POST OF ORIGIN: MOSCOW
DATE OF REPORT: 981021
AUTHOR: SERGEI MINKO/LUDMILA MAKSIMOVA

INTERNATIONAL COPYRIGHT, U.S. & FOREIGN COMMERCIAL SERVICE AND U.S. DEPARTMENT OF STATE, 1997. ALL RIGHTS RESERVED OUTSIDE OF THE UNITED STATES

Summary

1. The current financial crisis has severely affected the state of the Russian food and pharmaceutical markets. This report highlights recent constraints limiting imports, as well as Russian government measures intended to facilitate imports of essential food and medical supplies. End summary.

2. According to a recent statement by Russian Prime Minister Primakov, import of food stuffs in the month of September decreased six times. If the situation with foods supply does not improve in the nearest future, Russia could be faced with food shortages. More than half of the foodstuffs consumed in Russia are imported. In 1997, Russia imported around 40% of required beef (840-950,000 tons), 80% of poultry (one million tons), 70% of fish products, 30% of milk products, and 10% of vegetables.

On July 17, to collect more money for the struggling budget, Russian government imposed 20% VAT tax on imported food products, up from 10%; and on August 15, 1998 implemented an additional 3% import duty on all imported goods.

As a result, in Moscow many cold storage facilities were stuck with meat products worth tens of millions U.S. dollars because food processing companies could not find money to pay the added duties and thus clear the products through customs. This situation was aggravated greatly by the devaluation of the ruble since August 17.

Likewise, the Russian pharmaceutical market was badly hit by the current crisis. In 1997 the Russian pharmaceutical market was estimated at USD 3.1 billion, $1.9 billion of which were imports. Between the beginning of September and the middle of October 1998 alone, drug imports dropped by 30-40 percent. Western analysts believe that the current outstanding debt of Russian pharmaceutical distributors to foreign companies is in the amount of USD 300 million.

According to different reports, in the middle of October the amount of pharmaceuticals in stock at distributors' warehouses was enough for only a month or two. Many products have come close to being out of stock. Russia is now faced with the possibility of widespread medicine deficiency.

Moreover, the Russian pharmaceutical industry is highly dependant upon imported inputs, which account for 70 percent of all substances used to produce medicines in Russia. Imports of substances and several medical devices practically stopped in September-October 1998. Lack of inputs has over the last two months resulted in a significant reduction of local pharmaceutical production, which had started to resuscitate after a drastic fall in the first half of the 1990s.

3. On October 15, 1998 the Russian Government in an effort to stabilize food, pharmaceutical and medical device supply and to curb prices for those goods, issued Government Decree 1203, in effect as of October 22, 1998. The Decree extends the list of food stuffs which are subject to 10 percent VAT rate (half the regular 20 percent VAT rate) and eliminates the recently imposed additional 3 percent import DUTY on a number of goods, including foodstuffs, medicines, substances to produce medicines, and certain medical devices and supplies.

4. Following is the list of foodstuffs which are subject to 10 percent VAT:

Cattle and poultry (live weight);
Meat and meat products (excluding delicatessens);
Milk and milk products;
Eggs and egg products;
Flour, bread, and bread products;
Vegetable oils;
Margarine;
Sugar (including raw sugar);
Salt;
Grains, mix fodder, grain wastes;
Oil seeds and processes seeds (including grain cakes);
Cereals;
Macaroni products;
Live fish;
Sea food (excluding delicatessens);
Baby and diabetic food;
Fresh and processed vegetables; and
Potatoes and potato products.

5. Following is the list of food stuffs, pharmaceuticals, substances and medical devices and supplies which are exempt from the additional 3 percent import DUTY:

HS code Name of the product

0201 Meat of bovine animals, fresh or chilled

0202 Meat of bovine animals, frozen

0203 Meat of swine, fresh, chilled or frozen

0204 Meat of sheep or goats, fresh, chilled or frozen

0205 Meat of horses, asses, mules, fresh, chilled or frozen

0206 Edible offal of bovine animals, swine, sheep, goats, horses, asses, mules or hinnies, fresh, chilled or frozen

0209 00 Pig fat free of lean meat and poultry fat (not rendered), fresh, chilled, frozen, salted, in brine, dried or smoked

0401 Milk and cream, not concentrated nor containing added sugar or other sweetening matter

0405 10 Butter

1507 Soybean oil and its fractions, whether or not refined, but not chemically modified

1513 11 900 Coconut (copra) oil and its fractions packed in 1 kg bags or less

1515 21 900 Corn oil and its fractions: others

1515 29 900 Others: soybean oil

1702 90 900 Maltodexetrine and maltodexetrine syrup.

2904-2909 Organic chemicals used as pharmaceutical
2912-2942 substances

3001 Glands and other organ s for organotherapeutic uses; dr ied, not whether or not powered; extracts of glands or other organs or their secretions for organotherapeutic uses; heparin and its salt; other human and animal substances prepared for therapeutic or prophylactic uses, not elsewhere specified or included

3002 Human blood, animal blood prepared for therapeutic, prophylactic and diagnostic uses; anti-sera and other blood fractions; vaccines, toxins, cultures of micro-organisms (excluding yeasts) and similar products

3003 Medicaments (excluding goods of heading 3002, 3005, 3006) consisting of two or more constituents which have been mixed together for therapeutic or prophylactic uses, not put in measured doses or in forms of packings for retail sale

3004 Medicaments (excluding goods of heading 3002, 3005 or 3006) consisting of mixed or unmixed products for therapeutic or prophylactic uses, put up in measured doses or in forms or packings for retail sale

3005 Wadding, gauze, ba ndages and similar articles (for example, dressings adhesive plasters, poultices), impregnated or coated with pharmaceutical substances or put up within form s or packings for retail sale for medical, surgical, dental or veterinary purposes

3006 10 Sterile surgical catgut, similar sterile suture materials and sterile tissue adhesives
For surgical wound closure; sterile laminaria and sterile laminaria tents; sterile absorbable surgical or dental hemostatics

3006 20 000 Blood-grouping reagents

3006 30 000 Opacifying preparations for X-ray examinations; diagnostic reagents designed to be administered to the patient

3006 60 Chemical contraceptive preparations based on hormones and spermicides

3504 00 000 Peptones and their derivatives; other protein substances and their derivatives, not elsewhere specified or included; protein isolates; dry demineralized serum

6. For more information please contact:

Sergey Minko, Commercial Specialist; or
Ludmila Maksimova, Commercial Specialist
U.S. & Foreign Commercial Service, U.S. Embassy Moscow
+7-095-967-3414
+7-095-967-3416
e-mail: SMinko@cs.doc.gov or
LMaksimova@cs.doc.gov

Elena Vasileva, Commercial Specialist
Foreign Agricultural Service, U.S. Embassy Moscow
Tel: +7-095-956-4103
Fax: +7-095-255-9951

This report is provided courtesy of the Business Information Service for the Newly Independent States (BISNIS)