favorite brands’ offers. And about 70 percent believe that branded products are of better quality than others. Therefore they prefer quality brands which offer value-for-money. Secondly, Russian customers are very exposed to various discounts, promotions and sell-offs and as a result don’t like to pay full price when they know they can find a bargain. And thirdly, consumers are looking for brighter and more unusual goods. They are open-minded to brands which are novel, provided that the story around them is modern and attractive. This is good opportunity for a wide range of U.S. packaged products. Packaged Food Sales Russia’s packaged food market is amongst the fastest growing in the world reaching the $100 billion by some estimates. In 2011 the market was boosted by steady growth in almost all categories of packaged food. Sales in this sector are expected to increase 16 percent in 2011 supported by rising incomes as well as the availability of imported products on the market. The economic downturn prompted manufacturers to introduce more packaging varieties to the Russian market. Alongside multi-portion packaging, single portion packaging has been offered by manufacturers of frozen processed food and dried processed food. To target a wider audience and to offer value for money, frozen processed food manufacturers increasingly offer frozen processed meat and poultry products both in simple plastic packaging to target the low-end segment, and in colorful carton and plastic packaging under brand names for upper- and middle-class consumers. To increase family consumption companies also offer big family packs. Note: The Exporter Guide is scheduled to be updated in Spring 2012, at which time readers will find full 2011 year data Figure 5. Packaged Food Sales through Retail Stores in Russia (2009/2010 % growth, $US millions in y-o-y exchange rate) Source: Euromonitor International Figure 6. Drink & Beverages Sales through Retail Stores in Russia (2009/2010 % growth, $US millions in y-o-y exchange rate) Source: Euromonitor International Note: The Exporter Guide is scheduled to be updated in Spring 2012, at which time readers will find full 2011 year data * Note: RTD - ready-to-drink Table 5 below shows retail value sales of packaged food in 2007-2011. Table 5. Packaged Food Sales through Retail Stores in Russia, 2007-2011*, $US millions 2010/2011 % 2007 2008 2009 2010 2011* Growth* Packaged Food 62,127 74,625 65,313 75,515 87,408 15.7 Baby Food 1,028 1,415 1,349 1,675 2,128 27.0 Bakery 10,097 11,578 9,791 10,762 11,830 9.9 Canned/Preserved Food 3,631 4,384 3,793 4,379 5,021 14.7 Chilled Processed Food 4,659 5,417 4,873 5,552 6,343 14.2 Confectionery 8,783 10,305 8,861 10,195 11,765 15.4 Dairy 12,545 15,724 14,629 17,766 21,155 19.1 Dried Processed Food 2,463 3,127 2,833 3,161 3,544 12.1 Frozen Processed Food 5,514 6,574 5,722 6,680 7,940 18.9 Ice Cream 1,775 1,998 1,767 2,132 2,478 16.2 Noodles 468 555 503 557 616 10.5 Oils and Fats 4,668 5,867 4,757 5,331 6,202 16.3 Pasta 955 1,313 1,211 1,422 1,615 13.6 Ready Meals 3,243 3,740 3,250 3,726 4,373 17.4 Sauces, Dressings and Condiments 3,422 4,082 3,508 4,002 4,612 15.3 Snack Bars 8 10 9 11 14 26.9 Soup 382 462 414 506 624 23.2 Spreads 351 419 370 442 528 19.5 Sweet and Savory Snacks 3,146 3,683 3,018 3,396 3,820 12.5 Source: Euromonitor International * 2011 is forecast Starting Business with Russia The World Bank's Ease of Doing Business 2011 report ranked Russia 123th out of 183 countries, a small drop compared to the 2010 ranking of 120th. However, the conditions for starting a business have deteriorated significantly since 2009 when Russia ranked 88th out of 183 countries. This is due to the lack of reform in terms of the time and number of procedures required for setting up a business in the country. While many countries have simplified and streamlined the process, it takes 9.0 procedures and 30.0 days in Russia to open a business. This compares unfavorably to an OECD (Organization for Economic Co-operation and Development) average of 5.7 procedures and 13.0 days. However, the cost of starting a business in Russia is low: only 2.7 percent of per capita income, compared to an average of 8.3 percent of per capita income in the Eastern Europe and Central Asia region. The best entry strategy for new exporters depends on several factors, including: the target market, economic conditions, and host country regulatory environment as it relates to the products in question. Exporters can request a brief market assessment for their products and/or a list of Russian importers from ATO Moscow, St. Petersburg and Vladivostok. Additionally, ATO Moscow offers the following Note: The Exporter Guide is scheduled to be updated in Spring 2012, at which time readers will find full 2011 year data recommendations to help exporters select the best approach for their firm: A prospective entrant is advised to estimate market prospects for their product with respect to consumer preferences and incomes, local competition and sales channels (marketing research from a specialized consulting firm may be required). Establish a Representative Office: One of the best ways exporters can conduct business in Russia is to open a representative office. Depending on the product and target market, an office might be situated in Moscow, a city that hosts a large concentration of retailers and representative offices; St. Petersburg, the port city through which the largest volume of sea-borne freight passes; or Vladivostok, the