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Country Commercial Guides for FY 2000: RussiaReport prepared by U.S. Embassy Moscow,Released July, 1999 Note* |
V. LEADING SECTORS FOR U.S. EXPORTS AND INVESTMENT
As of mid-1998, U.S. exports to Russia were up 25 percent and on pace toward $4.2 billion. With the autumn 1998 freeze-up of payments in the Russian banking system, and with the lower purchasing power of the ruble, U.S. exports to Russia finished the year at $3.6 billion, still a record high. During the first quarter of 1999, American exports to Russia were down 65% from the first quarter of 1998, a clear reflection of lower purchasing power as well as the reluctance of many Western banks to accept letters of credit or to extend other types of financing here.
Lately, however, while purchasing power remains down, the ruble has steadied, banks have once more begun processing payments reliably, and Russian export earnings are up, paving the way for a slow recovery of U.S. exports to Russia in the second half of 1999.
Best Prospects for Non-Agricultural Goods and Services
After decades of separation from world markets, Russia today is a tremendous potential market for most U.S. goods and services. Demand has emerged in waves. First, in the early 1990s, came demand for U.S. food products, which has remained strong. Strong demand for U.S. consumer products followed. 1995 saw a surge in demand for construction materials, hotel and restaurant equipment, and furniture. With a resumption of economic growth, there should be renewed demand for U.S.-made equipment and services, especially in foreign currency-earning sectors (oil and gas, mining, timber), and in information technology (computers, software and telecommunications).
Over the next decade, as restructured Russian industries gain financial health, Russia will become a good market for U.S. industrial equipment and components, particularly food processing equipment and industrial process controls. Once market access and financing issues are resolved, Russia promises to become a major market for U.S. aircraft, components and avionics, as well as autos in niche markets.
It is important to note that many industrial goods produced by Russian companies and sold on the domestic market are sold not for cash, but in countertrade or debt-swap transactions. This greatly detracts from the reliability of estimates of total market size for products of Russian industry.
--1. Oil and Gas Equipment and Services (OGM, OGS) (HS categories 381510, 382490, 7304291055, 7304296000, 7304216000, 7304213000, 7304295000, 7304293055 8413500010, 8413600050, 842519, 8426, 843010, 8430498020, 8430498010, 8431, 843143, 843149)
Oil and gas field machinery and chemicals as well as oil and gas production and exploration services maintain first place among U.S. exports to Russia. Russia's oil industry is still burdened by the cash squeeze from last year's low oil prices and heavy debts, which keeps expenditure on new equipment and services from rising higher.
Russian managers accept that structural and technological modernization to maximize efficiency cannot occur without external borrowing, and show a preference for Western-made equipment over local equipment of generally lower performance. When servicing and maintenance costs are taken into account it turns out that many lower-priced domestic analogues can hardly compete.
Russian oil industry experts anticipate that major oil development projects (in the Sakhalin, Tyumen, and Timan-Pechora areas) under Production Sharing Agreement (PSA) terms will proceed during the next 2 - 3 years, providing funds and catalyzing technological upgrades for industry on a large scale. Meanwhile, Russia's oil and gas transport giants, Transneft and Gazprom, are also pursuing important multimillion-dollar export pipeline projects with clear opportunities for U.S. financial and engineering services.
(US$ millions) 1997 actual 1998 actual 1999 estimate Total Market Size 1,200 1,220 1,270 B. Total Local Production 865 870 900 C. Total Exports 115 120 150 D. Total Imports 450 470 520 E. Total Imports from U.S. 260 270 300 NOTE: The above figures are based on Russian Customs and U.S. Department of Commerce data and unofficial estimates. The above table does not include data on Gazprom's share in equipment procurement.
