Does Russia need domestic baby food?
According to the government resolution 1413 of November 24, 2018, it is possible to provide “capex" for the creation and modernization of capacities for the production of powdered dairy products for baby food and components for them.
We are talking about the sites owned by agricultural producers, except the citizens, running private farming, and by Russian organizations. Currently, there is no registered project in this sector, applying for “capex”, however, according to The DairyNews, about a dozen organizations are considering the opportunity to take advantage of this state support.
According to the decree of the Government of the Russian Federation, the amount of reimbursement for construction and modernization of agricultural facilities ranges from 10 to 25% of the actual cost of the object and depends on its type. If it is too high, then the marginal cost established by the Ministry of agriculture of Russia is used.
According to the Federal agricultural Agency, the market volume of infant formula in Russia is about 23 billion rubles. The share of domestic enterprises does not exceed 10%. Despite this, not all enterprises that have the capacity to do so are ready to develop the market. The main reasons are: competition with large TNCs and the lack of a number of important high-quality ingredients necessary for the production of baby food.
- The market of baby food and breast milk substitute is much more consolidated compared to the market of traditional dairy products; there are several major players with strong brands, which will not be easy to compete with. At the same time, products for children are subject to higher requirements for quality and production technology. And although the profitability of the sale of children's dairy products is higher than traditional milk, investment in this sector is also higher, - said Executive Director of “Soyuzmoloko” Artem Belov in the comments to The DairyNews.
According to the expert, in order to be competitive in the market, the plant should produce up to 100 thousand tons of breast milk substitute, while the entire Russian market is estimated at 40 thousand tons.
The raw materials of the extra class necessary for the production of baby food in Russia are not enough.
According to the Doctor of Technical Sciences Ivan Evdokimov, for the production of infant formula (substitutes for breast milk) specially prepared whey is bought abroad. At the same time, Russia drains a significant amount of whey that could be used for deep processing.
Marina Balabanova, Vice President for corporate relations of the Group of companies Danone in Russia notes that taking into account the large disparity in customs duties on finished food products and ingredients it is not profitable to produce locally finished breast milk substitutes for young children in Russia. It is profitable to import ready ones.
- We are the largest producer of breast milk substitutes in Russia, but every year our local production is reduced, despite the fact that the market share is increasing. In other words, we have to increase imports and reduce local production. We have tried for a long time to eliminate the imbalance of customs duties, but, unfortunately, we have not succeeded so far, the situation remains the same. In any case, the share of powdered food in the total volume is small, our main business is fresh dairy products, – commented Marina Balabanova.
The founder of "Umalat" Alexey Martynenko stressed that the market of baby food is promising. Despite the fact that many prefer the 3+ segment, not taking up the production of products for young children, the niche remains interesting.
- In the country this sector is strongly regulated. That's probably why not everyone wants to go there, although the investments there are quite large. But the matter is not even in investments, but in the availability of technology. It is hard to attract investment with what we have today, the risks are quite high. Despite this, I think that processors will turn to this sector, although hardly anyone will start investing right now. In any case, it is good that the state provides support, - said Alexey Martynenko.
Meanwhile, in Russia a trend in the development of whey processing is gaining popularity. Projects in the Southern Federal district, Volgograd region, Volga region and Udmurtia are being implemented at production sites that are ready to develop whey processing and production of innovative products from it. Large regional milk processors are exploring the market, however, so far without obvious results. There was also news that large investors can enter this sector: thus, the Russian Direct Investment Fund (RDIF) and the United Green Group (UGG) are planning a joint project to build a plant for infant formula in Russia. All of them lack quality raw materials. As a result, they consider either the formation of their own raw material base, or cooperation with a large high-tech supplier of raw materials. One of these is “EkoNiva”, which, taking into account the development of its own processing, is also a candidate for entering the segment of infant formula. So far, budget money alone is not enough to attract investors for the production of powdered baby food.
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