Order to head east
According to the results of last year, the export of dairy products from Russian enterprises increased by 6.5% compared to 2018 and amounted to $279 million, with a plan of $274 million. In physical terms, deliveries amounted to about 600 thousand tons. The main consumers of Russian dairy products outside the Federation are the CIS countries. However, soon after the opening of the Chinese market, it became clear that its development would not be fast.
The planned figures for 2020 for the dairy category are $333 million, and by 2024, Russia should supply products from this group to foreign markets worth more than $800 million. Much attention is paid to the Asian direction, which is not surprising, takig into account the growing solvency of the main part of the world's population living in Southeast Asia.
ACTIVITIES IN CHINA ARE NOT A BUSINESS YET
Processors of milk do not give up hope to take a niche in the Chinese market. Not so long ago, on request of Federal state budgetary institution “AgroExport” the consultants of KPMG and Ketchum prepared a draft concept for the promotion of Russian dairy products in b2b and b2c directions. As told in Soyuzmoloko, the concept provides a comprehensive analysis of the Chinese dairy market, assesses the competitiveness of Russian products on it, suggests target models for export development and the necessary actions for communication promotion. Implementation of the proposed measures will begin after the concept is submitted to the Ministry of agriculture.
In general, agricultural exports face an ambitious goal of $45 billion by 2030, and the Ministry of agriculture is already confident that the indicators will eventually exceed the plan. The weakening of the national currency plays an important role in the dynamics of exports, but there are many other issues that need to be addressed. The most important of them is the logistics issue.
Russia does not have a national container carrier yet, which limits the ability of exporters. According to Andrey Terekhin, head of the export department of TH “Cherkizovo”, the main channel for food logistics outside the country is, of course, sea transportation by refrigerated containers.
- This is a channel designed for very significant volumes of deliveries. Today, this market is occupied by the world's largest companies, such as Maersk, MSC, CMA, etc. The absence of a national container carrier, of course, limits the ability of Russian exporters to obtain optimal conditions of access to both transportation tariffs and container equipment, which is particularly evident in the conditions of violation of traditional commodity flows against the background of the pandemic, - said the expert.
Oleg Baykov, Deputy General Director of Biocard, said in a comment to The DairyNews that logistics operators could provide cargo delivery to Southeast Asian countries. The expert also agreed on the need to create a national Maritime transport operator.
– It is necessary to satisfy the growing need for refrigerated containers (in view of the seasonality - summer), the service of current operators falls to an extremely low level, which is unacceptable, as there is simply not a Russian player in this market, - said Oleg Baykov.
Andrey Shutov, managing shareholder of KOMOS Group, in an interview with The DairyNews, stressed that he considers railway transportation to be optimal for the supply of dairy products.
- This type of delivery takes about 30 days, and so far it is the most preferred for the Chinese side, - he said. - The second option is to send products through seaports - the Southern port in Novorossiysk or the Northern port in Saint Petersburg.
In this case, the transit time can be from 45 to 65 days, which depends on the schedule of ships and the situation at sea. According to the head of KOMOS Group, two months is too long for the Chinese, besides, the terms of payment usually depend on the delivery time, so distributors focus on rail transport.
Andrey Shutov also added that the holding company could offer delivery to a certain point on the border.
According to Andrey Terekhin, head of the export department of TH “Cherkizovo”, there is an important problem in the field of railway transport - the lack of specialized equipment for transporting food, the lack of refrigerated containers. Often (before the pandemic – editor’s note) the method of reverse loading of wagons that carried fruit and vegetables to the Russian Federation was used in Russia for export to China.
- China supplies something to us, then we load their containers with our products and deliver them to China. Now in the conditions of coronavirus, this process is disrupted and there is not enough incoming cargo to use reverse loading. We hope that if there is an economic interest Russian Railways will have enough of its own refrigerator equipment, which will be regularly used in the Chinese direction, - said the representative of “Cherkizovo”.
Alevtina Kirillova, head of the project for the development of export logistics of JSC "REC", told The DairyNews that work on expanding opportunities for agricultural exporters is ongoing.