--2. Telecommunications Equipment and Services (TEL, TES)
The telecom sector provided some of Russia's best prospects for U.S. companies. Underlying this is tremendous pent-up demand for service. Russian telecommunications suffer from a lack of installed lines, outmoded switchgear and inadequate investment. Only 15 percent of local access lines are digital. Teledensity (access lines per capita) is very low (average 19 lines per 100 people compared to 63 lines in the U.S.); and seven percent of the population is still on the waiting list for basic service. Cellular phone density is 0.3 per hundred (versus 24 per hundred in the U.S.)
Since August 1998, the number of subscribers for commercial telephone services has grown at an annual rate of 7-10 percent, albeit more slowly than 1997's 25 percent rate. In 1998, 8,000 kilometers of frame relay and 7,300 kilometers of cable transmission lines were laid, 12 digital exchanges installed, 50,000 new lines added in cities and 100,000 in the countryside, and 160,000 mobile phone numbers brought on-line.
Hard economic times have brought pressure on profit margins, as commercial operators were forced to cut fees by 10-15 percent, even as the fees these operators must pay for access to local and long distance lines increased. Most paging and cellular operators and Internet access providers implemented "anti-crisis programs" with reduced fees. Telecom firms also face regulatory hurdles including a slow and expensive equipment certification process; confusing licensing procedures for provision of services; and inadequate access to the frequency spectrum.
Despite a steep drop in investment in the months following the crisis, international equipment and services providers are now seeing renewed demand, particularly in sectors such as wireless applications, and partnerships between Russian and foreign companies are continuing to form.
Since 1997, the Government has been attempting to privatize the existing phone industry through the sale of its national holding company, Svyazinvest, which controls local phone companies. Unfortunately, after the sale of 25 percent in July 1997, the sale of a second 25 percent stake was delayed by the 1998 crisis. Meanwhile, new private companies with international participation are developing facilities and services in expanding city markets and underserved remote areas.
(US$ millions) 1997 actual 1998 actual 1999 estimate A. Total Market Size n/a n/a n/a B. Total Local Production n/a n/a n/a C. Total Exports 114 96 105 D. Total Imports 1,400 1,200 1,220 E. Total Imports from U.S. 340 290 300 NOTE: The above figures are based on Russian Customs and U.S. Department of Commerce data and unofficial estimates.
--3. Electric Power Generation Equipment and Services (ELP) (HS categories 8411, 8402, 840310, 8412, 8501, 8502, 8504, 8535, 8537, 8538, 854460)
Russia's government has attempted with limited succcess to introduce competition among power-generating firms through a new system of payments for electricity from the national grid. The national electric power holding company, Unified Energy Systems (UES), continues to face difficulty in increasing liquidity, by pursuading its customers to pay for electricity in cash and on time. U.S. companies are focusing their sales efforts on power enterprises on Russia's periphery, which can generate export revenues, as well as idependent operators such as Irkutskenergo (not affiliated with UES). If individual producers can secure rights to compete on price, to halt service to non-paying customers, and to retain their earnings, then significant investment should follow, with consequent opportunities for U.S. equipment suppliers
(US$ millions) 1997 actual 1998 actual 1999 estimate A. Total Market Size n/a n/a n/a B. Total Local Production n/a n/a n/a C. Total Exports 78 89 95 D. Total Imports 380 450 430 E. Total Imports from U.S. 90 95 110 NOTE: The above figures are based on Russian Customs and U.S. Department of Commerce data and unofficial estimates. Due to widespread reliance by Russian power-generating enterprises on barter or debt offsets as payment for capital improvements, estimates are difficult to compile with accuracy, since barter or offset valuations may not accord with cash market value.
--4. Computers, Peripherals and Components (CPT, BUS, ELC)
Although the Russian computer and peripherals market was hit like others by the 1998 financial crisis, it represents a significant market for U.S. exporters and has solid potential to grow. Industry sources estimate the market at $65 million. U.S. computers and components exports to Russia in 1998 were estimated at $17.3 million. Currently there is strong demand in Russia for moderately priced PCs with installed Russian-language software; hardware components (sales of locally assembled PCs sales are up significantly); high-performance computers; Year 2000 problem solutions; and the SOHO (small office/home office) market. U.S. firms dominate markets for printers. Laptops have found a small niche that will grow as small business develops. Overall Russian economic performance along with intellectual property law enforcement will determine the pace of revival of the local market.
