Russia fends off cheese imports

In February, the Russian government's commission on protective measures for foreign trade and customs tariffs will decide if it is to increase import duties on cheese. If the government goes ahead with the move, duties on cheese could increase from 15 per cent to 25-30 per cent. The government believes that this measure could help protect local producers in a market which is still under the strong hold of western European imports.

Industry observers claim that the Russian cheese market is expanding at a rapid rate. In 2001, the Russian processed cheese market was worth $174 million (€140), and it is expected to reach $280 million (€226 million) by 2006.

On a global scale, Russia has a low rate of cheese consumption in per capita terms. Its yearly consumption stands only at 3.9 kilograms and this low level is matched only by Oriental countries. At the other end of the scale, the Finns consume 16 kilograms of cheese yearly.

However, the recent expansion in the cheese market has meant that consumption levels are expected to rise rapidly in the near future as Russian diets start to include more westernised foodstuffs, a prediction which has led both Russian and international companies to try and cash in on the future potential of the market.

Western European cheese currently represents 60 per cent of the Russian market. This situation has been bought about by EU subsidies which have helped European makers to produce cheese at a competitive price. In turn, it is believed that a measure to curb the import of cheap cheese could allow Russian producers to dominate the market.

The largest cheese producer in Russia, Wimm-Bill-Dann Foods (WBD), has already made it clear that it intends to increase its share in the cheese market in the future. The company has invested €11 million in facilities and a recently opened factory is able to produce an estimated 15,000 metric tons of cheese yearly. WBD claims that it represents 30 per cent of dairy produce in Russia, and plans to be in a much stronger position by 2005.

Although the argument does stand that a higher tariff on imported cheese could leave producers like WBD in a stronger position, some independent experts in the industry are doubtful that such a move would hold any real significance for Russian cheese makers.

As western European dairy companies increase their presence in the Russian market, so too does the amount of cheese that they produce in Russia. A tariff on imported cheese would of course have no knock-on affect on European factories based in Russia.

The German dairy group Hochland, and the French company Lactalis both began production of cheese in Russia two years ago, and neither would be affected by any raising of import duties. Hochland has four production lines there and produces an estimated 3,700 tons of cheese a year. It invested €8 million in its Russian business two years ago. Lactalis produces 6,000 tons of dairy products yearly, of which 4,000 tons is actually produced in Russian factories.

Similarly, Ukrainian producers who represent 33 per cent of the market would also be unaffected by the measures.

Speculation in the Russian media suggests that this proposal could be the first of many steps to protect Russia from European dairy products.