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The Russian market of sausage products

Currently sausage products are very popular among Russian citizens. Whereas in earlier days the sausages were considered gourmet items enjoyed mainly at festive tableful, nowadays many Russians use the sausage more or less on a daily basis.

Frequent consumption of sausage products encourages meat-processing factories to broaden the product range. However, due to the imposed food embargo, a sharp rise in the exchange rate and deterioration in the economic situation in Russia, consumers were forced to spend less on food, including sausages.

Food embargo bans to import sausages and meat alike, which in turn increases the costs of domestic enterprises that used to import raw products and ingredients to manufacture their products.

Since the start of 2014, average retail prices for semi-smoked sausages have risen by almost 31%. This growth rate is the highest with regard to consumer prices of all types of sausages. In September 2015 the price of one kilogram of semi-smoked sausages was more than 400 rubles. The cheapest is the cooked sausage – this situation has not changed for the past eight years. However, even this kind of sausage witnessed average retail prices increase by 9.6% for the year.

The years 2013 to 2015 saw apparent consumption to decline. Thus, in 2013 and 2014 the sausage product market shrank by almost 1% a year. In 2015 the negative trend deepened, with the market dipping by 2.4% between January and September.

Decline in the scale of output of this market segment is primarily due to a decrease in the production of the sausage products manufactured by Russian companies. In 2012 more than 2.5 million tonnes of sausage goods were produced, while in the last two years the volume of output fell by almost 2%. 2015 saw the continuing drop in this indicator, and production has declined by yet another 2.4% in the first nine months.

Introduction of the embargo and the ruble’s loss in value not only affected the imports of the finished products, but also had a significant impact on the cost and supplies of raw materials for the production of sausage products in Russia, fundamentally affected the development of the domestic market. The forecasts expected the increase in the sausage consumption, but the first six months of the year show decline in this indicator.

The negative dynamics of production, as indicated above, can be accounted for by the deterioration of the well-being of Russians. By the end of 2014, the size of the disposable income decreased by 3%, which had an effect on the consumer goods basket. Thus, the following changes in consumer behavior are distinguished in 2015: a drop in demand for meat products in general and a shift towards cheaper segment and foods of plant origin.

The maximum decrease in the production of sausage products by Russian meat processing companies was recorded in 2009 after the global financial and economic crisis. Then the output amounted to 2.2 million tonnes, down 9 per cent from 2008. It is worth noting that, despite the multidirectional growth rate dynamics, the volume of production never went below 2 million tonnes since 2005.

This market segment is marked by seasonal production variability throughout the year: manufacturers ramp up production in the summer months when the cattle gain weight well. Likewise, high production outputs prevail in December when consumers start preparations for the New Year holidays and sausages sales grow.

Cooked sausage is the main choice of the population with low and middle incomes due to its low price. Therefore, this type of sausage products is available in the product line of every meat processing factory. Cooked sausages are used to prepare sandwiches for breakfast, snacks, to be added to salads, soups and other dishes.

Occupying 63% of the market, the cooked sausages are the undisputed leader in the structure of Russian production. The share of smoked sausages is more than twice as less. Other types of products, such as blood sausages, sausages, consisting of thermally processed ingredients, and others, totally occupy about 10% of the volume produced.

It must be noted, that local production of sausages almost completely satisfies internal consumption and imported products are mainly needed to increase the product range. Imports accounted for about 2.1% in 2013. Despite the food embargo on meat products made in the US, EU, Canada, Australia and Norway, the share of the Russian market imports grew 2.22% in 2014.

In terms of figures, the scope of imports demonstrated positive trend in 2013–2014. By the end of 2014, Russia’s imports prevailed by 7% over those in 2013. Note that the last year’s growth rate declined, as imports of sausage products in 2013 rose 22% vs. 2012. Whereas in 2014 the ban imposed on the supplies of meat products had almost no effect on the volume of imports both in money and in kind, in 2015 the cross-border shipments declined steeply. For January through August 2015, the sausage products imported to Russia showed a drop of 40% in terms of scope and more than 70% in terms of money.

The last year’s imports growth is attributed to the fact that the Republic of Belarus, the main importer of sausages, has increased shipments to Russia 1.4-fold, while the countries which suffered the embargo significantly reduced supplies by the end of 2014.

Experts observe that potential stabilization of the ruble exchange rate and the meat industry development, provided that the Russian government will lend support, will help normalize the situation on the sausage products market in 2016–2017. The development of own raw material base will significantly reduce the cost of finished goods, which in turn will affect the price and consumers’ level of demand.

 

Company:
Global Reach Consulting (GRC)

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