by Dmitry Plotkin

 General information

Credit Suisse First Boston evaluates world’s packaging market at USD 440 billion. The main markets are U.S. (30% of world consumption), Western Europe, and Asia. The share of Russia doesn’t exceed 1.85% with only USD 8 billion. However, according to the Russian Government’s Statistic Committe, growth rates of the market are more than 10-12% annually, while the Western market is growing only by 4-5%. The packaging market in Russia is becoming one of the most rapidly-growing sectors of the economy. Experts predict the increase in growth rates at least until 2010 and beyond until the market is fully saturated.

The development of Russia’s packaging industry began with the country’s economic reforms. During the years of the Soviet planned economy, when there was a regular shortage of consumer goods and little market competition, the packaging industry was virtually non-existent. After the disintegration of the Soviet Union and the beginning of market reforms, Russia was flooded with foreign packaged goods, which favorably differed from domestic products. While the local packaging industry suffered a dramatic shortage of basic materials for manufacturing quality packaging and labels, the attractive packaging and labeling of foreign goods created new expectations of  Russian consumers, making these goods more competitive in the domestic market. Growing consumer welfare has resulted in a growing demand for packaged goods and a corresponding increase in sales of packaged goods.

Complete satisfaction of consumer demand for all main types of food products depends on the need for importing foreign products and for strengthening the positions of domestic products. The increasing competitiveness of domestic products continues to be one of the most important challenges in the development of the Russian food-processing industry.

Growth in Russia’s food industry has created favorable conditions for the development of the packaging sector. It has also stimulated rapid growth in the domestic packaging industry. During recent years, the growth rate in this sector was much higher than the country’s average economic growth. Moreover, rates of growth of packaging for consumer goods and the food industry have higher rates than the market’s average. The rapid growth of the packaging industry in Russia is a result of the growth in the overall variety and amount of goods available. There are changes in distribution practices and consumption patterns. New developments in retail trade infrastructure are proliferating. The acknowledgment of packaging as an important tool for the preservation and safety of goods during transit and storage is increasing. The companies acknowledge the importance of packaging and labeling in product marketing. Russian consumers are becoming more like their European counterparts: they consume more convenience products, as well as natural products with greater concentration on the environment.

The dynamics of the market are very attractive for both, local players and foreign companies. World leaders, such as Alcan, Stora Enso, SCA, TetraPak, Amcor, Rexam, Sisecam, and Owens-Illinois announced new projects in Russia. In general, foreign companies have influenced the development of the packaging market in Russia. Companies such as Mars, Cadbury, ВАТ, Unilever, and Nestle entered the market in the mid-90s and adopted Western quality standards. Many of these companies are already ordering packaging in Russia, but domestic producers are often not able to meet their high standards. There are still niches in the Russian market that are far from saturated and have great prospects for growth. United States suppliers with highly sophisticated, accurate, and reliable equipment have a strong market potential.

According to the evaluation of PRADO Marketing, European suppliers of packaging equipment dominate the market with a 90% share. Among the leaders are Poland, Germany, and Ukraine. Ukraine is listed here mainly because it serves as a corridor between Europe and Russia. In 2004, U.S. imports averaged 5.3% of all imports in the packaging market. As for the market of food– processing equipment, Germany and Italy have the strongest positions in Russia, they hold 60% and 15% of the imports respectively, while the market share of U.S. exporters is insignificant and accounts for about 2% of the imports. U.S. equipment suppliers appear to be less willing to invest the time and the effort to sell to the Russian market through in-country representation or trade shows. However, industry specialists believe that the market share of U.S. equipment could increase if U.S. companies expressed the same level of interest in entering the market as their European competitors do.

Furthermore, market conditions have become more favorable for American goods as the dollar/rouble exchange continues to decrease. Consequently, more Russian companies are showing interest to American products. Russian food processing companies are seeking a wide variety of equipment and materials, including bakery, meat, poultry, milk, confectionery production, hard liquor, soft drinks bottling and packaging, fruit and vegetable processing and packaging, and regular and refrigeration storage facilities for food products.

