Thai dairy company CP Foods wants to enter the Russian market with a partner

A source familiar with the plans of the company told Kommersant that CP Foods (part of the Thai conglomerate CP Group) it is considering entering the Russian dairy market in partnership with a local major player in the industry. According to the source, negotiations are currently underway, but they may end without results. The source did not disclose the name of a potential partner of CP Foods.

The main owner of the largest milk producer in Russia, “EkoNiva” holding, Stefan Duerr, told Kommersant that the company discussed creating a joint venture with CP Foods. However, the negotiations were not completed. According to another source of “Kommersant", familiar with the plans of the Thai company, today it is considering entering the Russian dairy market exclusively in partnership with a local player.

In Russia, the company produces compound feed, runs pork production complexes in Moscow, Lipetsk, Kaluga and Kursk regions, and poultry farms near St. Petersburg. The revenue of CP Foods in 2019 was about $17 billion at the current exchange rate, according to reports.

CP Foods announced its intention to invest in milk production in the country in 2016. Then, together with the Russian direct investment fund (RDIF) and the Chinese Banner Dairy CP Foods wanted to invest $1 billion in the construction of a dairy complex. A year later, the company decided to start investing in the industry by buying up existing enterprises, wrote the newspaper “Vedomosti”. However, the deals have not been reported since. The RDIF declined to comment.

Mikhail Frolov, partner and head of the practice on providing services to PwC agribusiness companies in Russia, notes that the entry of foreign companies into the Russian market in partnership with local structures is the least risky option. This allows foreign players to quickly navigate the Russian market in the specifics of working with suppliers, distribution, normative regulation, as well as forms of state support, which is most relevant for the agro-industrial complex, he lists. According to the expert, most often partnerships are limited to creating joint ventures, while the contribution to capital can be not only money, but also technologies, patents, and brands.

Raw milk production in Russia is growing. According to the estimates of the National Union of milk producers "Soyuzmoloko", by the results of 2019, the output of commercial raw milk increased by 4.4%, to 22.5 million tons, updating the record of 2014 for production growth and reaching a new historical maximum. In the first four months of this year, the production of commercial raw milk increased by 8.1% to 5.4 million tons.

Daria Snitko, head of the economic forecasting center at Gazprombank, says that the first signs of the beginning of saturation of the Russian raw milk market are already visible this year. By the results of the half-year, the production of raw milk is growing by about 5%, while the fall in effective demand due to the crisis negatively affects the consumption of finished dairy products, she notes. However, the analyst emphasizes that it is too early to talk about suspending investment in the industry.

According to a source of "Kommersant", if CP Foods fails to agree on cooperation with a local player, the company may refuse to invest in the dairy industry in Russia at all. Despite the extremely attractive dairy business in Russia and its support by the country's authorities, our main business in the country is poultry, pig farming and meat processing, said in the Russian office of CP Foods to “Kommersant”. They do not exclude that they will concentrate in Russia only on the above-mentioned segments.