principal transpacific gateway to the Russian Far East. Work with a Russian Importer: Selecting the right trade partner is one of the most important decisions for exporters developing their business in Russia. Working with a local partner in Russia significantly expands business opportunities, and minimizes the need for exporters to establish direct contact with multiple retail chains. A local Russian partner familiar with market conditions and the regulatory environment can help exporters navigate the Russian retail market, resolve issues, and increase the likelihood of success. In order to make the first delivery, usually a large local import company is chosen. The company should have a good reputation and experience in customs clearance, and must have storage facilities and a developed distribution network. Make sure the company has experience working with Western suppliers and has experience in arranging regular supplies of food products. Western companies that strive to supply directly, circumventing Russian middle men, often sustain losses due to lack of local market knowledge. A large domestic import company is usually bettered adjusted to local conditions, with established trade ties and contacts in state structures. Exporters representing U.S. companies may contact the Moscow ATO for assistance in locating importers. Performing due diligence is critically important, such as verifying banking and supplier references of potential importers, and local and U.S.-based organizations in Russia can provide helpful information to exporters. However, credit reporting is a relatively new practice in Russia, and credit-reporting agencies may not have complete information on potential Russian business partners. Retail chains may be another valuable source for exporters collecting information on importers. Provide Sales Support: Exporters must help market the products they sell in Russia. Russian importers and wholesalers expect exporters to participate in the sales process, either by providing event marketing support, advertising assistance, training, packaging/handling advice, or point of sales materials. Attend Promotional Events: One of the main challenges to exporters entering the Russian market is product promotion. A cost-effective way exporters can promote their products is to participate in one of the largest general food and beverage trade shows in Russia, World Food Moscow, held annually in September. If exporters are targeting specific regions within Russia, the Moscow ATO recommends participating in regional exhibitions. Participation fees for Note: The Exporter Guide is scheduled to be updated in Spring 2012, at which time readers will find full 2011 year data regional exhibitions are lower, and are aimed at local consumers and retail food chains. The Russian retail market is competitive; exporters should allocate time to visit Russia and earmark funds in their sales plans for promotional support. Trade Shows in Russia Participation in one of several established trade shows in Russia allows exporters to take a first-hand look at the local market, to meet potential importers, and to gauge the competitiveness of their products compared to similar products promoted at the show. World Food Moscow Moscow, Expocentre September 17-20, 2012 www.world-food.ru/eng World Food Moscow is a USDA-supported show, and is essentially the “main event” for U.S. exporters interested in market opportunities in Russia. ATO Moscow and the Office of Trade Programs (in Washington) organize American pavilions in the grocery, fruit, and seafood sections offering “turn-key” service. USDA industry Cooperators typically organize a pavilion in the meat hall. In 2011, this 4-day show drew 1,420 exhibitors from 64 countries and attracted more than 26,000 importers, wholesalers, retailers, and processors from all parts of Russia and from many neighboring countries. PIR Hospitality Industry Moscow, Crocus Expo Center September 25-28, 2012 http://www.pir.ru/ The PIR Hospitality Industry exhibition is the leading show for the hotel, restaurant, and industrial catering sector (HRI) and is affiliated with the Restaurateurs and Hoteliers Federation of Russia. In 2011, more than 600 exhibitors from 24 countries participated in the PIR show. The PIR show attracted approximately 40,000 visitors from the Russian hospitality industry including: 51 percent - restaurants, cafes; 24 percent - trade companies, distributors, producers; 11 percent - hotels; 6 percent - catering; 4 percent - mass media, regional government, educational centers; 1 percent - others. Ingredients Russia Moscow, All-Russian Exhibition Centre (VVC) March 13-16, 2012 http://www.ingred.ru/ Ingredients Russia is a specialized trade show for suppliers and buyers of ingredients worldwide. In 2011, more than 300 companies and organizations from 25 countries exhibited at the show. More than 10,000 specialists visited the show last year searching for new contacts and different kinds of ingredients for food processing (e.g. confectionery, meat, fish, dairy, etc.). Golden Autumn Moscow, All-Russian Exhibition Center (VVC) Note: The Exporter Guide is scheduled to be updated in Spring 2012, at which time readers will find full 2011 year data October, 2012 www.goldenautumn.ru The Golden Autumn trade show is organized by the Russian Ministry of Agriculture, and is the largest Russian trade show for production agriculture. In 2011, more than 2,500 companies and organizations from 58 Russian regions and 32 foreign