Crisis, What Crisis? How Russian Consumers Have Merely Shifted Their Purchases Away From Europe Or Developed Their Own Replacements

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The extent to which Russian supply chains have already moved away from the EU is apparent when examining basic supermarket items.

This weekend I published on my Linked In account three images of a Russian supermarket some 45km outside of Moscow, situated in a small village on the road to Smolensk. Titled ‘Moscow Supermarket, Saturday’ the post showed an ordinary, but respectable shopping centre packed full of food. Usually, I am lucky if an article I post on that account (look for Christopher Devonshire-Ellis) generates a few hundred responses, this, slightly boring content thread generated over 20,000 views against my following of just over 3,000. Wow. Why?

Many of the responses were incredulous – Western media has conditioned them to believe that Russia is in a depression, shortages are everywhere, and that Russians have no money. The three images posted show this to be completely untrue – so much so that it seems ‘unbelievable’ and many just will not accept the images as fact. Yet they are.

However, Western media misinformation aside, there are profound reasons as to why Russian consumers do continue to have access to excellent produce. The items shown here are all consumables, as I can easily find them and identify them in a local supermarket – it would be a harder job to gain access to an auto factory and start asking questions about the origin of components. However, the food consumer products shown do give an indication of the changes occurring in the Russian supply chains, which will also be evolving within other industries too. There are some surprises, and I outline the reasons why this is occurring.

Russia Has Been Developing French Champagne Replacements Since 1870

When Russia annexed Crimea in 2014, the EU put sanctions in place including on numerous foodstuffs, including wine and cheese among many others. In terms of wine, the Russian Black Sea region has been a wine-producing region since the Roman times and is generally regarded as one of the last remaining great European regions. Yet it remains largely unknown in the West. Russia has been producing wines there since the Tsarist era, including sparkling wines, originally produced by Prince Golitsyn after Nicholas II’s auditors advised him to find a local alternative for the huge amounts of imported champagnes he was buying (Clicquot being a favourite) in order to cut down on his massive Imperial era entertaining expenses.

Pictured is a Russian rose sparkling wine, perfectly acceptable as a type of Cremant-style bubbly. Some of the Abrau Durso wines meanwhile from the original Golitsyn estates are fast approaching Epernay quality.

Russia’s Black Sea Wines

As mentioned, vineyards have existed on the Black Sea coast since Roman times, and although fortunes may have waxed and waned, there are huge tracts of lands that since 2014 especially have now been given over to viniculture. These are of varying quality, but some are now winning prestigious international awards.

Russian reds from the Black Sea region are generally excellent, and not unlike some of the Australian Margaret River wines in that they also have the warm weather and a cooling, salty sea breeze that cools the vines down in the evening. They also have a uniqueness about them – a tang of birch from the forests that rise just above the estates and gives them a complexity not found anywhere else. There has been considerable progress made in recent years as the preference for semi-sweet wines has given over to a more robust, burgundy style wine perfect for those long Russian winters.

Who is helping them improve? The French, Italian and German winemakers who lost the Russian market in 2014 and have moved to Russia to set up JVs and continue to produce for the Russian domestic market. Wine consumption in Russia increased 13.4% in 2020.
A big shout-out to the Swiss winemaker Burnier here as well. To illustrate the Black Sea quality, the centre wine pictured according to Vivino ranks among the top 1% of wines in the world.

The Eurasian Economic Union & Commonwealth of Independent States

The Eurasian Economic Union (EAEU) is a free trade bloc that includes Armenia, Belarus, Kazakhstan, Kyrgyzstan, and Russia, while Uzbekistan is an observer nation and expected to join. It is a complete free trade area and member countries are able to import and export most items duty free amongst themselves.

The Commonwealth of Independent States (CIS) is a trade bloc that doesn’t include a complete free trade area, but as ex-Soviet nations have agreed free trade deals with each other on their own bilateral, rather than multilateral terms. The CIS includes Armenia, Azerbaijan, Belarus, Kazakhstan, Kyrgyzstan, Moldova, Russia, Tajikistan, and Uzbekistan.

These give Russia (which has FTA with all the CIS countries) the pick of eight alternative, agriculturally driven, European, Caucasian and Central Asian nations with a total area of 20,368,759 km2 the ability to replace in complete entirety, its fruit, vegetable, and related consumer goods from the EU. It is worth bearing in mind that the EU covers an area of just 4,233,255 km2 – five times smaller.

Given that the production cost in the CIS and EAEU countries is far less than the European Union, and there are little to no import duties, all Russia has done is increase its import quotas. The lower costs also offset recent Russian inflationary issues.