According to her, transport operators and partners of neighboring countries have launched a system for delivering food exports by accelerated container “Agroexpresses”. The project is a joint brainchild of JSC "REC", JSC "Russian Railways logistics" and JSC "Slavtrans Service" (Selyatino terminal) (Selyatino-Khorgos-Chongqing route).
- A mechanism has been created for fast and cheap delivery of products from Russian farmers, poultry farmers, confectioners and dairy farmers to the Chinese market and Central Asian markets throughout the Eurasian Silk Road. REC is engaged in this project to provide comprehensive support to exporters and attract as many new producers of agricultural and food products as possible to new logistics services, - said Alevtina Kirillova.
It also became known that since May of this year, pilot shipments of frozen products in autonomous containers of Russian production and Chinese partners for export to China have been launched.
- Currently, there is no acute shortage of rolling stock, the operators of "cold cargo" are still coping with orders. However, we would like to see more Russian-made refrigerated containers and wagons on the market, and at more commercially profitable delivery prices for exporters", said Alevtina Kirillova.
What causes the sufficiency of the rolling stock - the REC did not explain. Some of the market experts suggested that there is still a low demand for the services of railway carriers.
The company Biocard expressed the opinion that the Russian market does not have enough refrigerated containers for long-distance transport.
- We often have to shift the time of shipment of goods because of the lack of containers on the day of cargo readiness. Retail and processing industry production standards have tightened requirements for packaging meat and fish to ensure longer shelf life and reduce bacterial contamination.In the context of the spread of the epidemic, we are seeing a sharp increase in demand for the transportation of meat, fish and seafood. Transportation of these products requires special conditions: maintaining not only a certain temperature, but also humidity, pressure, and protection from falls. Meat and fish transported in thermal containers under temperature storage conditions have a longer shelf life, since the thermal containers fully maintain the set temperature and exclude the penetration of dangerous microorganisms, - explained Oleg Baykov, Deputy General Director of Biocard.
Today, the main volume of dairy products supplied to China is ice cream. The vast majority of suppliers use multimodal transport - by train to Vladivostok and from there by sea to the port of Shanghai. However, according to some market participants, in the future, direct railway deliveries may be more promising for the Russian Federation, taking into account the country's border with China.
Russian Deputy Prime Minister Viktoriya Abramchenko in a recent interview once again stressed that the authorities intend to focus on exports to Asian countries.
- Subsidizing transportation is one of the measures not only for the domestic market, for our citizens who live in the Far Eastern Federal district, but also a measure that allows our exporters to feel confident with the supply of domestic food to Asian markets. Moreover, we will continue to work in this direction, we will increase exports, - summed up Victoria Abramchenko.
The Asian market is complex and requires a careful approach. Some of the experts interviewed by The DairyNews said that it is difficult to talk about the development of exports to China in the absence of security for the domestic market.
However, working for the future and planning is the basis of any business.
In the future, cheese and curd categories of products will take a leading position in exports to China, and if this market appears, it will be truly gigantic, said Andrey Shutov, managing shareholder of LLC “Komos Group”, in an interview with The DairyNews.
- And the one who will be the first at the time of formation of this key demand will receive the main dividends, - he said – Currently, our activity on the territory of China is difficult to call business in the broad sense of the word; so far, it is, if I may say so, "targeting". We are trying to understand how we can be useful for consumers in this country, which product categories we can supply from our existing range, which are developing, and which will capture the market in the near future.
Andrey Shutov also noted that for better interaction with the Chinese side and rapid response to emerging issues, it is planned to open a representative office of the agricultural holding in China.
- We want to go this way step by step, because we understand that we should not count on resounding victories immediately, because everyone is fighting for this market, and even a small share in this market promises very great prospects for any manufacturer, - he added.
We remind that according to the Dairy Intelligence Agency, Russia still spends more on food imports than it earns on exports.
Perhaps in 10 years, deliveries to China and other Southeast Asian countries will actually increase. However, to do this, logistics issues will have to be resolved, as well as issues of promotion in new markets with high competition. So far, most of the surveyed dairy companies have told The DairyNews that exporting outside the Russian Federation is not profitable. However, things may change.
