EAEU: new opportunities for the development of Russian agricultural exports

In 2021, more than 14.5% of the volume of Russian export deliveries of agricultural products fell on the member states of the Eurasian Economic Union (EAEU). Over the year, more than 10 million tons of food in the amount of $5.4 billion were exported from Russia to Kazakhstan, Belarus, Kyrgyzstan and Armenia. Compared to 2020, the volume of shipments in physical terms increased by 15%, in value terms - by 31%.

Including Russian agricultural exports to Kazakhstan in 2021 increased by 33% to $2.8 billion. Approximately half of this volume was accounted for by products of the food and processing industry ($1.4 billion, + 30%). Sales of oil and fat products increased by 30% to $274 million, grain crops - by 2.3 times to $244 million, meat and dairy products - by 18% to $229 million.

Exports of agricultural products to Belarus increased by 28% to $1.8 billion, including food and processing products - by 16% to $620 million, oil and fat products - by 62% to $278 million, meat and dairy products - by 43% to $155 million, fish and seafood - by 7.9% to $99 million.

Shipments to Kyrgyzstan showed an increase of 48% to $430 mln. 2 times to $59 million

Russian agricultural exports to Armenia in 2021 increased by 15% to $340 million. In particular, food and processing industry products - by 20% to $140 million, oil and fat products - by 42% to $66 million. At the same time, supplies grain to the state of Transcaucasia decreased by 17% to $62 million.

The Treaty on the Eurasian Economic Union, of which five countries are currently members, was signed in 2014. In accordance with it, the freedom of movement of goods, services, capital and labor is ensured on the territory of the EAEU, as well as the conduct of a coordinated, coordinated or unified policy in the sectors of the economy. Since May 2018, Moldova has been an observer country of the union, and since December 2020, Uzbekistan and Cuba. 184 million people live on the territory of the EAEU, and the total GDP exceeds $1.7 trillion. 

In 2020, the volume of retail sales of food products in the states of the union approached $255 billion, having increased by 13% over the previous four years. At the same time, the participating countries differ significantly both in terms of population, level of well-being and provision of food products, and in the structure of demand for food products. So, if the consumption of dairy products in Russia and Belarus in 2020 averaged 271 kg / person. per year, then in Kyrgyzstan - 84 kg / person, and in Armenia - only 18 kg / person.

Russiais a key supplier of food to the EAEU countries: in 2017-2020, Russia's share in the union's import structure increased from 39% to 46%. This is a consequence of the increase in the level of integration of countries in recent years, the absence of trade duties, as well as the historical similarity of consumer preferences, Ilya Strokin, director of the competence center in the agro-industrial complex of JSC KPMG, told Agroexport. “Due to the similarity of preferences and unified requirements, exporters actually have the opportunity to supply the markets of the EAEU countries with the same products as they supply to the domestic market. At the same time, in terms of documentary registration of deliveries to the EAEU, it is not much more complicated than shipments to the Russian domestic market, and regulatory requirements are almost identical to domestic Russian ones, which makes access to the markets of these countries accessible to almost all interested companies,” Strokin draws attention.

The potential of Russian exports of agricultural products to the EAEU countries exceeds $6 billion. The Agroexport Federal Center, together with KPMG and Rincon Management, developed the Concept for the Development of Exports of Russian Agricultural Products to the EAEU Markets, which explored the prospects for Russian products and compiled a list of five top priority species for promotion in the market of each of the countries.

So, for the development of deliveries to Kazakhstan, cheeses and cottage cheese, chocolate confectionery, sausages, poultry meat and sunflower oil have the greatest potential; to Belarus - flour products, sunflower oil, pasta, pork, finished products from cereals; to Kyrgyzstan - flour products, poultry meat, cereals, pasta, sunflower oil; to Armenia - sunflower oil, pasta, poultry meat, chocolate confectionery and butter. The total potential of Russian exports of only these promising categories to the markets of the EAEU countries by 2030 is estimated at $1.1 billion, or +59% compared to 2020.

In particular, the potential is associated with the expansion of the range of products already supplied by Russian manufacturers to the EAEU market. As the study showed, Russian manufacturers sell a much wider list of SKUs on the domestic market than in the partner countries of the union. For example, if on the domestic market Russian manufacturers of flour products sell an average of 70-110 types of products, then an average of 20-40 SKUs are sent to Kazakhstan and Kyrgyzstan, and only 15-30 SKUs are sent to Belarus and Armenia. “Today, Russian companies, as a rule, export their most popular types of products to the EAEU countries, and the opportunities lie in expanding supplies through new products, including those with unique tastes and recipes, seasonal, holiday and promotional products that are sold on the Russian market. 

In addition, the potential can be realized through the homologation of products for the needs of a particular market. “Russian brands are in demand and recognizable in the markets of the EAEU countries, so the development of individual brands for these markets is not mandatory. Nevertheless, it is possible to create separate product lines within the brand, use “oriental” design in the markets of Kazakhstan and Kyrgyzstan, develop new packaging formats,” Strokin lists. Thus, in most EAEU countries, oversized packaging, the so-called “family pack”, and reinforced group packaging of the SRP type are in demand. 

Significant opportunities for increasing exports are associated with fish products. Compared to Russia, the level of fish consumption in other EAEU countries is significantly lower, which is associated with traditional preferences for meat dishes and low awareness of the benefits of fish. The convergence of consumption habits with developed markets may allow Russian products to occupy new niches in the markets of the EAEU countries. However, to realize the potential, significant investments are needed in the marketing promotion of fish products as a natural and healthy type of protein, the development of advertising campaigns, and promotion in local media and social networks.

Another niche in terms of expanding exports for Russian companies may be entering new sales channels, such as HoReCa and private labels (PL) of retail chains. Along with Russia, these segments are developed primarily in Kazakhstan and Belarus, Korneev notes. “The retail markets of Kazakhstan and Belarus are characterized by a significant penetration of chain retail, and private label products are starting to actively compete with traditional brands. Thus, deliveries under private labels will allow Russian companies already operating in these countries to diversify their offer and expand their presence on the shelves,” explains Korneev.

In addition to the basic categories, Russian manufacturers can export unique products, including those for the HoReCa segment. In the period 2021-2025, the annual growth of food service in Kazakhstan is expected to be 7.3%, in Belarus - 6.1%. “With the development of catering services, restaurants in Kazakhstan and Belarus are increasingly trying to attract consumers by developing a unique menu, author's dishes, offering rare and exotic products,” Korneev draws attention. Expansion of volumes can also be achieved through new subcategories, such as alternative products, organics, healthy foods.

Agroexport, together with companies and experts, has developed a practice-oriented roadmap for exporters to bring products to the markets of the EAEU states. Among the measures presented are regulatory, administrative, trade and logistics and marketing activities. “In the absence of barriers, domestic companies should treat the EAEU countries as attentively as they would their home market, and carry out all the work that is carried out inside Russia,” Korneev is sure. In addition, the EAEU market is also important for Russian companies in terms of assessing their competitiveness: “For example, Kazakhstan is open to importing products from far abroad and, thus, Russian manufacturers compete in the Kazakh market both with locally produced products and with goods supplied from abroad.