countries exhibited at the show. Golden Autumn occupied over 90,000 meters of space, including open grounds, displaying over 700 items of agricultural equipment, both Russian and foreign. More than 100,000 visitors attended the event, most of who are involved in farming and livestock production, food processing, agri-business, research, or business financing. At this annual trade show, the USDA pavilion displays animal and plant genetics, high-grade feeds, animal nutrients, and feed additives. Prodexpo Moscow, Expocentre February 13-17, 2012 http://prod-expo.ru/en/ Prodexpo is Moscow’s largest international trade show highlighting foodstuffs manufactured in Russia and Eastern Europe. In 2011, Prodexpo hosted more than 2,000 exhibitors from 55 countries and attracted 51,123 visitors. Logistics and Transportation Imported products arrive in Russia via land, sea, or air freight into ports or customs warehouses for clearance before proceeding to the next destination. The transportation system for shipping U.S. high value food products into Russia via St. Petersburg and Moscow is well established. Most consumer- oriented food and beverage products including those from the U.S. enter through St. Petersburg or Moscow for customs clearance. Most American products are delivered to the Russian Federation in containers by sea and around 90 percent enter via the Port in St. Petersburg. MAERSK LINE, APL, OOCL, Hapag Lloyd, Evergreen, CMA-CGM shipping lines deliver cargos from the United States to Rotterdam, Hamburg, or Bremerhaven in Northern Europe. The transatlantic shipment can take from 17 to 30 days depending of the departure port and number of ports the vessel calling on the way to Europe. In Northern European ports, the containers are reloaded onto feeder vessels and travel an additional five days to St. Petersburg. It then takes an additional four days shipping time for final delivery by rail or truck to Moscow. Outside of Russia, imports are also delivered to Baltic ports and then shipped by truck or rail to St. Petersburg or Moscow. Baltic and Finnish ports had offered greater efficiency, fewer problems with loss or damage, and lower port fees. However, changes in Russian import requirements have largely redirected these shipments to Russian ports: St. Petersburg, Ust-Luga, Vysotsk, Kronshtadt, Novorossiysk and Vladivostok. The cleared products are then shipped further into the interior via truck or rail to Moscow, Yekaterinburg, Novosibirsk, Rostov-on-Don, Kazan, Samara, Ufa, and other major population centers in Russia, the main markets for the high end products. Note: The Exporter Guide is scheduled to be updated in Spring 2012, at which time readers will find full 2011 year data Products destined for the Russian Far East (RFE) enter through the ports of Vladivostok, Vostochnyy, Vanino, Nakhodka and Magadan. Although Vostochnyy is the region’s largest port by volume, the majority of U.S. food exports to the RFE enter through Vladivostok. Currently several forwarders make shipments from the U.S. west coast to Vladivostok: Hyundai Merchant Marine, MAERSK LINE, APL, and Hapac Loyd. Average transit time from the U.S. west coast to Vladivostok takes 18 days: ocean vessels bring containerized goods to the Korean Port of Pusan (it takes 9 to 13 days), then, feeders transfer them to the Port of Vladivostok (it takes 4 to 7 days). MAERSK LINE has the longer transit time, because it goes though Japan first, then delivers goods to Korea (Pusan). In 2008, FESCO launched a direct line from Everett, Washington to RFE ports (Vladivostok, Korsakov, Petropavlovsk, and Magadan). Direct voyages are scheduled approximately once per month and the average transit time is 14 days. From Vladivostok food products are shipped to the other cities in the RFE and Siberia by truck or rail. Distribution Channels Imported food products for Russian retail chains and food service establishments come through importers, distributors, and wholesalers. Large suppliers are typically also importers. Figure 7. Russia: Distribution channel for food retail chains, import of transatlantic products via the Port of Greater St. Petersburg Note: The Exporter Guide is scheduled to be updated in Spring 2012, at which time readers will find full 2011 year data Figure 8. Russia: Distribution channel for food retail chains, delivery from U.S. to the Russian Far East Most hotels and restaurants choose to purchase the majority of products through food service importers/distributors in the hotel, restaurant, and industrial (HRI) sector, both large and small. Credit and Payment Terms The Russian banking system continues to make strides towards complying with international standards, and many banks that are authorized to open foreign currency accounts also have general licenses enabling them to undertake a full range of foreign currency transactions. Many of these banks have correspondent banks in the United States. Further, several American and foreign banks such as Citibank, Raffeissenbank, Societe Generale, and Credit Suisse are licensed to operate in Russia. Securing credit can be costly, however, and there can be obstacles to securing credit in Russia if the company is 100 percent foreign-owned. Russian bank fees are often high, and it can take much longer to open letters of credit or transfer funds than is common in the United States. Prospective borrowers should expect Russian banks to request a package of documents, including a balance sheet showing profits for the last three quarters