(US$ millions) 1997 actual 1998 actual 1999 estimate A. Total Market Size 65 72 75 B. Total Local Production 20 25 25 C. Total Exports 5 5 6 D. Total Imports 40 42 43 E. Total Imports from U.S. 35 33 32 NOTE: The above figures are based on Russian Customs and U.S. Department of Commerce data and unofficial estimates.
--5. Construction and Mining Equipment (MIN, CON)
(HS categories 8207, 8429, 8430, 8431, 8474)
Mining Equipment: Western financing is a key for continuing to upgrade profitable or potentially-profitable Russian coal mines. Vast opportunities exist in Russia's quickly developing ore, diamond and precious metal mining. There are good opportunities for long-wall equipment, drag-line buckets, conveyor loaders, and excavators for open-pit as well as mine applications in the coal and metal mining industries.
(US$ millions) 1997 actual 1998 actual 1999 estimate A. Total Market Size n/a n/a n/a B. Total Local Production n/a n/a n/a C. Total Exports 78 89 95 D. Total Imports 430 450 470 E. Total Imports from U.S. 170 190 210 NOTE: The above figures are based on Russian Customs and U.S. Department of Commerce data and unofficial estimates.
Construction Equipment: The 1998 economic crisis reduced imports of construction equipment by 20 percent and resulted in an average ruble price rise of 55 percent compared to 1997. However, the crisis stimulated sales of domestic construction equipment, which are expected to rise by 8-15 percent, according to various sources. Depite the cost advantage, the international competitiveness and export potential of the Russian construction equipment industry are extremely low. Therefore, it is likely that Russia will turn to establishing joint ventures with Western manufacturers with a view toward acquiring Western technologies and management practices. This could provide significant opportunities for U.S. manufacturers of construction equipment. For now, European (especially Scandinavian, German and Turkish) companies dominate the Russian construction equipment and service market.
(US$ millions) 1997 actual 1998 actual 1999 estimate A. Total Market Size n/a n/a n/a B. Total Local Production n/a n/a n/a C. Total Exports 180.3 137.6 n/a D. Total Imports 709.4 415.2 n/a E. Total Imports from U.S. 197.8 147.2 n/a NOTE: The above figures are based on Russian Customs and U.S. Department of Commerce data and unofficial estimates.
--6. Autos, Light Trucks and Buses (AUT, APS)
In recent years Russia's auto industry has grown at a seven percent annual rate. However, Russian car factories remain badly affected by the non-payment crisis, and lack capital for modernization. In 1998, President Yeltsin issued a decree allowing tax breaks and financial incentives for joint production projects in the auto industry which attract a minimum investment of $250 million from a foreign partner. As a result, major Russian producers began seeking joint ventures to assemble competitive cars. Sales of imported Western cars totaled 130,000 in 1997. While the 1998 devaluation seriously undermined sales of foreign models, Renault started a much-publicized joint venture with Moscow-based Moskvich factory; GM has signed an agreement for local production of Opel with VAZ, a major Russian manufacturer; Ford has agreed on a $150 million production investment near St. Petersburg; and other major Western manufacturers are at various stages of talks with Russian car plants. A chief advantage of production in Russia would be immunity from Russian duties, which are a serious impediment to imports. Still, foreign-built cars remain popular due to quality and design considerations.
The most popular products in the aftermarket area include car security systems, car care products, service equipment, and equipment for pollution control. With 2.5 million imported cars in use (over half of which are five or more years old), there is steady demand for spare parts. Given bad weather conditions, poor roads, and high wear of cars, the demand for anti-corrosion pastes and shock absorbers will continue to rise. As prices for new imported components are very high, there may be a growing market for reconditioned parts.