A large number of international and federal retail chains entered the regional Urals market. Auchan, Metro, Obi, Ikea, and others stimulated the development of the packaging market. The role of packaging materials is changing significantly and is becoming an active element of marketing communications between manufacturers and customers.

Regional packaging enterprises are replacing their equipment with newer technologies. The rapidly growing market lacks state-of-the-art expensive machines, as well as cheap and used equipment, to meet the market needs.

Food industry in the Urals regions

Sverdlovsk region

The food industry accounts for 6.5% of the total industrial output and is represented by a large number of companies. The largest enterprises include: OAO Kalina Concern, OAO Fat Work, OAO Confectionary Association SladCo, OOO Pepsi International Bottlers (Yekaterinburg), OOO Meat Factory Yekaterinburgsky, MUP Yekaterinburg Bakery, OAO Yekaterinburg Flour Mill, OGUP Irbit Dairy, and OAO Yekaterinburg Vinshampankombinat.

As for the agricultural sector, the demand in the Sverdlovsk region for vegetables, potatoes, and poultry is fully covered by local production. Local output covers 70% of the region’s dairy product consumption, 55% of meat, and 25% of grain. One of the top priority agricultural areas is poultry, with the region accounting for some 13% of Russia’s total poultry output.

One of the priorities in the economic growth projections of the Sverdlovsk oblast is the structural reorganization of the agro-industrial complex by increasing investment in high-tech and competitive enterprises.

Tyumen region

Due to extreme climatic conditions and the far northern location of the region, farmland occupies only 3% of the Tyumen region. The more favorable conditions in the southern districts allow for the cultivation of grain, potatoes, vegetables, and feed crops. Livestock farms raise cattle, pigs, sheep, goats, horses, and poultry. More than 84% of the region’s agricultural products are produced here.

Agricultural organizations in the autonomous districts specialize in the production of milk, eggs, and greenhouse vegetables. Fishing and reindeer herding are traditional occupations of the native people.

Per capita production is equal to 27 kg of meat (fattened beef and poultry), 163 kg of milk, and 326 eggs. The Tyumen region leads the other regions of the Urals Federal District in per capita egg production.

The region has 8.4 million acres of agricultural lands. Annual gross output of grain ranges from 1.1 million to 1.6 million tons, of vegetables from 100 000 to 160 000 tons, and of potatoes from 400 000 to 600 000 tons. Extensive hayfield and pasture areas provide favorable conditions for dairy and beef husbandry. The 2005 output of animal and poultry meat (live weight) was 141 000 tons, of milk 536 400 tons, and of eggs 1.25 billion.

The agro-industrial sector, especially livestock breeding, is developing very successfully in the region, but the industry lacks modern equipment. This circumstance explains the regions’ trend of importing industrial equipment (65% of total imports), transportation vehicles, and agricultural equipment.

Chelyabinsk region

The Chelyabinsk region is one of the major industrial regions of Russia. It ranks twelfth for the gross regional product and sixth for industrial output. The region possesses good scientific, labor, production, and natural resource potential. It boasts successful metal, machine engineering, metal processing, fuel and energy, construction, and agricultural sectors. Agricultural production makes up only about 5% of the gross regional product, but the government is taking actions to increase this figure. One of the government’s major economic growth projections is implemented in the agricultural sector and is aimed at raising the productivity through energy saving technologies, the deployment of new high-yield crops and soil fertilizers, the improvement of bloodstock, and better professional training for managers in the agricultural enterprises.

Tillage accounts for 43.9% of the output in the agricultural sector. Cattle breeding accounts for 56.1%. A total of 4.6 million acres were under tillage in 2005 and

823 100 tons of crops were harvested. In cattle breeding, meat production totaled

172 300 tons (live weight), milk 605 000 tons, and eggs 1 199 100 in 2005. Meat and dairy product output increased by 8.9%.

Also, in 2005 Chelyabinsk enterprises involved in the food sector produced 183 500 tons of bread and bakery products, 190 200 tons of pasta products, 42 800 tons of confectionery products, 626 100 tons of flour, and 27 900 tons of cereals.

