Russia’s emergence as a big buyer of Australian beef is easing the impact of falling demand in traditional export markets, offsetting lower sales in countries such as Japan, Korea, Taiwan, the US and Canada.
The Russian market’s meat consumption per capita is still much lower than the Western European norms, meaning that there is a strong opportunity for sales figures to grow across the board.
According to Austrade’s Senior Trade Commissioner toRussia, Dan Tebbutt, “the pattern of meat being bought by Russia from Australia changes from time to time. The bulk of the meat coming in is for meat processing, so a lot of the market is that volume meat. At the same time, on the other end of the scale, you have a lot of very high-end meat, including a lot that’s flown in chilled rather than frozen.
“It’s that meat at the top end of the market that’s got the industry the most excited, because the prices in Russia are extremely high, often higher than those in the Japanese or the US market in the last two years.
“It’s a pretty exciting period for the industry. It’s probably unfair to say whether opportunities are better on the bulk or the high-end, because I think both ends of the industry are very exciting in different ways,” explained Tebbutt.
Although the meat consumption in Russia is still relatively low, it is certainly growing in line with disposable incomes. Average per capita income in Russia is now well over US$10,000 per head. Real wages growth last year was around 16% and this year is forecast for about 12%. Comparatively, this puts real wage growth last year ahead of that in China and, according the Economists Intelligence Unit, makes it the fastest in the world.
With incomes rising rapidly and people spending those incomes on better food products, including better meat, opportunities are plenty.
“You find steak houses appearing all over Moscow, and Australian steaks are certainly on the menu. The average Australian steak in a restaurant is going for US$50-100. Consumers are paying top dollar and eating more,” said Tebbutt.
Although there’s certainly a lot to be excited about, there are still significant challenges in Russia. As in any emerging market, the patterns of dealings are less stable than in an older, more established marketplace. Buyers, importers and distributers can, and do, change their suppliers on a regular basis.
As Tebbutt sees it however, “in the last two years that situation has improved dramatically. Established importers now have long-term relationships with their suppliers in Australia and there’s less of a tendency to chop and change, so there is greater stability appearing in the market.
“That makes it easier for the demand to be spread out a bit more evenly over the year although the market is, of course seasonal. In the past, some of the up and down swings have been quite dramatic in terms of ordering, but as we move toward more long-term relationships between buyers and sellers you can expect to see the stability spread.”
Russia has extremely specific veterinary and food safety rules which are as strict, or stricter, than places such as the European Union, or indeed Australia’s own rules. However the issue in Russia is that those rules are not as clear as they are in other countries, and sometimes the application of those rules is also difficult. This tends to be more of a problem for the importers than the sellers, but sometimes does affect the sellers as well.
“We work with a lot of Australian exporters in this market,” explained Tebbutt, “and our advice to them is to be extremely attentive to the documentation, to make sure they get it right, because if it’s wrong — even in a trivial way — it can make a lot of problems for your importer and yourself as an exporter.”
Meating the market
Nippon Meat Packers Australia is carving out a juicy portion of Russia’s high-end meat market. The Sydney-based company has been exporting to Russia since the early 1990s, but has recently focused on increasing sales at the premium end of the market.
The company achieved total sales in Russia in excess of $8 million in 2006, with a healthy percentage of this value comprised of premium grain-fed products. “That is an important area of growth for the Russian market and part of our strategy to increase sales,” said the company’s general manager for operations and planning, Stephen Kelly.
“Russian consumers are becoming more discerning about the meat they prefer to eat — and they are prepared to pay for it. Restaurants and hotels in Moscow are particularly attracted to our Australian grain-fed beef products.”
Nippon Meat Packers sells directly into the Russian market through two preferred local distributors. Among its clientele are a number of five-star hotels and the popular Goodman’s Steak House restaurant chain. Kelly also foresees excellent opportunities for expansion in the retail sector.
“In terms of opportunity, we rate Russia extremely high. It is the number one market for growth potential at the high end and we hope to expand our product range further.”
Kelly dispels any myths about payment risk in Russia. “In our experience, the Russians’ way of doing business is relatively straightforward. After initially requiring upfront payment, we now do most of our business on commercial terms, as our partners have proven to be reliable and trustworthy.”
Russia is a very relationship-driven country. It is vital to visit the market, make relationships with potential customers, and to spend time getting to know them. For Tebbutt, “the business culture in Russia is a lot like those in southern parts of Europe, where people want to get to know you and want to have a relationship with you. Therefore, if you’re personable, they’ll probably want to do business with you.
“Obviously price in any transaction is part of the equation. I guess you can say that the prices and the margins in Russia are very high, but you also have to work for that — it’s not money for nothing. It is a labour intensive market, and although you can make very good money, you have to work for it.”
Meat & Livestock Australia opened an office in Russia last year, which has been able to provide a strong support for the industry. According to Tebbutt, “there are a lot of government agencies involved in making sure the regulatory issues don’t get worse, and in fact hopefully get better, and I think that teamwork is working well. It’s really important for exporters to have a chat to MLA and DFAT (Department of Foreign Affairs and Trade) before they head into the market.”
The outlook for the future of the Russian meat market is positive. For Tebbutt, “this year has really been phenomenal for the meat market. In 2006 we had what we called the ‘perfect storm’ of conditions as most of our competitors were out of the market. The Europeans were struggling to produce enough, North and South America both had disease problems that year, and we had what we thought was the best year, and an almost unrepeatable year.
“The first four months of this year we’ve sold more than we sold in the whole of 2006. Demand this year has really exploded. It’s very exciting for the industry.
Although Tebbutt stresses the need not to create unreasonable expectations and cannot predict how long the boom will be sustainable, the competitive outlook for the Russian market speaks for itself.
Russia is one of the strongest economies in the world, and is now the equal sixth largest economy with the UK. The country’s growth is phenomenally fast and has been averaging a 7% growth rate since 1999. This year the forecast growth rate is 7.6%, and for the last two years the country has actually beaten its official forecast growth.
“It really is a very attractive market,” said Tebbutt. “It’s growing strongly, demand is increasing, the prices are very high. Russians are good people and they’re enthusiastic about the product. They love to eat high quality meat, so in the meat market things are looking very, very good.
“We say to Australian businesses — you don’t necessarily have to do business in Russia, but this market is so important, at least come and have a look at it and make an informed decision for yourself.”
n Austrade Moscow
+7 495 232 3256
Maya Gorelik is a freelance journalist for FOOD Magazine.