As the number of cars in Russian cities increases, authorities have become more concerned about the environmental impact. Since 1988, the number of cars in Moscow increased from 600,000 to over 2.5 million. Introduction and obligatory installation of catalytic converters is being discussed as a necessary step. If and when such a requirement is enacted, opportunities for companies that manufacture catalytic systems could be huge. Another opportunity comes from the recent decision to convert municipal transport from petrol to gas fuel. This transition will be gradual but will involve installation of gas fuel systems on nearly 200,000 vehicles.
Overall low car ownership (110 cars per 1000 residents) forces 85 percent of the population to rely on public transportation --mainly buses, the fleet of which numbers nearly 350,000. With the gradually growing number of small private companies, demand for light trucks, minivans and sport-utility vehicles has grown. The share of foreign freight companies in the domestic transport market has risen from 25 percent in 1990 to 75 percent in 1998.
US$ millions 1997 actual 1998 actual 1999 estimate A. Total Market Size 19,300 17,500 16,200 B. Total Local Production 1.3 1.2 1.2 C. Local Production (tires) 24.7 27.2 30.0 D. Total Exports 133.9 118.9 n/a E. Total Imports 900.0 1,250 n/a F. Total Imports from U.S 34.0 29.0 n/a NOTE: The above figures are based on Russian Customs and U.S. Department of Commerce data and unofficial estimates. Significant numbers of cars are imported into Russia bypassing customs, thus making precise estimates problematic.
--7. Aircraft and Airport Equipment (AIR, APG)
Demand for aviation products and services has stabilized in Russia, and many American companies are working with Russian partners on joint projects ranging from supply of fasteners and avionics to joint production of jet engines. In 1998, Russia ranked 14th in the world for U.S. aerospace exports. Russian airspace is now increasingly available to foreign airlines as Russia upgrades its air traffic control systems.
A 30 percent tariff makes importing aircraft prohibitive unless a tariff waiver is granted. The Government adopted a decree "On Additional Measures for State Support of Russian Civil Aviation" which links tariff waivers for Russian airlines' purchases of foreign aircraft to these airlines' purchase of Russian planes. A recent decree subordinating the aviation industry to the Russian Space Agency is also seen as an attempt to spur production by creating consolidated design and production centers.
In the next decade, however, there seem few alternatives to large purchases of imported commercial aircraft by Russian airlines, despite the likelihood that the Ilyushin-96 aircraft will move into production, now that it has received FAA certification. In 1998, Russia had just over 8,000 registeded civil aircraft, but many are aging. To satisfy internal demand the Russian aviation industry must produce and/or import approximately 30-40 aircraft annually.
Demand for airport equipment continues to be steady, and should greatly benefit from prospective legal changes in property rights and taxation. A Federal program on upgrading major airports offers commercial opportunities to U.S. firms, especially in the field of construction and airport security. Russian airports are gradually realizing the necessity of supplementing their take-off/landing fees with revenues from commercial use of airport facilities. This, in turn, offers good opportunities for U.S. service-oriented firms.
US$ millions) 1997 actual 1998 actual 1999 estimate A. Total Market Size 1,300 1,100 1,000 B. Total Local Production (large civilian aircraft) 18 7 12 C. Total Exports 550 500 n/a D. Total Imports 314 350 n/a E. Total Imports from U.S. 37 45 n/a NOTE: The above figures are based on Russian Customs and U.S. Department of Commerce data and unofficial estimates. Significant discrepancies exist between U.S. and Russian aircraft trade data, mainly due to differing treatment of leased planes, which Russian data do not count as imports. --8. Agricultural Machinery (AGM)
Russia's need for farm machinery is potentially very large, but real demand is depressed by the weak financial condition of Russia's farm sector. Russia now produces less than half as much farm equipment as in 1992, and imports are estimated to have fallen by almost two-thirds in 1998. Equipment shortages are now threatening overall agriculture production levels, according to the U.S. Agriculture Department. In spring 1999, the agroindustrial complex was short 627,000 tractors, 913,000 trucks, 11,000 seeders, 6,400 tractor plows, 7,000 cultivators, and 1,400 disk harrows, according to an authoritative Russian industry association. For the 1999 harvest, one survey predicts a shortage of 160,000 (40%) in combine harvesters.