and proof of assets to mitigate the bank’s risk. Interest rates on credit became lower in 2011 after a significant rise in 2009-2010 (up to 13.9 percent) making credit more available for Russian businesses. Table 6. Average Interest Rates on credits to non-financial institutions in 2011, % Jan. Feb. Mar. Apr. May June July Aug. Sent. Oct. Interest Rates on Ruble- denominated Credit to Nonf 8.6 8.7 8.7 8.3 8.0 8.6 7.9 7.9 8.0 8.6 inancial Institutions up to One Year Source: Central Bank of Russian Federation Regarding payment terms, Russian importers may not be accustomed to making a 100 percent pre- payment prior to shipment. As the business relationship develops, Russian importers may eventually Note: The Exporter Guide is scheduled to be updated in Spring 2012, at which time readers will find full 2011 year data expect exporters to ship on credit, with payment due upon arrival in the Russian port. The importer may alternatively make a pre-payment and pay the balance when the product arrives to the importer’s storage facility. In established business relationships, bank transfers are sometimes made on the basis of payment–on- delivery, or payment after an agreed number of days. A letter of credit (LC) may be used when required by the foreign supplier, but Russian importers consider LCs expensive and difficult to arrange. Document Collections work relatively well at ports, and importers are accustomed to these procedures. Nevertheless, until exporters and importers build relationships and reach a level of trust, exporters may find letters of credit worthwhile. The GSM credit guarantee program offered through the United States Department of Agriculture (USDA) provides credit guarantees to encourage financing of commercial exports of U.S. agricultural products. The GSM Credit Guarantee allocation for Russia for FY 2012 (October 2011 – September 2012) is $100 million. The GSM-102 program is in great demand due to the extremely difficult financial environment and lack of financing available commercially in Russia. GSM-102 reduces risk to the U.S. exporter’s bank and facilitates shipments of U.S. commodities to markets that may not be able to import these same products without the guarantee offered by the Commodities Credit Corporation. The list of approved participating foreign banks in the GSM-102 program is available at FAS web-site: http://www.fas.usda.gov/excredits/foreignbanks.html#RUSSIA. The list is regularly updated upon the review of incoming financial information and applications from banks that desire to participate in the GSM-102. For further information on these programs, please visit the FAS website: http://www.fas.usda.gov/excredits/ecgp.asp). Food Standards and Regulations Russia has complex food import regulations. Exporters should carefully question importers regarding certification and documentation requirements, as well as procedures for clearance of shipments into the Russian Federation. Upon WTO accession many of the rules and regulations governing food and beverage imports will change so please continue to check the FAS website for updates. In February 2010, compulsory certification for food products and cosmetics was cancelled. The Government of the Russian Federation (GOR) now requires only a declaration of conformity with the product safety regulations, instead of an obligatory certificate. At the same time, the authorities are planning to impose heavy fines on the manufacturers of unsafe products. Sanitary norms and technical regulations were not cancelled and continue to regulate the production process. For more detailed information on certification, customs procedures, documentation, tariffs and labeling requirements please see the following GAIN reports: 1) The newly updated FAS Moscow Gain report, “2011 Food and Agricultural Import Regulations and Standards (FAIRS)” report will be available on the FAS website at the end of 2011; the search engine can be found at http://www.fas.usda.gov/scriptsw/AttacheRep/default.asp. 2) RS1015 Declaration of Conformity Replaces Certification for Many Products http://gain.fas.usda.gov/Recent%20GAIN%20Publications/Declaration%20of%20Confor mity%20Replaces%20Certification%20for%20Many%20Products_Moscow_Russian%2 Note: The Exporter Guide is scheduled to be updated in Spring 2012, at which time readers will find full 2011 year data 0Federation_3-22-2010.pdf On 1 January 2010, Russia, Belarus and Kazakhstan launched a Customs Union, which has since included the introduction of new rules and regulations for food products exported to the Union. The unification of sanitary norms and technical regulations is ongoing, and significant reforms may last for another year. At the same time, the Union provides greater access to the markets of the participating states and simplifies the distribution of packaged food within the Union but for the following exception: U.S. animal products exported to Kazakhstan and accompanied by health certificates will not be allowed for consumption in Russia or Belarus. Please see the related reports for further information on the Customs Union: 1) RS1036 Customs Union Update: http://gain.fas.usda.gov/Recent%20GAIN%20Publications/Custom%20Union%20Update %20July%202010_Moscow_Russian%20Federation_7-26-2010.pdf 2) RS21152 Customs Union Publishes SPS Measures for Public Comment: http://gain.fas.usda.gov/Recent%20GAIN%20Publications/Customs%20Union %20Publishes%20SPS%20Measures%20for%20Public%20Comment_Moscow_ Russian%20Federation_11-23-2011.pdf Pricing