Due to a number of factors, 2013 was a difficult year for many of Russia's fruit and vegetable suppliers. Bad weather negatively impacted some crops while restrictions on fresh produce shipments to Russia from several regions of origin limited supplies. Many companies in Moscow also experienced problems with fresh produce storage when one of the biggest warehouse complexes in the city was closed. Negative changes in consumer behaviour and purchasing power also became evident at the end of the year.
According to data from the Federal Customs Service, imports of fruit, nuts and dried fruit to Russia in 2013 remained roughly equal to 2012 levels – amounting to 6.19 million MT or $6.26 billion. Compared to the previous year's figures (6.16 million MT, $6.28 billion), the volume of imported fruit increased by 0.4 percent and the value decreased by 0.35 percent. Imports of vegetables over the same period grew more intensively. The gross import volume of vegetables reached 2.90 million MT, or $2.80 billion, exceeding the volume and value of 2012 by 6.3 percent and 12.4 percent, respectively.
Vegetables
Regarding the Russian vegetable market, experts pointed to two trends. On one hand, several domestic crops had bad seasons, and a lack of domestic production had to be substituted by increased import. On the other hand, import volumes of 2013 were affected by quarantine restrictions applied to imported vegetables from several countries. Thus, despite the lack of potatoes in the market, import of potatoes declined due to long-term bans on shipments from countries like Egypt and Pakistan. As a result, only 444,000 MT of potatoes were imported - 3.9 percent less than in 2012.
Growth of tomato shipments (by 3.7 percent to 829,000 MT when compared to the previous year) and an increase in capsicum imports (by 12.7 percent to 161,000 MT) resulted from the large number of new Moroccan tomato importers and direct suppliers of capsicum from Israel that entered the market. Israeli capsicum was priced better than the Spanish product that is traditional for the Russian market, while the possibility of direct container shipments through Novorossiysk considerably simplified its transportation. As a result, shipments from Israel constituted more than a half of the Russian market of capsicum by volume (53 percent). This change affected the average price of imported product. Thus, the growth of capsicum import value amounted to only 2.3 percent.
Cucumber imports were down by 5.5 percent, to 202,000 MT, although the price increased as well as the market value. It is worth mentioning that Russian imports of onion considerably grew in 2013 (by 7 percent to 300,000 MT), and the import volume of the relatively small category of lettuce rose sharply by 20 percent (to 34,500 MT).
The largest share of the Russian vegetable market still belongs to tomatoes, which make up 28.6 percent of the total volume of imported vegetables, while potatoes made up 15.3 percent of that. At the same time, these market shares decreased as compared to 2012, when tomatoes represented 29.3 percent and potatoes represented 16.9 percent of total vegetables imports to Russia.
Fruit
Volume of imported fruit remained steady from 2012 to 2013. But the structure of the market changed, especially at the end of 2013. Major trends included significant decreases in fruit shipments in December of 2013 – by 13 percent in volume and by 16 percent in value – and a general decline in shipments of higher-priced upscale fruit throughout the year at the same time import volumes of relatively inexpensive fruit grew. In fact, the market share of the three most popular mass-market fruit categories – citrus, bananas and apples – increased to 69.2 percent of the total volume of fruit imports, while citrus kept its position of the number one fruit category. Apples made up 21.3 percent of the total volume of imported fruit (up from 20.8 percent in 2012), bananas made up 21.4 percent of that (up from 20.4 percent in 2012) and citrus constituted 26.4 percent of fruit imports (up from 25.6 percent in 2012). Volume of imported citrus reached 1.63 million MT (3.6 percent increase compared to 2012) or $1.62 billion in value. Shipments of bananas grew up to 1.32 million MT (5.14 percent growth) or $985 million in value. Volume of imported apples was 1.32 million MT (3.2 percent growth) or $774 million. The average cost of imported citrus and bananas grew slightly, but the price of apples decreased. In contrast, imports of other fruit categories decreased. For example, imports of pears have shrunk by 9.7 percent to 371 thousand MT and grape imports shrunk by 7.7 percent to 350 thousand MT.