Despite these needs, effective demand for domestic or imported farm machinery will be limited unless new sources of financing are found. Some import sales will be made to the few solvent buyers available or to those who receive help from regional governments. Large sales, however, will probably be possible only for sellers able to provide financing and support systems for purchasers that go substantially beyond simple direct sales, or who are willing to accept barter payments. Some major U.S. companies have proposed comprehensive equipment, financing and service projects, which could dramatically increase farm machinery imports to Russia. However, these companies will only be able to implement small pilot projects, unless large export credit guarantees are available from such sources as the U.S. Export-Import Bank.
Sales to specialized and market agriculture companies may also provide some opportunities where financially healthy Russian companies are trying to expand to satisfy greater local demand spurred by higher prices of imported food. For example, increased sales may be possible in the areas of greenhouse equipment and swine and poultry production.
(US$ millions) 1997 actual 1998 actual 1999 estimate A. Total Market 282 165 178 B. Total Local Production 117 70 80 C. Total Exports 16 10 12 D. Total Import 181 105 110 E. Total Imports from U.S. 21 19 20 NOTE: The above figures are based on Russian Customs and U.S. Department of Commerce data and unofficial estimates.
--9. Medical Equipment and Pharmaceuticals (MED, DRG, DNT)
Pharmaceuticals: The 1998 ruble depreciation led to a 4-fold increase in prices of imported pharmaceuticals. Despite this, imports continued to occupy 58% of Russia's drug market in 1998 (compared to 60% in 1997). After the crisis, prices for locally produced pharmaceuticals only doubled, but local production was stagnant. In 1998, most pharmaceutical imports came from Western Europe (over 60%), Eastern Europe (27%), and Asia (8%). The U.S. share of Russia's drug imports ranged from 1.5% to 7% in 1998. In 1999 so far, the market has been shrinking, and by year's end it may reach only half of 1998 sales. Nevertheless, few major Western companies have left the market, and most expect the situation to improve in the mid- and long-term. Several U.S. pharmaceutical firms, (e.g., Bristol-Myers Squibb, SmithKline Beecham) have successful joint venture production facilities in Russia. ICN has bought five local plants and is now in the top ten of Russian-based pharmaceutical producers. Pharmaceutical manufacturers such as Pfizer, Eli Lilly, SmithKline Beecham, Schering-Plough and Wyeth-Lederle remain major exporters to Russia. Top prospects include insulins, cardiovascular drugs, hormonal drugs, antibiotics, analgesics, vitamins, and psychotropic drugs.
(US$ millions) 1997 actual 1998 actual 1999 estimate A. Total market 3,300 2,700 1,800 B. Total Local Production 1,270 1,120 940 C. Total Exports 77 64 40 D. Total Imports 2,078 1,644 900 E. Total Imports from U.S. 32 27 20 NOTE: The above figures are based on Russian Customs and U.S. Department of Commerce data and unofficial estimates.
Medical Equipment: Russia's medical device market is estimated at $600 million for 1999. In 1998, local production supplied only 24% of the total market. This is expected to pick up slightly in the next two years, but imports will continue to be significant. Financing is a hurdle for most foreign medical device frms selling in Russia. In previous years, regional governments sought high-tech capital equipment to modernize local hospitals; but in 1999, with further cuts in federal and local healthcare budgets, such purchases have been reduced. However, hospitals continue to buy smaller devices and supplies in significant quantities. World Bank loans are financing some hospital modernizations. Subsectors such as dental equipment and supplies are highly dependent on imports, as local products cover only 20% of demand. Best potential for sales is in clinical lab equipment and test kits, dental equipment and supplies, and equipment for diagnostic imaging, radiology, instrument sterilization, and home health care.