Pictured is a supermarket near Moscow packed full of mainly Uzbekistan produce. These outlets tend to be run mainly by Armenians and Azerbaijani’s who tend to dominate the Russian food produce import trade and who have built connections throughout the Eurasian region dating way back to Soviet times. CIS and EAEU exporters, recovering from the Covid downturn, will be very happy with the increase in trade.

BRICS and BRICS Plus

The BRICS nations include Brazil, Russia, India, China, and South Africa. They are not a formal free trade bloc, however mutual trade and economic development is a key part of the BRICS remit. It is now possible to purchase spices from India and wines from South Africa in Russia. Pictured is a Chilean apple purchased in the local supermarket. The BRICS intend expanding and Russia is also looking out for new trade partners – Latin America, which has long held more socialist ideologies and respects Russia over its stance for Cuba and to some extent Venezuela, is a growing market. Russian buyers are getting smart in comparing Central Asian production costs with those of Latin America – where presumably apples are less expensive – which may well be true given that the per capita income (PPP) in Kazakhstan (a traditional apple harvest) is now slightly higher than in Chile. Russia is now comparing costs not with the European Union but between the CIS and Mercosur (the Latin American trade bloc).

ASEAN

Russia has been developing trade ties with ASEAN and has been a dialogue partner since 1996. In 2015, Vietnam signed a free trade agreement with the Eurasian Economic Union (EAEU) which has resulted in significant upturns in its Russian trade, and especially within its aquaculture and pork exports. Vietnam’s frozen seafood exports to Russia increased by 72% in 2021, reaching over 23,000 tonnes. That is evident in my freezer, where extracting the packet of frozen prawns I had purchased to make a Thai Curry last night, the product was revealed to be from Vietnam (see image). Cambodia, Indonesia, and Thailand are all negotiating to join the EAEU, meaning increases in ASEAN products to Russia are also replacing those from the EU markets.

The European Diaspora: Competing With Europe

Another interesting angle the Russians have tapped into in search of very specific European products now off-limits to them is the European diaspora. These products tend to be more gourmet style that have been more difficult to recreate in Russia. One example of this is Parmigianino Cheese, which is manufactured in Italy and is of course a well-known pasta condiment. Russian attempts to make it have not been successful. These means savvy buyers have been looking for Italian diasporas who have been making it overseas and have more or less recreated the product. The cheese shown is from Argentina, which has an Italian diaspora of some 25 million people and who make up about 65% of Argentina’s population. Can’t get real parmesan from Parma? Buy the next best thing from Mendoza. Incidentally, Argentina also wants to join the BRICS.

The Russian Domestic Market

Western observers may also be surprised to note that according to Statistica, Russia is self-sufficient in food, with the exception of berries, of which domestic production accounts for just 30% of the annual consumption (the balance is imported mainly via the EAEU). Russia is also the largest grain exporter in the world – the country is awash with produce. This means that issuing sanctions against Russia in terms of consumables is largely meaningless.

Russia’s Organic Babushka Army vs Corporate Europe

It should also be noticed that Russia (and the same applies to much of the EAEU and CIS) is not as over-regulated as the EU. This means that it is perfectly legal for Russians – many of them babushka’s – to grow their own produce at home, process them there and either sell them outside their front gardens or resell them onto local markets. This has lead to an unofficial, yet huge national cottage industries free of the EU interference and insistence on an array of unnecessary standards. This has the effect of both maintaining traditional recipes and generally meaning that much of the home-grown produce is effectively organic – and better quality.

Home produced food is a staple in Russia, yet has died out in large parts of the EU to be replaced by factories adding chemical products – at the cost of preventing individuals make their own. The EU has effectively destroyed the relationship between individual consumers and home prepared food, and handed it over to the agricultural lobby and corporate businesses, often under the guise of safety, but actually placing the profit margins in doing so in the hands of multinationals instead of smallholdings. They’ve then doubled down on that by introducing gigantic superstores where everything is prepacked in plastic and polystyrene and local suppliers and stores are forced out of the community. Progress?

All this hasn’t prevented Western media – and politicians – from promoting an image of Russia as backward, in a severe depression, with empty shelves and no money to purchase anything. The reality is that this is very far from the truth, and that Russia had planned a move to food security, including imported alternative sources for gourmet products for some time. On the assumption this planning and foresight has also been extended to other much-needed industrial commodities, and that the country anyway has huge energy resources, the ability of Russian consumers to purchase what they want, unhindered by the mechanisms of the West, looks as if it will remain secure – despite what people would wish others to believe.

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About Us

Russia Briefing is written and produced by Dezan Shira & Associates. During these uncertain times and sanctions imposition, our firm assists Russian companies relocate to Asia, and provides financial and sanctions compliance services to foreign companies operating in Russia. We also provide market research and advisory services to foreign exporters interested in Russia as the economy looks to replace Western sourced products. Please contact us at russia@dezshira.com or visit us at www.dezshira.com.