Labeling can stop the investment process in the dairy industry

Labeling was one of the topics discussed at the recent meeting of the Ministry of agriculture with Soyuzmoloko. As it was noted during the meeting, the current schedule of the experiment implies testing the labeling process not only at manufacturing enterprises, but also during the movement of products along the entire distribution chain.

As a result, the necessary information about the technological and organizational load on participants will be obtained. In addition, the rules for labeling dairy products are currently being approved by the interdepartmental coordination, which will approve the requirements for labeling by means of identification.

The Ministry of agriculture already offers to consider the possibility of compensating direct costs to producers, as well as providing them with preferential loans.

All industry participants are well aware that no support is eternal, and the rules of the game are constantly changing. While labeling is a constant and growing cost - for codes, for equipment and its updating.

In the first year, the launch and maintenance of the labeling system will require 61.3 billion rubles, then the annual costs of the industry will amount to 35.2 billion rubles, previously estimated by Soyuzmoloko (unites the largest manufacturers in the industry).

The CATD, which is the operator of labeling, notes that the idea was put forward for companies to enter the project painlessly, providing additional time for preparation to the participants of the turnover.

- As of October 19, the labeling system registered more than 7,000 participants in the turnover of dairy products, including more than 460 producers. At the same time, service providers - printing houses – are already involved in the project. Outsourced code printing makes it possible to avoid installing equipment on production sites, optimize material, and labor costs. At present, work is underway with about 80 printing houses, and 20 are in the active phase of equipping with equipment. A number of printing houses have already announced the possibility of accepting orders for industrial batches. The introduction of stages, free codes until May is an encouragement for those who prepare in advance. The possible costs of the entire industry for the introduction of labeling are estimated at about 4 billion rubles, commented in the press service of the CATD.

The Union of ice cream makers of Russia emphasizes that the industry Association has repeatedly consistently brought to the relevant Federal Executive authorities that "the introduction of digital labeling for finished products from the 2105 00 subgroup has never seemed either justified from the point of view of ensuring the legitimate interests of the consumer, or economically feasible."

The Union noted that the ice cream industry in Russia consists mostly of small businesses. The seasonality of this business determines the low level of annual profitability and the complexity of capital-intensive investments. Most of the industry's turnover is generated by small and medium-sized enterprises, which are forced to use worn-out funds. And labeling requires a huge initial investment.

The organization reported that the pilot for the introduction of digital labeling in the "Honest mark" system involves the company JSC Novosibirsky Khladokombinat. In the autumn of 2020, the factory JSC Milcom and Talosto company also joined the experiment.

In addition, representatives of the Union of ice cream makers of Russia noted the shortcomings of the "Honest mark" system. The first drawback is due to the fact that the operator of the national digital labeling system did not provide an implemented technical solution for reading the code automatically from the product in the flowpack.

Irina Antyushina, head of sustainable development and corporate relations at Unilever in Russia, Ukraine and Belarus, notes that for Unilever, as one of the largest ice cream producers in Russia, participation in the labeling pilot project implies significant investments, both in terms of financial component and administrative resources.

- We are currently in a dialogue with representatives of the CATD on this issue in order to determine the best technical solutions and assess the potential impact of the labeling project on the cost of our products. The final decision on our participation will be made after discussing the technical specification and determining the criteria for the effectiveness of the experiment, - said Irina Antyushina.

The position of Unilever is that finding technical solutions, taking into account the specifics and diversity of production processes in the ice cream industry, is now a key task, since in the absence of such solutions and if they cannot be worked out in practice, even taking into account the postponement of the labeling implementation date to May 1, 2021, the market risks facing a product shortage in high season.

Ildar Fayzullin, Director of Ufa city dairy plant notes that it is too early to talk about the smooth operation of the system for applying codes and equipment delivery, as sometimes there are delays in the delivery of labeled packaging material, due to the fact that problems on the packaging manufacturer's line do not allow it to be shipped on time. In an industrial environment, this may cause the production lines at the plant to stop.

The expert believes that the postponement of the mandatory introduction of digital labeling until May is necessary. But it is still difficult to say whether Ufa city dairy plant will have time to debug all business processes by the specified deadline, if, according to experts, it will take from 5 to 7 months only to integrate information systems.

According to Ildar Fayzullin, it is too early to accurately estimate the costs associated with the introduction of digital labeling.

- Equipment for production lines, and we have 9 of them, on average, will cost at least 4 million rubles each. The software and its integration will require, according to preliminary estimates, more than 5 million rubles at the initial procurement stage. Moreover, the implementation costs, which will be a multiple of the purchase price. In addition, the final cost of packaging marked in the printing house is still unknown – some suppliers estimate an increase in its cost 6 times. Of course, all these costs will affect the final cost of products, since no manufacturer can sell products at prices equal to or below the cost of production, concluded Ildar Fayzullin.

Many enterprises in the milk processing sector initially noted the fact that the cost of implementing labeling in the ‘Honest mark’ system will force the industry to slow down investment processes aimed at development and modernization.

Boris Buravkov, business development Director of FASA in Russia, notes that it is already obvious that due to the introduction of the ‘Honest mark’ system, manufacturers are simply starting to freeze all their other investments in equipment and are preparing money for the purchase of equipment necessary for labeling, for implementation, software, and so on.

He also noted that for technical personnel, the management has set the work on the implementation of the labeling process as a priority task, and therefore equipment projects are relegated to the background.

Boris Buravkov said that the introduction of digital labeling greatly hinders the development of the market.

- I cannot make predictions, but the fact remains. Investments in equipment or the purchase of new ones, replacement of old ones, expansion of capacity, modernization – they are simply postponed. Accordingly, the industry is slowed down and all forces and resources are thrown at the implementation of the ‘Honest mark’ system, - the expert concluded.

Meanwhile, the system obviously does not show the expected results and is not ready for a large volume load.

At the end of October, one of the major drug suppliers reported problems with supplies due to the labeling system.

Following this, a number of pharmacy chains and pharma manufacturers reported problems. As a result, the Government switched the labeling for medicines to notification mode and the day before finally simplified the work in it.

Earlier, we also wrote that following the results of the first months of implementation of shoe labeling, the problems that the system was aimed at were not solved.

Read the full expert comments in the ‘Hot topic’ section.

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