(US$ millions) 1997 actual 1998 actual 1999 estimate A. Total market 1,038 800 600 B. Total Local Production 270 228 200 C. Total Exports 19 18 10 D. Total Imports 787 590 410 E. Total Imports from U.S. 100 60 50 NOTE: The above figures are based on Russian Customs and U.S. Department of Commerce data and unofficial estimates.
--10. Food Processing and Packaging Equipment (FPP, PKG)
A decline in food imports is stimulating production by Russian food companies, who are in turn upgrading or expanding their facilities. This appears to be driving demand for all ranges of food processing and packaging equipment, including both small-scale, inexpensive machines for farmers, local processors, food wholesalers and supermarkets as well as more sophisticated high-tech equipment for large food processors. Although some demand is driven by new investments of Western food firms in Russian facilities (e.g., Pepsico, McDonald's, Mars/Masterfoods, Nestle, Coca-Cola, Wrigley and others), Russian firms are also replacing aged machinery and equipment to improve production and competitiveness. In spite of the crisis, most foreign machinery suppliers stayed in the market as evidenced by participation at Russian trade exhibitions. Promising subsectors include milling, refining, extracting, and canning equipment, cold-storage and transportation equipment, and machinery to produce baby food, dairy and meat products, frozen foods, soft drinks and beer.
(US$ millions) 1997 actual 1998 actual 1999 estimate A. Total Market Size
697 405 480 B. Total Local Production 110 93 100 C. Total Exports 34 8 10 D. Total Imports 621 320 390 E. Total Imports from U.S. 33 14 14 NOTE: The above figures are based on Russian Customs and U.S. Department of Commerce data and unofficial estimates.
--11. Cosmetics and Beauty Products (COS)
Industry sources see substantial potential for U.S. cosmetic products in the Russian market. 1998 imports of perfumery and cosmetics from the U.S. were estimated at $22 million. Russia's retail health and beauty products market is estimated at up to $3 billion. Since mid-1998, imports have slowed and domestic firms' market share has been increasing.
In the retail hair and skin care products market, competition is tight: the quality of local hair care products is now comparable to foreign brands, and domestic skin care products are much-improved, though not on a par. Locally-made make-up, on the other hand, is low and cannot compete in terms of quality with well-known foreign labels. In any case, to produce quality products, local manufacturers must import certain ingredients unavailable in Russia in sufficient quality or volume. Equipment for the cosmetic industry also has to be imported, as there are no manufacturers in Russia. Another major need is packaging -- most cosmetics packaging today is imported from Italy, Germany and Poland. U.S. companies selling these products may find success in Russia.
The beauty service industry (hairdresser shops, beauty salons, etc.), also presents opportunities for U.S. companies. Russia's professional beauty market has become larger and more sophisticated during last 5-6 years, as reflected in the number of salons opened and in higher quality of equipment installed, more modern salon design, better-trained personnel, and broader use of exclusive brands. Despite the crisis, professional beauty operators are continuing to develop strongly, relying almost exclusively on imported cosmetics. American professional hair, skin and nail care products, and equipment have good prospects on the market, and professionals in Russia are interested now in getting more information about American-manufactured beauty products.
(US$ millions) 1997 actual 1998 actual 1999 estimate A. Total Market Size 3100 2500 2400 B. Total Local Production n/a n/a n/a C. Total Exports 32.4 19,4 n/a D. Total Imports 636.2 459.1 400.0 E. Total Imports from U.S. 35.6 22.1 20.0 NOTE: The above figures are based on Russian Customs and U.S. Department of Commerce data and unofficial estimates.