Retail prices in Russia can vary significantly; however pricing has become more competitive as large retail chains increase their aggregate market share. On the regulatory side, exporters should consider the effect of the Russian tax regime when making pricing and margin decisions. Again, please continue to monitor GOR tariffs and other duties as WTO accession moves forward. Some of the taxes assessed include: import duties are applied to most goods and typically range from 5 to 20 percent of products’ customs values. However, some agricultural products are subject to specific tariffs that are calculated by volume, weight or quantity. Excise taxes, depending on the commodity exported, apply to goods such as alcohol and tobacco products. For checking excise taxes rates please contact ATO Moscow. Russia typically levies an 18 percent Value Added Tax (VAT) on imported goods; however, some food products (e.g. sugar, salt, milk, bread, pasta, vegetables, baby food, end etc.) are subject to a reduced rate of 10 percent customs clearance charges add about 1.25 percent. The wholesale mark-up is typically 12 to15 percent, while retail mark-up runs 35 percent or more, depending on the product and the retailer; and, a 39 percent profit tax is assessed on gross margin. SECTION III. MARKET SECTOR STRUCTURE AND TRENDS Retail Food Sector Among the consumer-oriented sectors in Russia, retail is of primary importance. The Russian retail market has begun a period of post-crisis growth. Monthly retail sales in Russia average about $50 billion and the industry recorded revenues of $542.4 billion in 2010, which is 17.8 percent growth Note: The Exporter Guide is scheduled to be updated in Spring 2012, at which time readers will find full 2011 year data compared to 2009. Food retailers contributed to 48.6 percent of the total retail market turnover last year. The leading grocers reported the active development of low-end supermarkets. Given the limited number of multinational players on the domestic market, Russian food retail continues to be led by large domestic retailers with annual turnover exceeding $2 billion. Russian retail giants such as the X5 Retail Group, Magnit, Seventh Continent and Dixie chains are still among the top Russian retail players. That said, in addition to domestic companies, the French Auchan Group, German Metro AG and others have earned significant market share during the last decade. Nationwide, retail chains occupy about 18 percent of the food retail market, but with higher concentrations in major urban centers (about 21 percent in Moscow and 48.3 percent in St. Petersburg, according to Rosstat). Nevertheless, the Russian retail market is still highly fragmented with the 11 largest retailers (by revenue) controlling only 18 percent of the market, versus 80 percent for the 10 largest retailers in the U.S. Traditional retail formats such as kiosks, street markets and small grocery stores keep declining in upper-tier urban Russia with open-air markets reducing in number. Food street markets decreased in number by 5 percent in 2010, amounting to 12.5 percent of retail sales in Russia in 2010, according to Rosstat. Traditional retail has the weakest position in Moscow and St. Petersburg. Retailers demand consistent quality and adherence to contract specifications and penalize suppliers for failure to meet requirements. As a result, foreign suppliers continue to be competitive in the Russian market as they are more accustomed to meeting such strict specifications than Russian agricultural producers. Please see the “Retail Foods Annual 2011” report for more information on the retail sector in Russia: http://gain.fas.usda.gov/Recent%20GAIN%20Publications/Retail%20Foods_ Moscow%20ATO_Russian%20Federation_9-2-2011.pdf Legislation Regulating Retail Trade The Russian Federal Law on Trade came into force on February 1, 2010. The Law is aimed at creating transparent conditions of cooperation between domestic suppliers and retailers and boosting competition in the retail sector. The Law contains strict antimonopoly regulations, such as capping store openings once a retailer reaches a 25 percent market share threshold within a city or municipal region, a 10 percent limit on bonuses paid to retailers by suppliers, and payment terms regulating how fast a retailer has to pay for goods with a certain shelf life, among others. The Law stipulates that the terms and conditions of food product supply contracts shall be brought into accord with requirements of the Law within one hundred eighty days from the effective date. Please see the “Russian Trade Law” report for further information on the legislation regulating retail trade in Russia: http://gain.fas.usda.gov/Recent%20GAIN%20Publications/The%20Russian%20Federal% 20Law%20on%20Trade%20_Moscow%20ATO_Russian%20Federation_8-30-2010.pdf Retailers were given six months to renegotiate their relationships with the manufacturers and suppliers, in line with the new legislation on retailing. To overcome the “limitations” imposed by the law, retailers Note: The Exporter Guide is scheduled to be updated in Spring 2012, at which time readers will find full 2011 year data have changed the terminology in their contracts with suppliers, stating “compensation” instead of “bonus” in order to keep receiving sums exceeding 10 percent from the value sold. Final consumers have been affected because the assortment of available goods has been reduced, as retailers preferred to work with those larger manufacturers and suppliers