In 2006, British Rexam, one of the world’s top five consumer packaging companies, decided to build a plant to produce aluminum cans in the Argayash district of the region. The plant, which is being built at a cost of USD 73 million, will be operational in 2008 and will be equipped with a line to produce 800 million cans a year with a volume of 0.33 and 0.5 liters.

Khanty-Mansiysky autonomous district (Yugra)

Seventeen agricultural producers and 62 agricultural enterprises and farms are engaged in milk and meat cattle breeding in the okrug. The total number of cattle breeding at the farms stands at over 11 thousand heads, including 5.5 thousand cows.

Gross milk production amounts to 19.9 tons of milk, 5.5 tons of meat. Avarage milk yield per a forage cow amounted to 3 391 kg. Most of the suburban farms have high-grade dairy herds, modern milk equipment, and meat processing plants.

Swine-breeding

Fifteen agricultural enterprises and over 70 agricultural private farms are engaged in swine-breeding. The total swine number was 14 805 heads as of January 1, 2006.

Urban farms – former economies of the industrial enterprises are engaged in swine-breeding. Throughout the last several years, an increase in swine livestock has been observed in the farms of the okrug.

In the structure of meat production, pork makes nearly 50%.

Poultry husbandry

As of January 1, 2006, the total number of poultry at the farms stood at 148 775.

In 2005, 37 578 thousand eggs and 369 tons of poultry were produced. On average, 271 eggs were received from each hen accross the okrug.

Fish branch

Over 160 enterprises are engaged in fishing and fish-processing. Fish taking totaled 8 181 tons in the okrug in 2005. 9 732 tons of fish production were produced. The figure was 1 582 tons more than in the previous year.

Yamalo-Nenetsky autonomous district (Yamal)

Owing to the severe climate, agriculture in the region is limited to reindeer herding, hunting, fishing, and fur farming; reindeer herding accounts for 92.2% of all agricultural production. These sectors are the main occupations of the local native population that is experiencing difficulty in the transition to a market economy. However, in recent years, several dozen private farms and reindeer-herding, fur-farming, and hunting businesses have been registered in the area. The livestock farms are located in the Ob valley. At present, thirteen state farms, new organizations, and 34 private farms are involved in agriculture in the autonomous area. Projects are being worked out to set up companies to prepare raw fur materials from reindeer skins, rebuild the Salekhard Fish Canning Plant, and so on. Vacuum-packed reindeer and fish products and native craft items have received high marks from consumers at several all-Russian exhibitions.

The region is also known as the “delicious fish shop of Russia”. The rivers across the district have some one-third of the world’s total reserves of valuable whitefish species.

Kurgan region

The Kurgan region ranks 18th in Russia for per capita grains and bean production, 14th for milk production, 12th for vegetable production, and 30th for meat, poultry, and potatoes production. The food industry is well developed here, with meat-packing plants, mills, creameries, and powdered-milk factories.

Metal processing, food and beverages production together with machine engineering and metal processing account for a combined 85.4% of the region’s industrial output.

OAO Shadrinsk Canning Dairy Plant that is known all-over Russia is the largest food and beverages company in the Kurgan region, supplying the whole region with dairy products.

In general, the agricultural sector is mainly focused on tillage (spring and winter wheat, fall rye, barley, and buckwheat), potatoes, vegetables, dairy breeding, beef farming, and pig and poultry breeding.

The Kurgan region has a total land area of 17.5 million acres – 9.6 million acres (55%) of agricultural lands including 6.2 million acres of arable lands and 4.4 million acres (25%) of forests.

In 2005, the Kurgan region produced 5 900 tons of meat, 3 900 tons of sausages, 1 100 tons of butter, 62 100 tons of whole milk, 178 100 tons of flour, and 31 100 liters of vodka and liquors.

The goods that were exported from the region include dairy products, edible fruit, and alcoholic and non-alcoholic beverages (16.3% of the region’s total export). The main imports of the region included vegetables and cereals.

Government officials of the Kurgan region point out that food processing and packaging industries are very attractive sectors for investment. Possible projects include the development of high-quality cereal production and livestock breeding, the creation of agricultural companies for the production, procurement, processing, storage, and sale of agricultural products and food, and the development of agriculture machinery maintenance infrastructure.