Agricultural Best Prospects
In fiscal year 1998, U.S. food and agricultural exports to Russia topped $1.1 billion despite the drop in exports after the August 1998 crisis. In the aftermath of the ruble depreciation U.S. exports of food products to Russia were down nearly 80 percent (to $137 million) in the October 1998 - March 1999 period compared with the same 6-month period in 1997-1998 ($647 million). We believe the following product groupings or products retain the best market potential based on Russian import and consumer buying trends: poultry, beef, pork, fresh fruits and vegetables, processed (and dried) fruits and vegetables, fish and seafood items, instant soups, wheat and wheat flour, soybeans and soymeal, animal feeds, tree nuts and pet foods. These U.S. products have done well in the Russian market in the past and have met with acceptance by both intermediate processors and Russian consumers.
Financial and credit considerations are of paramount importance, as is the fundamental need to carefully assess the capability of the Russian importer to purchase and distribute product. "Due diligence" will take on added significance as U.S. exporters seek to resume trade and commercial relations with their Russian counterparts. The purchase by the Russian government of 1.5 million tons of commodities and meat products with P.L. 480, Title 1, credit under the auspices of the U.S. Food Assistance Package will result in significant increases in the export of those bulk commodities which had declined dramatically since the early 1990s.
One outcome of the economic crisis has been a growing interest in domestic production and products on the part of some Russian food importers and distributors. This, in turn, has led to resumption of processing at once-idle Russian plants, and increases in output at other processing facilities. As Russian product has become more competitive, primarily due to a much devalued ruble, this tendency is likely to continue with a resulting negative impact on the sales of certain U.S. processed food items in the Russian market.
--1. Corn (Feed)
The slowly recovering poultry and livestock industries will require quality feed if the Russian producers are to compete with the quality of Western imported products. The current dominant market share enjoyed by U.S. exporters should be the basis for continued expansion of U.S. feed grain exports, particularly in the Russian Far East or other regional markets. If restored, increased utilization of GSM or other USDA credit facilities could improve access to credit for Russian buyers and support expanded U.S. exports.
(US$ millions) 1997 actual 1998 actual 1999 estimate A. Total Market Size 2,920 895 2,020 B. Total Local Production 2,670 820 1,500 C. Total Exports 0 5 0 D. Total Imports 250 80 520 E. Imports From U.S. 120 1 520 NOTE: The above figures are based on Russian Customs and U.S. Department of Agriculture data and unofficial estimates.
--2. Poultry
U.S. poultry has the major share of Russia's import poultry market at 78%. Although U.S. poultry exports have grown at record levels, a number of factors will negatively impact the rate of growth that U.S. exporters have benefitted from in recent years. Most significantly, the economic crisis in Russia dramatically curbed consumer spending. Secondly, the Russian government has shown interest in measures to protect and encourage domestic poultry production (as evidenced when poultry was excluded from a list of agricultural products for which Russia lowered import tariffs in October 1998).
(US$ millions) 1997 actual 1998 actual 1999 estimate A. Total Market Size 1870 1460 1220 B. Total Local Production 630 640 720 C. Total Exports 15 15 15 D. Total Imports 1240 820 500 E. Imports From The U.S 950 640 375 NOTE: The above figures are based on Russian Customs and U.S. Department of Agriculture data and unofficial estimates.
--3. Pork
U.S. pork exports continue to do well despite stringent Russian certification requirements. The current EU food aid package includes 100 thousand tons of pork products which may hinder U.S. export opportunities. However, under normal trade conditions, the high cost of EU product makes U.S. product more competitive despite longer transit time for deliveries. The combination of the current economic crisis, lower consumer spending, and measures taken by the GOR to encourage more domestic processing mean that the best export opportunities in 1999 will mainly consist of unprocessed and semi-processed items for further processing. Fresh pork market sales will be targeted to retail stores, restaurants, hotels and other food service providers. Cancellation of the GSM 102 and lack of a Supplier Credit program will put U.S. exporters at a disadvantage when U.S. pork prices are high. Pork sales should be targeted to major cities and regions where incomes are high and where there is greater market diversification, especially in light of the current economic situation.