which are ready to meet the new requirements. However, unit prices have not increase significantly, and in some cases they have declined. (Source: Euromonitor International) Hotel, Restaurant, and Institutional (HRI) Sector Russian HRI sector sales had been increasing at a rate of 10 to 12 percent annually from 2005 to 2008 together with consumer income growth. The beginnings of an economic recovery were seen in the third quarter of 2009 and continued in 2011 although consumer confidence remains low. Despite the difficulties faced by much of the foodservice market, fast food was the only channel to see positive current value growth in 2009, 2010 and in 2011, albeit at a significantly moderated rate compared to previous years. Growth was driven by the generally rising popularity of fast food due to busier lifestyles and the emergence of more outlets in new locations. Table 7. Restaurant Industry Sales in Russia 2006 2007 2008 2009 2010 2011e RUR, billion 275.3 306.1 343.1 334.2 362.3 398.0 Growth Year on Year, % 11.1 12.1 -3 8.4 9.8 US Dollars, billion* 10.12 12 13.81 10.53 11.9 13.1 Source: Euromonitor International, 2011 data is an estimate *Average exchange rates by years: 2005 – $1 = RUR 28.3; 2006 - $1 = RUR 27.2; 2007 - $1 = RUR 25.49; 2008 - $1 = RUR 24.84; 2009 - $1 = RUR 31.72; 2010 - $1 = RUR 30.48 The number of cafes, restaurants, and other food outlets in Russia currently stands at about 60,000. Although Moscow and St. Petersburg are still by far the largest restaurant cities in Russia, leading foodservice operators have begun regional expansion into other wealthy cities. The crisis mostly affected restaurants belonging to the higher price category (falling by 30-50 percent) while sales at casual dining restaurants declined by 15-20 percent. However, the market remained largely stable compared to the previous year in terms of company shares. Chained restaurants suffered during the crisis less than independent ones. The leading players in various segments of the restaurant market made efforts to consolidate their positions through offering lower-cost meal solutions, and extending their services to areas such as home delivery or catering. There are currently 30 to 40 restaurant chains operating in Russia, each of which manages between 20 to 400 outlets. McDonald’s, Rosinter Restaurant Holding, Arkadiy Novikov Restaurants, Ginza Project, Markon, Shokoladnitsa and Coffee House are the largest restaurant chains in different foodservice segments in Russia. Russia's largest casual dining chain operator Rosinter, estimates the country's dining market value this year at 550 million rubles ($17.64 million), with Moscow's share at 40 percent of the total. The popularity of fast food in Russia has grown dramatically ever since the crisis first hit the country. Note: The Exporter Guide is scheduled to be updated in Spring 2012, at which time readers will find full 2011 year data Fast food restaurants account for about one-third of all public eateries and account for as much as 70 percent of clients served. Fast food has shown positive growth in 2009 and 2010 and the volume of the quick restaurant category in Russia reached $ 5.6 billion. The fast-food sector is the fastest-growing restaurant category in Russia with an annual growth rate of 20 to 30 percent. McDonald’s, which entered Russia in 1990 and created two generations of fast food eaters, has about a 70 percent share of Russia’s quick service restaurant market. McDonald’s remained the absolute leader with a 43 percent value share of fast-food chain sales. Subway, the world’s largest sandwich chain, is one of the most rapidly developing fast food chains in Russia tripling the number of its outlets in 2009-2010. In St. Petersburg, the popularity of the Subway brand is underscored by the fact that, from May to July 2010, one local Subway restaurant had the highest sales turnover out of 31,000 Subway restaurants worldwide. Subway has an ambitious plan of expansion and has caught up to McDonald’s in terms of number of outlets in 2011. Franchising models dominate in fast food. As of now more than 90 percent of fast food chains in Russia work under various franchise agreements. Fast-food is an increasingly attractive market for overseas investors and many famous American fast-service operators have appeared in Russia since 2009. Burger King, one of the largest fast food corporations in the world, has established a presence in Russia by opening its first restaurant in Moscow on January, 2010. Currently, Burger King’s franchisees operate 22 restaurants in Moscow and 7 outlets in Saint Petersburg. Dunkin' Donuts, the U.S. doughnut eatery chain that left Russia after a three-year stint in the 1999, returned to Moscow in 2010 with big plans for rapid expansion. The Russian company Donuts Project received exclusive franchising rights for development of the chain in Russia and the Ukraine. Dunkin’ Donuts opened its first outlet in May 2010 and currently has twelve restaurants in Moscow. Wendy's/Arby's Group, one of the world's leading fast food operators entered the Russian market in 2011 and will open 180 restaurants there over the next 10 years. Last year the company signed a franchising agreement with Russia's Food Service Capital group. Food Service Capital initially plans to open 10 outlets in Moscow and St. Petersburg. Before the crisis, the coffeehouse business in Russia showed impressive annual growth of 136 percent in value terms on the average. According to research by