Only a small share of fresh consumable fruit in Russia is grown domestically. FruitNews.ru estimated that at least 80 percent of fruit in the commercial supply chain is imported. Thus, the major market impact factors were changes in consumer demand and in the offers from foreign exporters. A number of market participants noted ever-increasing pressure on the price of supplied fruit from retail chains. As the role and influence of retail chains in the overall market picture grows, the trends set by the retailers have larger impacts. Several Russian importers mentioned that in many cases such pressure resulted in a lower quality and a worse assortment of fruit on the retail shelves.
In discussions with FruitNews.ru, a number of Russian importers named the drop in quality of Moroccan clementines as a significant problem for the market. Citrus from this country used to be the most popular product for the New Year table due to the good combination of quality and price. But in 2013 Russian importers often complained about the low quality of fruit consignments they received from Morocco. They suppose that the quality decreased as a number of small and inexperienced suppliers began exporting from Morocco. On the other side, exporters from Morocco said that the price for fruit in the domestic market increased significantly, making it difficult to balance the price required by their foreign buyers with the proper quality for export shipments. Though it's not clear this problem was crucial to the market failure at the end of the year.
In December 2013, the overall decline in imports of mandarins and clementines to Russia was 12 percent, which corresponds to the general trend. Imports of these fruits from Morocco decreased by 14 percent, which is similar to the decrease in citrus supplied from other major exporters, such as Turkey, China, Abkhazia and Spain. It's important to mention that in October of 2013 Georgia gained access to the Russian market for its citrus and by December had already taken the 6th position among the countries that supply mandarins to Russia.
Many Moscow fruit market participants reported that the closing of Pokrovskaya storage facility in October 2013 and a general decrease in the number of open markets and food kiosks in Moscow have had large negative effects on fruit sales for the end of the year. A portion of the relatively small market players rented warehouses in Stupino and had to find a way out when the facility was closed. The same companies intended to sell through the open market, fruit kiosks and stalls. Due to their small size these companies were the most flexible, ready and eager to adjust their volumes and assortment to the high consumption during the New Year season. With the closing of the storage facility and decrease in the number of small points of sales, these companies had to reduce their trade volumes or leave the market entirely. As a result, after the Stupino distribution centre closed, an assortment of fruit in small outlets, open markets and even in the outlets of the retail chains declined, especially in the case of out-of-season products like stonefruit and berries. But, at the same time, the situation helped certain companies to expand their market shares. The negative effects are likely to fade in the short run, while the import volumes will be redistributed among the remaining market players. All told, the fruit market will likely adapt to these changes, as was the case several years ago in the reverse situation, when the three largest players in the market got broken up.
Conclusion
Due to lingering difficulties from last year, small local vegetable crops will likely fill in for the decrease in imported vegetables. Political problems in Ukraine have made for further complications, because delays in customs clearance at the border with Russia are the most critical for time-sensitive products like vegetables, while Ukraine used to be a large supplier of vegetables to Russia.
A decline in the purchasing power of Russian consumers and the decrease in value of the Russian ruble will lead to sharper divisions in the fresh produce market by price. This trend is likely to form rigid frames between premium and mass market segments and will lead to the hollowing out of the medium segment.
Shipments of mass market fruit with low price points, like apples, bananas and citrus, will likely increase, and purchases of mid-price product will likely decrease. Upscale retail chains, food service suppliers and the remaining open markets will support certain demand for premium fruit.
Demand for low cost fresh produce will lower the average quality of products and many importers will have to focus their purchases on smaller exporters offering lower prices. This can lead to significant losses and more exits from the market's smaller companies. There is a high probability that Russia will face the new spin of the fresh produce market consolidation, similar to the one that was witnessed in the beginning of 2000s.
