FoodBizIntel: Grain processing business in Russia: opening up export opportunities
Note from ther Editor: This "quick report" is the third on a series of "FoodBizIntel"cards intended to provide our readers with fast and actionable insight into Food and Beverage international trade opportunities. This report is to be a collaborative effort so if you are in this business and like to add your two cents, please use the feedback form at the end of the post; we'd like to hear from you. Enjoy. Fernando Lopez - Executive Editor
Flour: global outlook
All over the world and throughout history, flour has been considered a product of high nutritious value, used as a primary component in bread-baking, confectionery, pasta production and other industries. It can rightly be called a staple food and efficient means of satisfying hunger.
Lately, a number of factors have contributed to a rise in demand for flour including population growth, particularly in India and China, and lower income levels making customers choose in favour of more economic products.
Supplies falling behind the market needs created global shortage of grain processing products. In future the food security problem may be aggravated even further as the world population is still expected to increase.
The global picture of trade in flour products is mainly represented by four largest exporters - Kazakhstan, Turkey, China and Russia; and major importers - Central Asian countries, Libya, Iraq.
In 2007/08 international flour trade hit a record high due to a number of countries imposing limitations on export of wheat grain which brought more overseas deals with processing products. Afterwards, as World Grain Council data says, this volume has gone down since the grain quotas were lifted and major importers reduced the amount of flour purchased from abroad.
Flour market in Russia
Size and production capacities
Russian flour market is highly competitive, however there are companies which, due to outstanding product quality and cost controls, have secured a stable share. As a rule, they have a favourable geographic location - next to the major agricultural production areas.
The largest flour producing regions in Russia are the Altay Territory (Western Siberia), the Chelyabinsk region and several Volga regions; the highest consumption is recorded in the Altay Territory, Moscow and the Moscow region, the Krasnodar Territory and the Chelyabinsk region.
Domestic production provides sufficient output - in 2008 it amounted to slightly more than 10 mln. tonnes - and imports are insignificant. It is expected that in 2009 output will increase, being accompanied by growing exports.
Geographically, household consumption in Russia has undergone some changes. In the European part of the country, which provided highest demand for consumer-size flour until the recent time, living standards have been rising, and baking at home has become less widespread. At the same time, the economically growing Eastern regions are buying more smaller-packaged flour instead of building up home stocks of 50-kg sacks.
The industrial demand is characterized by reduction in the bakery sector, compensated by a definite increase from manufacturers of confectionery and pasta.
Speaking about the product range, manufacturers driven by tight competition seek more diversity. Introductions to the assortment tend towards wholesome nutrition products, blends consisting of several flour grades.
Grain prices and profitability. Vertical integration of businesses
Margins in the flour milling sector are directly correlated with prices for grain, and fluctuations of the latter can seriously impact profitability of the business. Thus, in early 2009 when prices for grain soared and flour prices were characterized by a more moderate growth, millers faced the negative impact on the overall performance.
As an instrument against price volatility, recently food processors started turning towards a vertically integrated structure which could hedge them against rising cost of raw materials and bring additional margins coming from control over the full production chain.
Export prospects of Russian flour industry
Over the past years, Russian flour exports have demonstrated stable growth, and amounted to over 390,000 tonnes in 2007/08 marketing year. According to IKAR, forecast of grain harvest in 2009/10 fluctuates between 90-100 mln. tonnes, and analysts say export of flour in 2009 may be increased 1.5 times.
Amid the growing concerns about world food security, Russia has all the resources to establish itself as a major grain and food supplier. Agricultural land abounds and its use is not limited by any sustainability programme, the favourable climate allows to grow prime-quality crops and there's sufficient processing capacity for manufacturing world-class products.
Up to now, the major export flows of flour from Russia were to CIS countries, which import a large share of grain processing products - Uzbekistan, Tajikistan and Azerbaijan, as well as Mongolia and Afghanistan. The breakthrough on the Afghan market was performed by one of industry leaders - OJSC PAVA, situated in Western Siberia. In 2008, the company shipments accounted for just under 50% of all Russian flour exports to this country.
The geography of Russian overseas flour sales is positioned to extend in the near future, as the large players begin to penetrate new markets. There seems to be an unabating interest in Russian grain processing products, particularly in Asia. Their quality/price ratio can excellently compete on the world market. Several regions, like Siberia which produces the second biggest amount of third-grade wheat in the country, offer flour of exclusive quality in terms of gluten and whiteness.
Compared to other major exporters, Russia has a sufficiently developed infrastructure, and access to ports in the South and the East allows to maintain effective logistics.
At the same time, export of flour products still requires more federal support, and subsidies for the industry could greatly enhance the overseas trade.
02.10.2009, 5043 просмотра.