IndexBox, coffee shops market value declined by 23 percent in 2009 to $152.44 million. However, the situation has improved and by Q3 2010 market value reached $185.96 million. There is an increasingly high concentration of the leading chains, including Coffee House, Shokoladnitsa, McCafé, Starbucks, and Costa Coffee in Moscow and St. Petersburg, so in the short term many coffeehouse chains plan to expand to the Russian provinces. The world leader, Starbucks Coffee Company, opened its first outlet in Moscow in September 2007 and currently is number three by coffee sales after Shokoladnitsa and Coffee House. As of November 2011, Starbucks operates 52 coffee shops in the capital. Baskin Robbins, the world's largest chain of ice cream specialty shops, entered Russia in 1990. Baskin Robbins Production International opened 33 new ice cream salons in Russia in 2010. As of January 2011 Baskin-Robbins' network in Russia consists of 145 outlets in 68 cities, most of them franchises. Many restaurants import the vast majority of their ingredients, creating opportunities for U.S. exporters of meat, seafood, wine, and specialty foods. Please see the “HRI Food Service Sector” report for further information on the HRI sector in Russia: http://gain.fas.usda.gov/Recent%20GAIN%20Publications/Food%20Service%20- %20Hotel%20Restaurant%20Institutional_Moscow%20ATO_ Note: The Exporter Guide is scheduled to be updated in Spring 2012, at which time readers will find full 2011 year data Russian%20Federation_3-3-2011.pdf Food Processing Sector Russia's food processing industry is one of the most dynamic sectors in the Russian economy. From 2005 to 2008, investments into food processing enterprises totaled more than 135 billion rubles which demonstrates the attractiveness of this sector for both Russian and foreign investors. In 2010, Russia’s food processing sector clocked post-crisis growth of 5.4 percent and it is expected to continue growing in 2011, supported by rising disposable incomes, increasing real wages and declining unemployment. Among the growth leaders are: meat products (including pork, poultry, sausages and semi-finished meat), dairy products, confectionary, dry baby food and dietary products with cereal. The food processing industry is comprised of foreign and domestic manufacturers with the latter dominating number wise. Foreign producers go on strengthening their positions with investments and marketing activities. On the other hand, many Russian manufacturers are investing in modernization and expansion in order to strengthen their position in the market. The leaders of the market are focused on consolidation and expansion into regions outside Moscow and St. Petersburg. Demand for higher-quality ingredients is increasing as more local food processors strive to meet international quality standards. However, some companies are reporting that domestic supplies of raw materials and specialized ingredients for meat, bakery, confectionary, juice, and dairy processing are not sufficient to meet future demand. The Russian food industry is characterized by its dependence on imports. Around 40 percent of products used by the Russian food industry are imported. More than a half of the meat and milk products in big Russian cities are provided by import suppliers. 70 percent of the raw materials in meat processing plants are imported. The majority of food ingredients are imported from: Denmark, Belgium, France, Germany, Austria, Great Britain, China and the United States. The FAS Russia “Food Processing Annual 2011” report will be published on the FAS website in December, 2011; the search engine can be found at http://www.fas.usda.gov/scriptsw/AttacheRep/default.asp. Internet Sales Russian consumers mainly shop online for non-grocery products. However, internet retailing’s growth rates remained high last year. In 2010, sales grew by 30 percent to reach $6.5 billion which has exceeded the growth rates of store-based retailing. Companies are entering the online channel in search of high potential sales and annual growth rates. Even during the recession of 2009, when consumer demand decreased considerably, e-commerce recorded considerable sales growth. The main reasons for growth are: stronger presence and competition, discount prices, the development of broadband connections in Russia’s regions, and the desire of Russian consumers to make savings. One of the obstacles to the faster development of internet retailers is the underdeveloped system of e- payments. Currently most e-shop operators accept cash on delivery. It is still true that Russian Note: The Exporter Guide is scheduled to be updated in Spring 2012, at which time readers will find full 2011 year data consumers do not trust e-payments. Only 10 percent of e-shops offer the option to pay by debit/credit cards. Industry experts explain that e-shop operators prefer to call to consumers before the final confirmation of purchase. The PayPal system of security for e-payments has recently opened a subsidiary in Russia, but it mainly serves foreign e-shop operators. In Moscow, traffic may also be a factor limiting internet and delivery sales. The largest store-based grocery retailers offer the same product ranges and prices online. Industry experts consider the development of online grocery stores to be immature. Russian consumers are not used to shopping for groceries online, and they have difficulty using the technology for this purpose. It is still perceived to be less stress and less time consuming to visit