Opinion: Russia sees structural changes in produce imports

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Opinion: Russia sees structural changes in produce imports

By RK Marketing/Fruitnews.ru general director Irina Koziy

SONY DSCOpinions from Russian fresh produce market players gathered by FruitNews.ru demonstrated that 2013 was a difficult year for many of the country's fruit and vegetables suppliers. Bad weather had a negative impact on some fruit and vegetable crops in Russia and other countries.

Restrictions on fresh produce shipments to Russia from several regions of origin limited the available supply possibilities, while many Moscow companies experienced problems with storage when one of the biggest warehouse complexes in this city was closed. In addition, negative changes in consumers' behavior and purchasing power became evident at the end of the year.

According to data from the Federal Customs Service, imports of fruit, nuts and dried fruit to Russia in 2013 remained approximately at the level of 2012 and amounted to 6.19 million metric tons (MT), or US$6.26 billion. This compared to figures from the previous year of 6.16 million MT and a value of US$6.28 billion. The volume of imported fruit increased by 0.4% and the value decreased by 0.35%. Imports of vegetables over the same period were growing more intensively, rising 6.3% to 2.9 million MT, while export value increased by 12.4% to US$2.8 billion.

Veggie trends: reduced local supply meets import restrictions

Market experts FruitNews.ru spoke to mentioned two different trends in the Russian vegetable market. On one hand, several types of vegetables had poor domestic crops, and a lack of domestic production had to be substituted by increased imports. On the other hand, import volumes of 2013 were affected by quarantine restrictions applied to imported vegetables from several countries.

Thus, despite the lack of potatoes in the market, potato imports declined due to the long-term bans on shipments from such countries as Egypt and Pakistan. As a result, only 444,000MT of potatoes were imported - 3.9% less than in 2012.

A large number of new Moroccan tomato importers and direct suppliers of Israeli peppers entering the market led to import growth for tomatoes and peppers as a whole; 3.7% growth to 829,000MT for tomatoes, and 12.7% growth to 161,000 MT for peppers. Israeli peppers were better priced than the traditional Spanish supply for the Russian market, while the possibility of direct container shipments through Novorossiysk considerably simplified logistics.

As a result, shipments from Israel constituted more than a half of the Russian market for peppers at 53%. This change affected the average price of imported product, and thus the growth of import value for peppers only amounted to 2.3%. Market participants also noted that in 2013, Egypt appeared as a new supplier of beetroot, which was a scarce product in Russia.

Cucumber imports were down by 5.5% to 202,000MT, although the price increased along with the market value. It is worth mentioning that Russian imports of onions grew considerably in 2013 (by 7% to 300,000MT), and the import volume of the relatively small category of lettuce rose sharply by 20% (to 34,500 MT).

The largest share of the Russian vegetable market still belongs to tomatoes, -which equal 28.6% of the total volume of imported vegetables - followed by potatoes at 15.3%. At the same time, these market shares decreased as compared to 2012, when tomatoes represented 29.3% and potatoes took 16.9% of total vegetables imports in Russia.

Russians turn to 'cheaper' fruit categories

The volume of the Russian market for imported fruit stayed at the same level as in 2012, but the structure of the market changed, especially at the end of the year.

Major trends included a significant decrease in fruit shipments in December - at year-on-year rates of 13% in volume and 16% in value - and  a general decline in shipments of higher-priced upscale fruit throughout the year while import volumes of relatively inexpensive fruit were growing.

In fact, the market share of the three most popular mass-market fruit categories – citrus, bananas and apples - increased to 69.2% of the total volume of fruit imports, while citrus kept its position as the number one fruit category. The share of apples in the total volume of imported fruit constituted 21.3% (20.8% in 2012), bananas had 21.4% (20.4% in 2012) and citrus stood at 26.4% (25.6% in 2012). The volume of imported citrus reached 1.63 million MT (3.6% increase compered to 2012), or $1.62 billion in value.

Shipments of bananas grew up to 1.324 million MT (5.14% growth), or $985 million in value. The volume of imported apples was 1.32 million MT (by 3.2%), or $774 million. The average cost of imported citrus and bananas slightly rose, but the price of apples decreased again.

