Russian confectionery markets see price rises amid materials shortage

Challenging economic conditions within Russia amid international trade tariff issues has impacted on the country’s confectionery sector, with chocolate manufacturers, including facilities such as Krasny Oktyabr (Red October, pictured) set to face cost increases.  Eugene Gerden reports exclusively for Confectionery Production

 

Prices for confectionery and sweets in Russia have grown by almost 30% since the beginning of the current year, due to a shortage of raw materials and their high cost, according to recent statements of some producers and experts of the Russian Ministry of Industry and Trade.

The data has also been confirmed by the experts of the Russian “Askond” Association of Enterprises of the Confectionery Industry, a public body uniting Russia’s leading confectionery producers and global companies, operating in the local market.

According to Vyacheslav Lashmankin, executive director of the association, the raise of prices for finished products is triggered by the ever growing production costs of the industry.  For example, prices for sugar have already grown by 20%, while in the case of cocoa beans the growth was equivalent to 5%-7%.

The growth of prices is also observed for powdered milk, that became mainly due to the existing ban on its imports from Belarus.  According to producers, domestic production of powdered milk can not meet local demands. In addition, powdered milk supplied by Russian producers, is by 15-20% more expensive than its Belarus equivalent.

The current shortage of raw materials has already resulted in the growth of imports of their cheaper substitutes, one of which is palm oil.  Furthermore, The Russian Federal State Statistics Service (Rosstat) has recently published data revealing that for the first seven months of the current year imports of palm oil to Russia has grown by 24%

Producers say despite its serious disadvantages, they have to use palm oil to make fillings for chocolates, creams for cakes, as well as rolls and cupcakes.  They have also added, due to the current problems, they have already sent a petition to Russia’s Prime-Minister Dmitry Medvedev, asking to check this issue.

Vyacheslav Lashmankin said:  “The industry currently experiences an acute shortage of high-quality dry milk and dairy products, which are used as ingredients in the production of a various confectionery range in Russia.

Unfortunately, these needs cannot be covered by Russian suppliers, primarily in terms of safety parameters. In the confectionery industry, raw milk is not usually exposed to high temperatures, so the requirements for its quality are high.

In Russia, due to a shortage of raw milk, a product with poor quality, often became a subject of drying, however such raw materials cannot be used in the confectionery production”.

Lashmankin has also added local confectionery enterprises are constantly working to increase the level of localisation of raw materials, however, implementation of these plans is impossible within a short period of time.

According to producers, certification of new suppliers of raw materials takes at least eight months. In addition, a switch to the imports of raw materials from non-CIS countries will require the re-building of the entire supply chain and will lead to a significant raise in logistics costs.

The growth of costs already forces producers to raise prices for finished products, while some analysts expect the growth of imports of confectionery and massive bankruptcies of local producers.

The situation is also aggravated by low purchasing power of Russian customers, which means any raise in prices will force them to save on further confectionery purchases.

Currently, the Russian confectionery market remains the world’s 5th largest in volume terms. The annual average per capita consumption of confectionery products in the country is estimated at 24.5 kg. One of the ways out of the crisis is the increase export volumes.

At present Russia supplies its confectionery products and sweets to more than 50 countries. Last year, exports exceed US$1 billion. By 2025, Russian producers plan to double the volume of their exports.

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