Trading with Russia difficult, but has potential

Trading with Russia is difficult and requires a “reasonable appetite for risk”, but it’s a big place with big potential for meat.

Rabobank’s recent report on the Russian meat industry shows that its growth is slowing, but as the market moves from volume to value that offers opportunities to exploit new and speciality markets in the country. It will require exporters to adjust to the changing conditions, the bank says.

Dan Coup, MIA.“Trading with Russia is difficult and you do need to have a reasonable appetite for risk,” according to Meat Industry Association trade and economic manager Dan Coup.

Since early 2011, New Zealand has been negotiating a Free Trade Agreement (FTA) and regulatory relationship with Russia and its Customs Union partners of Belarus and Kazakhstan.

According to the Ministry of Foreign Affairs & Trade (MFAT), an FTA with Russia-Belarus-Kazachstan would present a unique opportunity for New Zealand to future-proof its relationship with the largest country in the world and the ninth largest economy. While New Zealand’s current trade with Russia is currently relatively modest, the relationship is one which has strong growth potential, it says.

Negotiations include market access, rules of origin, customs facilitation and co-operation, sanitary and phyto-sanitary measures and technical barriers to trade.

No date has been set for completion of the negotiations with the Customs Union. MFAT says they will be concluded when New Zealand is satisfied that the outcome will be a high quality and comprehensive FTA.

Currently, in the pre-FTA environment, there is tight access for beef, though sheepmeat is more open, Coup says. But the trade is fraught from a technical barrier angle, he adds, pointing to two recent examples. The first: Australia essentially had its lucrative trade in kangaroo meat, turned off overnight without reason. The second: the US, having built up a substantial beef trade, also had its exports to the market cut off at short notice ostensibly due to the US’ use of growth promotants.

In addition, Spain and Ukraine are among other countries which have recently had to place temporary restrictions on exports of  meat and meat products to the Customs Union – which they have found is the most expeditious way to deal with the demands of Russian legislation and veterinary rules of the Customs Union.

New Zealand’s trade in meat and meat products with Russia was worth nearly $56 million at the year end December 2012, this is a 9.8 percent drop on the previous year, but a 59 percent increase on the December year end in 2010.

Murray Brown.One of the companies exporting to the region is Alliance Group. Its general manager marketing, Murray Brown, says that it’s a very small market for New Zealand lamb and sheepmeat, accounting for only 0.75 percent of total global export volumes.

He agrees that the market has potential, but that the “market does not come without its difficulties”.

Most product – a range of high-valued lamb – goes into Moscow and most goes into foodservice. Predominantly, mutton is used as a substitute for lamb by Russians, he explains.

“There has been variable demand,” he says. “However, with Russia’s ability to extract minerals and its other natural resources, I feel the market and demographics will continue to provide potential.”

Once the FTA is ratified, it may open the market up more to possibilities, he believes.

In the year to date, only two percent of New Zealand’s global exports of beef – mainly offal type products – have gone to the market. “Again there’s a lot of competition.”

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