In contrast, imports were reduced for other fruit categories. For example, imports of pears shrunk by 9.7% to 371,000MT and grape imports fell by 7.7% to 350,000MT.  With only a small share of fresh consumable fruit in Russia is produced inside this country, FruitNews.ru estimates the share of imported fruit in the commercial supply chain is at least 80%.

Thus, the major market impact factors were changes in the Russian consumers' demand and in the offerings of foreign exporters. A number of market participants note ever-increasing pressure from retail chains on the price of supplied fruit. As the role and influence of retail chains in the overall market picture is growing, the trends set by the retailers are having a larger and larger impact. Several Russian importers mentioned that in many cases such pressure resulted in a lower quality and a worse assortment of fruit on the retail shelves.

Questionable quality from Morocco, the rise of Georgian citrus

In discussions with FruitNews.ru a number of Russian importers named the drop in quality of Moroccan clementines as a significant problem for the market. This country used to provide the most popular citrus for the New Year tables of Russian consumers due to the good combination of quality and price. However, in the 2013 season, Russian importers were often complaining about the low quality of fruit consignments from Morocco that they were receiving.

Importers supposed that the quality decreased as a number of small and inexperienced suppliers started to be involved in export operations from Morocco. On the other hand, exporters from Morocco comment that the price for fruit in their domestic market increased significantly, making it difficult to balance the price required by foreign buyers with the proper quality for export shipments.

However, we cannot say that this problem was crucial for the market failure at the end of the year. In December 2013, the overall decline in imports of mandarins and clementines in Russia was 12%, which corresponds to the general trend. Imports of these fruits from Morocco decreased by 14%, which is similar to the decrease of citrus supply from other major exporters, such as Turkey, China, Abkhazia and Spain. It is important to mention that in October 2013, Georgia got access for its citrus to the Russian market and in December 2013 already took the 6th position among the countries that supply mandarins to Russia.

Pokrovskaya closure

A significant number of Moscow fruit market participants reported that the closing of Pokrovskaya storage facility in October 2013, and a general decrease of the number of open markets and food kiosks in Moscow, had a large and negative impact on fruit sales at the end of the year. A portion of the relatively small market players rented warehouses in Stupino and had to urgently find a way out when the facility was closed.

The same companies intended to sell through open markets, fruit kiosks and stalls. Due to their small size these companies were the most flexible, ready and eager to adjust their volumes and assortment to the high consumption during the New Year season. With the closure of the storage facility and a decrease in the number of small points of sales, these companies had to reduce their trade volumes or even leave the market entirely.

As the result, right after the warehouse distribution center in Stupino was closed, the assortment of fruit in small outlets, open markets and even in retail chain outlets declined, especially in the case of out-of-season fruit, such as stonefruit and berries. On the other hand, this situation helped certain companies to expand their market shares. The negative effects are likely to fade in the short run, while the import volumes will be redistributed among the remaining market players. The fruit market will adapt to these changes, as it did several years ago in the reverse situation where the three largest players in the market broke down.

Forecasting challenges

It is difficult to make forecasts for this market that is a subject to change under the influence of so many hardly predictable factors, such as weather conditions in many countries all over the world, changes in the currency rates, and so on. At this point, FruitNews.ru can only highlight the trends that will keep affecting the overall fruit and vegetables market in Russia in 2014 and try to summarize their influence.

A relatively small local crop of vegetables in Russia in 2013 will support demand for imported vegetables. Currently, for a certain period of time the political problems in the Ukraine will add to this issue, because delays in customs clearances at the border with Russia are the most critical for products with short shelf life, such as vegetables, while Ukraine used to be large supplier of vegetables to Russia.

A decline in the purchasing power of Russian consumers and a decrease of the Russian ruble exchange rate will lead to sharper division of the fresh produce market by product prices. This trend is likely to form rigid frames between "premium" and "mass market" segments, and will lead to"“hollowing out" of the medium segment.

We can expect to see the growth of shipments of "mass market" fruit, such as apples, bananas and citrus at the lowest possible prices, with the simultaneous decline of purchases in the middle price level.

Upscale retail chains, food service suppliers and the remaining open markets will support a certain level of demand for premium fruit. Demand for the low cost fresh produce will reduce the average quality of the products and many importers will have to focus their purchases on smaller exporters offering lower prices.

This could lead to significant losses and further exits of small companies from the market. There is a high probability that we will face a new round of fresh produce market consolidation, similar to the one that was witnessed in the beginning of 2000s.



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