Market Monitor - Focus on the food industry - Russia

Market performance at a glance

• Combined with the economic downturn and Rouble depreciation, Russia´s sanctions on imports of food and agricultural products hit the domestic food sector hard, in particular the fish, meat and dairy subsectors. Prices for food have grown and local production has increased in order to substitute lacking imports.

 

• Profit margins of many food businesses have deteriorated over the last 12 months, and this negative trend is expected to continue into 2016. In general, Russian food businesses are highly geared and are facing increasing costs for external financing. At the same time, banks are generally willing to provide loans to food retailers, but more restrictive on wholesalers and import-related businesses.

 

• The average payment duration in the Russian food sector varies between 15 and 40 days, depending on the kind of product. The number of protracted payments, non-payments and insolvency cases has sharply increased over the last six months, especially in the import-related and distribution segments for fish, meat and dairy. While it is expected that insolvencies will not increase further year-on-year in 2016, the number of non-payment cases and business failures will remain on a high level.

 

• That said, the largest domestic grocery retailers have continued their market expansion and have generally not been affected by the sanctions. Some major Russian agricultural vertically integrated holdings have been growing successfully in the last 18 months, using opportunities that state protection provides and benefitting from the sanctions on EU agricultural imports. The Russian food market is consolidating further, as major national food retail chains are crowding out regional players and wholesalers.

 

• Our underwriting stance remains restrictive for the meat, dairy and especially the fruit and vegetables subsectors, while being somehow less restrictive on certain businesses in the food retail segment.