EXPORT LOGISTICS
The main types of international logistics include three types of transport: rail, road, and water transport. In addition, exporters can use multimodal transport that combines different types of transport.
The key manufacturers of equipment for transporting food products are Carrier, Thermo king, Daikin, Sabroe, and BIOCARD LOGISTICS. Such equipment has very high requirements - they must maintain the specified temperature regime for several days. To measure and monitor the temperature inside the thermal container, as well as the temperature at which the cargo is transported, temperature recorders (thermoindicators, thermologgers) are used.
The cheapest and longest type of logistics is sea transportation. In the international market, along with air transportation, this sector has long been divided by multinational giants such as Maersk Group, Mediterranean Shipping Company S. A. (MSC), CMA CGM Group, China Ocean Shipping (Group) Company (COSCO), Evergreen Marine Corporation (EMC), Orient Overseas Container Line (OOCL), and others.
If the company is located in the Central region and believes that the optimal delivery will be by sea, then it chooses the most profitable port for itself - Saint Petersburg or Novorossiysk.
Despite the fact that there are about 70 ports in the country, only three of them can be considered suitable for international food supply infrastructure. The third is the port of Vladivostok.
Russia still has a lot of Arctic ports. However, for food suppliers, the most interesting areas are the Baltic sea, Black sea, and the Pacific ocean.
The largest port on the Baltic route is the port of Ust-Luga, which opened in 2001, and is connected by road via the A180 Narva road. The largest terminal of this port is the Coal terminal, which works for the supply of hydrocarbons.
The second largest cargo port in the region is the Primorsk oil loading port. Finally, the third is the port Bolshoy Saint Petersburg, where food logistics can be carried out, including in China. The reason for the lack of mass deliveries from this region so far is the duration of logistics - 35-55 days, and the lack of equipment for transporting perishables.
Among the Black Sea ports, Novorossiysk is the most interesting. Moreover, today, the ports of Crimea. Novorossiysk remains the largest southern port. Cargo to China goes through the Suez Canal - the delivery time is about 3 weeks.
In general, up to 70% of the southern trade route's cargo passes through the Suez Canal.
For comparison, China has about a hundred small ports and 20 large ones, of which the largest ports are Shanghai, Shenzhen, Ningbo, Guangzhou, and Qingdao. According to a number of experts from logistics companies who wished to remain anonymous, logistics from China to Russia is more interesting today than vice versa.
In general, the delivery of cargo from Russia by sea will look something like this:
The ports of the Far East by cargo turnover look like this: the largest port is Vostochny. This is a Russian Federal seaport in the Wrangel Bay of the Nakhodka Bay of the Sea of Japan. "Vostochny-Nakhodka" is part of the largest transport hub in Russia on the Pacific Ocean and is a port through which large shipments of coal go.
The second port in terms of annual cargo turnover is Vanino, which also specializes in hydrocarbons. The third is Nakhodka, where there are both universal and oil loading terminals. It is popular with fishing vessels. Only in the fourth place - Vladivostok.
This direction is popular with Chinese companies that have chosen a weekly delivery by sea to Russia, where railway delivery to Moscow is carried out. In general, sea transportation has significant advantages, but there is still one problem in terms of food-delivery – time - a loss to all other modes of transport despite the fact that products are most often perishable category; the restriction on transportation is loading into containers. In addition, not all companies can actively develop if they deliver through the port - because most often the goods are sold there or in the nearest cities, without reaching the Central regions.
Among automobile carriers, Business lines (+DL-TRANS), PEC, CDEK, DPD, DHL, ITECO, Energia and others are leading.
Overland delivery by trucks usually passes through the territory of Kazakhstan. However, according to “Kontur” magazine, this route is characterized by significant difficulties associated with theft.
For most food suppliers who want to export, road transport is just a means of delivery to the nearest port or branch of Russian Railways. At the same time, even when transporting within the country, the cost of automobile logistics reaches up to 3% of the cost of the goods.