(US$ millions) 1997 actual 1998 actual 1999 estimate A. Total Market Size 2014 1810 1735 B. Total Local Production 1570 1510 1385 C. Total Exports 1 1 1 D. Total Imports 450 300 350 E. Imports From the U.S. 40 60 80 NOTE: The above figures are based on Russian Customs and U.S. Department of Agriculture data and unofficial estimates.
--4. Wheat Flour
Rising demand in the Russian Far East should boost U.S. wheat exports. The RFE will be an especially strong market for wheat flour because it lacks both crop acreage and milling capacity and because of its relative proximity to America. U.S. wheat flour exports should grow at 3%, slightly above the total growth rate for all Russian wheat flour imports. The projected value of U.S. exports in 2002 is $9.0 million.
US$ millions) 1997 actual 1998 actual 1999 estimate A. Total Market Size 11,235 11,320 11,230 B. Total Local Production 10,900 11,200 11,300 C. Total Exports 55 95 120 D. Total Imports 390 215 50 E. Imports From U.S. 40 20 20 NOTE: The above figures are based on Russian Customs and U.S. Department of Agriculture data and unofficial estimates.
--5. Beef
The U.S. share of the Russian beef import market is 10.0 percent. U.S. imports of processed meat products have grown steadily in the Russian marketplace. In contrast, the market position of unprocessed and semi-processed product appears to be worsening, declining from 1.6 percent in 1997 to 0.31 percent in 1998. The EU food aid package includes 150 thousand tons of beef that may serve as a market hindrance for U.S. exports. However, with concerns about the quality of European beef, the high image that U.S. beef enjoys provides a strategic opportunity for U.S. beef exporters to increase market share in the long term. The major supplier of beef is Ukraine with more than three-fourths of the market. It is possible that the economic crisis will increase opportunity for the import of meats for further processing, as normal trade patterns have been disrupted. Strategic marketing will help maintain current market share in 1999; and opportunity for long term growth of U.S. meat exports to Russia exists. With increased awareness on the part of U.S. exporters and Russian importers, U.S. market share is projected be maintained in 1999, and grow by 10% annually to 2003.
(US$ millions) 1997 actual 1998 actual 1999 estimate A. Total Market Size 2900 2500 2310 B. Total Local Production 2260 2090 1910 C. Total Exports 5 5 5 D. Total Imports 660 410 400 E. Imports From U.S. 6 7 6 NOTE: The above figures are based on Russian Customs and U.S. Department of Agriculture data and unofficial estimates.
--6. Seafood
The Russian import market for seafood expanded rapidly until the 1998 economic crisis. Based on 1996-1997 Russian Customs data, the projected growth from all suppliers was 60%. The U.S. market share is negligible, mostly fresh, chilled or frozen fish. Despite lower consumer spending in Russia, expensive fish items are marketed to hotels, restaurants, and supermarkets targeting foreigners and wealthy Russians who 1) can still afford these items; and 2) prefer high quality imported fish products. Most U.S. product in the marketplace is of high quality and very expensive. When normal trade patterns resume, there could be significant growth for a range of processed seafood products including canned, pickled, bottled or smoked items. There is little product in the low to mid-price range that offers growth potential for U.S. exporters. Canned products are especially popular in Russia as they provide longer shelf-life and are easier to handle and store. In recent years, U.S. processed crabs and crab meat have appeared in Russia and have done quite well. French and Scandinavian firms have large market shares, a wide and interesting assortment of products, and aggressive marketing.
US$ millions) 1997 actual 1998 actual 1999l estimate X. Landing/Comm'l Catch 4400 4200 4300 A. Total Market Size 3850 3600 3400 B. Total Local Production 3200 3200 3100 C. Total Exports 2300 2500 2500 D. Total Imports 615 400 340 E. Imports From U.S. 5 4 5 NOTE: The above figures are based on Russian Customs and U.S. Department of Agriculture data and unofficial estimates.
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