Republic of Bashkortostan

The agricultural complex plays a special role in Bashkortostan’s life. In this region, practically every third citizen lives in the countryside. The republic stands among the top three Russian regions in the volume of agricultural production. It holds the third place in gross grain harvest, the second in meat production, and the first in potato and milk production.

Various forms of property and management are developing in Bashkir rural areas, more than one thousand large and mid-scaled agricultural enterprises, and about five thousands farms.

Bashkortostan practically completely supplies itself with grain and 60-90% of foods in local shops are produced in the republic. Production growth is anticipated to result from the increase of gross harvests and the rise of cattle-breeding volumes on farms and in the private sector. The share of agricultural enterprises in production is equal to 34.5%. The companies employ 61.3% of the working population.

The republic recently completed a harvest campaign, reaping 3.5 million tons of grain and oil-bearing crops and 1.2 million tons of sugar beet. The Bashkortostan republic is fully provided with high-quality agricultural production of its own and the Bashkir industry is supplied with raw materials.

Bashkortostan is well-known for its refineries, petrochemical, chemical, metal, and machine engineering enterprises, as well as for its modern agro-industrial sector.

Republic of Udmurtia

The Udmurtia republic’s economy is multifaceted. Its leading sectors are machine engineering and metal processing, metals, oil, forestry, and timber, as well as beef stock and dairy farming, all of which offer a strong potential for cooperation.

There are great prospects to develop the agro-industrial sector, especially because of the republic’s temperate climate and fertile soils.

According to the Udmurtia Agricultural Ministry, arable lands cover a total area of

1 865 100 hectares. The republic grows fodder grain, potatoes, vegetables, and fiber flax. Cattle breeding accounts for 57.1% of the total agricultural output.

The main types of the republic’s agricultural output in 2005 included 490 300 tons of grain, 576 800 tons of potatoes, 173 000 tons of vegetables, 4 900 tons of flax fiber, 605 800 tons of milk, and 694.6 million eggs.

The climate and nature of the Udmurtia republic allow it to develop multi-branch agriculture successfully, as well as to produce foodstuffs and agricultural raw materials for processing. Local topsoil is rather diverse, but most of the arable lands are turf and podsoil.

The main agrarian crops grown in the republic are grain forage, potatoes, and other vegetables, flax-fiber, and forage grasses.

The production branch of agriculture is cattle-breeding. Its share in the gross volume of agricultural production amounts to 68%.

The food industry is represented by bakeries and pasta plants, 8 meat-packing plants, 10 milk, butter, and cheese factories, 15 factories producing liquor, soft drinks, beer, starch, and syrup.

Perm region

One of the leading industries of the Perm region is agriculture. Together with the forestry industry, the agricultural sector produces over 27% of GRP and employs around 30% of the economically active population.

Agriculture in the region is represented by both tillage, including winter rye, spring wheat, oats, buckwheat, long flax, potatoes, and vegetables, and meat and dairy cattle farming. Agricultural output was down 6.4% from the previous year in 2005.

In 2005, the food industry output of bread and bakery products totaled 151 800 tons, of margarine products 23 300 tons, of butter 3 724 000 tons, and of whole milk 192 400 tons.

As for the Komi-Permyatsky autonomous district the leading industries are forestry, timber, and food and beverages, which account for 88% of the district’s overall industrial production.

The food industry’s share of total GRP is 31.8%. Food processing is mainly concentrated in the district’s capital of Kudymkar. The bulk of local output (meat processing, dairy, and bakeries) is consumed within the district.

Agriculture is dominated by cattle breeding, mainly meat-and-dairy. Rye, oats, barley, soft wheat, potatoes, and vegetables are cultivated in the district.

In 2005, meat production was 1 200 tons, sausage 1 100 tons, milk 1 100 tons, butter 600 tons, sour cream 600 tons, and non-alcoholic beverages 162 500 deciliters.

As for agricultural output in 2005, it was 25 300 tons of grain, 101 200 tons of potatoes, and 37 600 tons of vegetables.