The fastest mode of delivery in the case of a single continent remains rail transport. In Russia, the monopoly of this sector is Russian Railways and its subsidiaries.
According to the INFOLINE Rail Russia TOP list, the first cargo company, Federal cargo company, JSC, UCL Rail, Globaltrans Investment plc, RTC, GC and others are among the leaders in railway transportation.
Choosing of a transport operator is determined by many factors. This includes the requirements of partners, the buyer, the availability of special equipment (for example, there is a shortage of refrigerated containers in railway logistics), distances and types of products.
As Andrey Terekhin, head of the Export Department at TH “Cherkizovo”, told The DairyNews in a comment, the main advantage of railway delivery is the speed of cargo delivery. For comparison, deliveries via the ports of Saint Petersburg and Novorossiysk to China take from 40 to 50 days, whereas delivery by rail only takes 2-3 weeks.
At the same time, according to Terekhin, "companies can carry products not only to the East coast of China, as in the case of sea transportation, but also to Central China, where a fairly large number of people live”.
In addition, today export logistics in the Russian Federation is subject to subsidies.
According to the Russian Export Center (REC), which is the Federal agent of the government of the Russian Federation for providing transport subsidies for the export of agricultural products and high-tech products, in 2020, a number of changes were made to logistics subsidies.
In particular, they relate to the abolition of restrictions on the geography of sending agricultural and food products and the extension of the program to road and water transport - the cost of transportation using one or more of the following modes of transport (rail, road, water) is subsidized. In addition, the subsidy limit for shipments of perishable export products in refrigerated containers has been increased to 150,000 rubles per container.
The REC states that on a weekly basis, together with Russian Railways logistics, they launch regular export shipments of general and combined cargo from Russia to China in 12-16 days. Deliveries are made from TLC “VORSINO” (Kaluga region) and TLC “Selyatino” (Moscow region).
The first batch of frozen chicken arrived in early June on the Selyatino-Khorgos-Chongqing route.
The new export corridor has two routes: Moscow – Chongqing (via Kazakhstan) (from 12 days); Moscow, Nizhny Novgorod, Yekaterinburg, Novosibirsk, Krasnoyarsk, Irkutsk – Suzhou (via Zabaikalsk) (from 16 days).
The corridor network includes: Saint Petersburg, Moscow, Samara, Nizhny Novgorod, Kazan, Izhevsk, Yekaterinburg, Novosibirsk, Krasnoyarsk, Irkutsk, Ulan-Ude, Zabaykalsk, Nakhodka. Enterprises located in the vicinity of these cities can get an opportunity to supply. However, not everything is so simple.
“We are constantly working to expand support in export logistics for agricultural goods, together with logistics operators; we are forming container full-component agricultural trains, which can also include refrigerated containers. Shipments are sent from the Vorsino and Selyatino terminals to China. At the same time, when sending from regions, such as Novosibirsk, there are tariff discounts of Russian Railways, and now we are working on providing discounts also from Moscow and Central regions to other export routes", commented in the press service of the REC.
The cost of railway transportation, even with subsidies, remains significant. One of the dairy market experts, who asked to remain anonymous, said that logistics from Udmurtia to China by rail is about $400 per ton. Subsidies for one container in the Russian Federation are 150 thousand rubles.
China is not an easy, but a focus market - according to representatives of exporting companies, in the long term and strategy development, the Southeast Asian market will give serious results in the consumption of food exports from the Russian Federation, while the PRC of course prevails in the interests of exporters - due to the greater solvency of the population.
Before that, Russia will have to restore order in internal and external logistics - to ensure safe and high-quality delivery to railway routes, improve the infrastructure of seaports, and learn how to develop free trade zones. Anyway, most of the world's importers are active participants in international agreements on duty-free trade. Russian exporters often face the fact that export duties are higher than import tariffs.
In addition, manufacturers interested in exporting will have to learn how to produce a product that can compete in the world market. After all, for some reason, it is profitable for companies from Argentina and Uruguay to make deliveries to Russia. Why shouldn't Russian goods become more competitive?
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