the local supermarket than to shop for groceries online. However, this situation is regarded as temporary and online grocery retailing has great potential. Russian regions will gradually increase their purchasing activity due to independent small operators as well as the penetration of major store-based federal chains which have recently entered the niche. For example, last year Auchan Group announced plans to become a visible Internet retailer in Russia. X5 Retail completed the logistical and IT platform necessary for Internet retailing. Such operators have the benefit of distribution centers covering several regions of Russia, which will help develop Internet retailing in the regions more actively in future. Tourism Sales The tourist sector in Russia is relatively underdeveloped with the possible exception of domestic tourism. Therefore, Russia has unique opportunities both for the development of internal tourism and for reception of foreign travelers. A variety of landscapes (mountains, sea, rivers, woods, tundra) allows developing different kinds of tourism, e.g. beach vacation, ski vacation, etc. Vladimir Putin announced that in 2011 the Russian Government will launch a new federal program “Development of domestic tourism in Russia”. Over the next three years 7 billion rubles ($US 233 million) will be allocated from the federal budget, including 2 billion rubles ($US 67 million) in 2011 in order to realize enhance tourism in Russia (source: Rossiyskaya Gazeta). Already the hotel market, which is underserved in Russia, is growing. Growth in the tourist sector will spur further development of Russia’s hotels and restaurants which, in turn, will lead to a better quality services and offer new opportunities for the exporters of food products to Russia. Certainly the tourism sector will experience a growth spurt due to several major international events in the next two years. Most notably, the 2014 Winter Olympic Games and the 2012 APEC Summit will be held in Russia and are the strongest short-term incentives for the development of Russian tourism in the coming years. The approaching winter Olympics to be held in the Black Sea resort of Sochi in 2014 promise a wealth of opportunities for foreign firms and investors. Hotels, restaurants and catering are all ramping up in order to serve the influx of visitors. A total of 47 transport infrastructure construction and modernization projects are underway and there are also plentiful opportunities in terms of telecoms, energy and environmental protection. The $14 billion investment package in Sochi and the determination of the government to make the Olympics a domestic and international success make Sochi an attractive proposition. Following on the heels of the Olympic Games, Sochi will host the Paralympic Winter Games. The city of Vladivostok on the eastern coast of Russia is currently building new hotels and restaurants to serve the APEC visitors who will be on hand for the Summit in August Note: The Exporter Guide is scheduled to be updated in Spring 2012, at which time readers will find full 2011 year data 2012. In 2013, the World University Summer Games (a.k.a. “Universiade”) will be held in the city of Kazan (population 1.2 million). And a bit further afield, Russia will host the 2018 Football World Cup. Holiday Gifts Sales While the Russian economy including the food sector appears to be growing toward pre-crisis levels, consumer confidence still has a bit of catching up to do particularly with respect to year-end holiday spending. According to a Deloitte 2010 survey, the average amount of money Russians allocated for their festive budget in 2010 included spending on food, gifts and entertainment of about $526 versus about $700 in 2008. The most desirable gift for Russians at the New Year is cash or its equivalent in gift vouchers (desired by 54 percent of respondents). Travel ranks second and third place in the wish-list was taken by personal computer or laptop. But desires differ from reality and most Russians in 2010 planned to purchase such gifts as cosmetics and perfumes (55 percent), chocolate (49 percent), and books (35 percent). Consumers in Russia usually start to think of their gift shopping near to the middle of December and buy gifts, for the most part, during the last week before the holiday season. Russians tend to buy presents primarily in hypermarkets, with second place given to specialized shops, and the third place given priority being open-air-markets. Russian consumers continue to ignore the Internet as one of the major trading channels for buying gifts, especially during the pre-holiday period. According to Deloitte survey, the main reason is that Russians desire to see a product by themselves, to hold it in their hands and not just to look at a picture of it on a website. SECTION IV. BEST CONSUMER ORIENTED PRODUCT PROSPECTS Section IV. Best Product Prospects The U.S. is the seventh largest supplier to Russia by value of agricultural, fish and forestry products. Based on official data, the U.S. share of Russia’s agricultural imports exceeded $1.3 billion in 2010. This is down 25 percent due mainly to the economic crisis and lower poultry sales due to the poultry ban. The U.S. share of Russia’s total agricultural imports in 2010 was 3.99 percent compared with 6.2 percent in 2009. Top performing retail-oriented U.S. exports to Russia in 2010 included poultry and red meats, fresh and pr
Posted: 30 December 2011

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