By Sergey Minko
Russia’s packaging industry, which imports some $2 billion worth of foreign packaging materials and equipment annually, increasingly needs modern packaging materials and machinery to improve the look and quality of packaging and make domestic products more competitive with imported packaged goods. Currently, only a few U.S. companies participate in this market.
Current Russian customs duties favor the importation of finished packaging materials, rather than stimulate domestic production from imported or domestic raw materials. Nonetheless, many Russian companies are looking for ways to develop and improve local production of finished packaging materials. Demand for both packaging materials and machinery provides U.S. companies with trade and investment opportunities.
Update on the Packaging Materials Sector
Although Russia possesses the raw materials required for domestic production of various packaging materials, current government tax and import duty policies hinder development of local production of packaging materials. The customs duty for imported finished packaging materials is set at 5-10 percent, while the customs duty for supplies to be used in creating the packaging is 15 percent.
Russia imports almost all types of packaging materials. Although Russian producers meet as much as two-thirds of demand in the overall packaging materials market, over a billion dollars worth is imported. Companies that sell printed materials and packaging films are most successful in this market, selling $290 million worth to Russia in 1997. Foreign suppliers provide 25 percent of the corrugated market ($75 million annually), 40 percent of cardboard boxes ($82 million annually), 65 percent of cardboard, 45-55 percent of labels, and 70 percent of label paper.
According to Yury Alpeev, marketing director of packaging materials company Gotek, before the August 1998 financial crisis, Russian companies imported foreign packaging machinery and packaging materials worth $1.8-2.3 billion annually. Half of this amount was packaging ($0.9-1.2 billion a year) and half was packaging materials ($0.8-1.04 billion annually). In 1998, imports of wrapping films, PET bottles, stickers, and metal cans increased about 30 percent over 1997, but have declined 40 percent since the crisis.
Among the major exporters to Russia in this sector are Italy (30 percent of total packaging materials), Germany (17 percent), and Finland (11 percent). Imports of U.S. packaging materials accounted for only 4 percent. One of the major U.S. export products to Russia is Scotch™-type packaging tape, accounting for $15.7 million.
Packaging Industry Situation by Market Sector
The demand for packaging varies greatly by sector. Nearly all sectors need upgraded products and equipment, but only a few sectors are experiencing vigorous demand at this time.
Confectionery—Confectionery packaging is one of the most developed segments of the industry. Although some leading confectioneries use modern packaging technologies and pack their products very attractively, most confectioners lack modern packaging technologies to extend product shelf life.
Bakery—The majority of Moscow’s bakeries supply retail outlets with products packed in plastic bags or wrapped in plastic film, but little bread is distributed under sealed and branded product lines. Many regions are following Moscow’s example by requiring bakery products to be wrapped for sale, thus creating the need for new packaging materials and equipment.
Dairy—Russian dairies rely heavily on modern packaging. Moscow is the leader in introducing dairy packaging technologies, while the bulk of dairy products produced in the regions is still packed in plastic bags and glass bottles. Therefore, most domestically produced dairy products are uncompetitive in the market. Milk processing plants could significantly improve production by purchasing Pure Pak or Tetra Pak-type milk processing and packaging lines.
Household chemicals and paints—Enterprises in this sector usually use simple plastic and glass containers for household chemicals and metal cans for paints. To be more competitive with imported products, Russian producers must significantly improve quality and add convenience features such as handles, measuring scoops, and printed instructions.
Prospects for U.S. Companies
The overall improvement of the Russian economy will provide U.S. packaging equipment companies and packaging producers with enormous opportunities to increase exports to Russia through direct sales, leasing, and investments. Many Russian companies welcome foreign investment, and some foreign companies have already invested in packaging raw material companies. For example, in 1998, International Paper (Purchase, NY) acquired 80 percent of the Svetogorsk Pulp and Paper Mill, which reportedly produces 293,000 tons of paper and cardboard annually.
Another sign of the favorable investment potential of Russian companies is the success of the Russian company Gotek (one of the leaders in producing corrugated cardboard). Gotek uses modern equipment to provide packaging materials for major U.S. companies operating in Russia, including Procter & Gamble, Mars, McDonald’s, and Coca-Cola, and for several large Russian companies. Other Russian companies such as Poligrafooformlenie, MKPG, Polipak, and Dozakl have attracted investments to renew their production facilities. Overall, Russian industry experts believe that Russian packaging companies have the potential to attract up to $8 billion in foreign investment.
Those U.S. packaging equipment and materials companies that want to expand their business in Russia or enter the Russian market should be more aggressive. Strategies that have proved successful include participating in local trade shows, establishing representative offices or representation by Russian dealers and distributors, and marketing products more widely and persistently.
Sergey Minko is a commercial specialist with the Foreign Commercial Service at the U.S. Embassy in Moscow.
For more information on FCS Moscow services and the Russian packaging equipment and materials market, U.S. exporters may contact Sergey Minko at tel: +7 (095) 737-5038, fax: 737-5033, email: Sergey.Minko@mail.doc.gov, or visit BISNIS Online at www.bisnis.doc.gov/bisnis/isa/990702pk.htm.