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Russia Food and Drink Report Q1 2008Published by: Business Monitor International Published: Feb. 20, 2008 - 83 Pages Table of Contents
AbstractThe Russian government moved in October to limit surging food prices, as leading food producers andretailers agreed to freeze prices on bread, cheese, eggs, milk and vegetable oil. The authorities appliedtariffs on wheat exports of 10% from November to maximise supplies and left the option open to raiserates higher. Officially, food price inflation is being driven by global markets, where record demand fromAsian markets and the diversion of crops to biofuels have led to record prices on benchmark commoditymarkets. Although redolent of Soviet command economy measures, the intervention in the market hasbeen justified in order to restrain inflation, which threatens to exceed 10% for the first time in severalyears, hitting vulnerable pensioners in particular.Public anger over rising food prices poses political risks as parliamentary elections loom at the beginningof December 2007. Despite the Kremlin’s careful management of the pre-election campaign, this unrestcould lead to sizeable demonstrations as well as low polling turnout, spoiling of ballots and othermischief. But while global food prices are playing a role, the move to price controls and otheradministrative measures paper over the longer term crisis in domestic agriculture. The dairy market is justone example: dairy farmers produced 31.4mn tonnes of milk in 2006, compared with 32.3mn tonnes in2000 and 39.2mn tonnes in 1995. As a result, raw milk prices have risen rapidly, by an annual ratebetween 10% to 20% in recent years. Rising domestic production by players such as Wimm-Bill-Dann(WBD) and France’s Danone are driving demand for raw milk without any increase in supply. WithRussia’s agricultural sector still dominated by poorly managed and largely unreformed collectiveenterprises, the pressure could be long-term. Despite these huge challenges, BMI’s updated food forecast estimates the total market value will havereached US$189.4bn in 2007, and is expected to grow to US$500.4bn by the end of 2012. Russia places astrong fourth in BMI’s new Central and Eastern (CEE) European Food and Drink Business EnvironmentRanking, due to the continued enormous potential of the market. The country’s consumer spending boomis finishing its seventh year and price controls do not affect the higher value-end of the food market or thedrinks market. The ongoing battle between Scottish & Newcastle and Carlsberg over control of their joint-ventureBaltic Beverages Holding - which owns number-one beer maker Baltika - underlines the continuedgrowth potential of the beer market. Snack makers are also investing heavily in new facilities, withWrigley and Mars reportedly planning new green-field investments, Cadbury-Schweppes, Kraft andNestlé planning to expand production and record valuations reported for independent confectionerymakers currently up for grabs, such Ruzskaya Confectionery outside of Moscow. With March 2008presidential polls looming, uncertainty will continue to haunt the current boom, of course and leave keyissues such as World Trade Organisation accession up in the air. Get Full Details About This Report >> |
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