POINTERS: Russia's Market Landscape - Opportunities for Malaysian Palm Oil

By: Dr. Aleksey Udovenko

Dr Aleksey Udovenko graduated with honors from Kharkov Polytechnical University, with a Masters degree in food technology with a specialty of fats and fat substitutes technology. He then continued his education at Moscow State University with a second degree in Public Relations. In 2021, he obtained a PhD in food engineering.

Before joining MPOC, Dr Aleksey has 8 years of experience working in the food industry of Ukraine. He started working in 2002 as a project development manager at Ilyichevsk Oils and Fats Industrial Complex (IOFIC), Ukraine. He was then promoted to General Manager of Bulking Operations , Key Technologist and Head of Quality Control department of Ilyichevsk Oils and Fats Industrial Complex.

Dr Aleksey’s last position in IOFIC was as the General Production Manager (Chief Production Dispatcher) before joining MPOC in 2012 as the head of Moscow Office.

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Oilseeds and vegetable oils market trends

Oilseeds production profitability remains persistently high. Historically, sunflower is the major oil crop in Russia. Sunflower acreage in Russia is the largest in the world at nearly 7 Ml ha. In 2006 a trend of expanding other oil crops acreage, namely rapeseed, soybean and linseed emerged in the market. As a result, the share of sunflower decreased and stabilized at 60-65% in 2014-2015. During 2010-2015 soybean planted area was expanded by 75% to 2.1 Ml ha against 1.2 Ml ha in 2010.

Logistics

About 90% of all imported palm oil is supplied to Russia in tanker. In previous years about 25-28% of total tropical oils imports to Russia were supplied through the state owned Ukrainian ports. During the last 2 years tropical oils transit through Ukraine declined considerably. In Ukraine, the largest private terminals / plants for handling and processing of palm oil are located in the port of Ilyichevsk and Yuzhnyi. These are Delta Wilmar CIS and Ilyichevsk Fat and Oil Plant. In the south, specialized facilities for vegetable oils handling are available in two ports - Taman and Rostovon-Don. Food Ingredients is the owner of the handling complex in Taman, and Astona owns the facilities in Rostov-on-Don.

Foreign trade Export Import and Consumption of vegetable oil in Russia

Sunflower oil traditionally dominates in the structure of vegetable oils exports from Russia. Indonesia remains a leading supplier of palm oil to Russian Federation, increasing its presence in the Russian market from year to year. In the 2014/15 season the share of cheaper Indonesian palm oil in the structure of Russian imports reached 82% (75% in 2013/14 MY).

Import Export infrastructure

Supply of tropical raw materials to enterprises in the north-western Russia is carried out through the Baltic Sea ports (Kaliningrad, St. Petersburg), by low-tonnage vessels with a displacement tonnage of 1.5-2.5 Th tons. In the south, specialized facilities for vegetable oils handling are available in two ports - Taman and Rostovon-Don. EFKO Food Ingredients is the owner of the handling complex in Taman, and Astona owns the facilities in Rostov-on-Don.

Key players of vegoil market

Amongst industrial groups, undeniable leader in terms of processing capacity is Yug-Rusi (approximately 22% from total processing capacities in Russia).Second place is held by Solnechniye Production Holding - 18.9%. Third place is held by Aston - 9.6%.

The leading Russian importers of palm oil and its fractions are EFKO - Food Ingredients, Nizhniy Novgorod Oil and Fat Plant and Cargill. The total share of these three companies was measured at more than 71% in 2012.

Russian fat and oil market entry strategy: barriers and opportunities

B2B segment is of strong demand in Russia, including milk fat replacers, cocoa butter substitutes and confectionery fats. In total these products account for about 40-45% of wholesale sales volume. Products of average value take the largest share in the margarine sales structure.

A company, which enters Russian vegoil market, should count on B2B segment, where usage of palm oil and its fractions is already a technological necessity. Creation of a joint venture company for producing finished fat and oil products using vegetable raw materials from tropical oils to be promising in early stages of Russian fat and oil market entry. At a later stage an extension of sales by creating own distribution network and/or trading houses may become a logical continuation of company’s activity in the domestic market.

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Questions & Answers (4) :

Dr. Ahmad Mustafa

8 years ago

Dear Mr. Aleksey Thank you for your reply, I\'ll contact you via linkedin.

Aleksey Udovenko:
For those who are interested my contacts: MOSCOW Postal code 119049 4th Dobrininskiy side-street, 8 BC \'Dobrinya\', 1st Floor, Office R00-126 Tel/Fax: +74956600345 Cell: +79647925877 Facebook: https://www.facebook.com/MalaysianPalmOilCouncilRussia Twitter: https://twitter.com/AlekseyUdovenko Website: http://www.mpoc.org.my e-mail: udovenko@mpoc.org.my Skype: Aleksey.Udovenko
8 years ago

R.C. Tan

8 years ago

Inner Russia’s market for Malaysian palm oil for bulk and packed products appears to be unexploited. Is this because of the traders from Moscow and St Petersburg domination in inner Russia’s oils and fats market and that there is little opportunity for more palm oil intake? What is the general spread between soft oils and palm oil that is attractive for the Russians to use palm oil? I would also appreciate if you could share some marketing tips for Malaysian traders interested in Russian market and do you think inner Russia can be a good area to avoid domination of traders in Moscow and St Petersburg?

Aleksey Udovenko:
Dear R.C. Tan Inner Russia’s market is growing and 2015 was a record year in palm oil import - 888,000 MT (HS1511). The first half of 2016 looks promising as it already surpassed the same period of 2015. In the previous years there were a trade barrier: 0% - in bulk 3% but no less then 0.09EUR/kg (20,000kg and less) This discrimination created an uncomfortable situation for traders. EFKO Group was the only big player responsible for the local market - some years the market share of EFKO Group exceeded 65%. The main trading partner of EFKO is Indonesia. Nevertheless, there are others who are willing to establish direct supplies from Malaysia and/or Indonesia. The biggest problem is in the transhipment facilities available in the country. The only one adopted for handling tropical oils is operated by EFKO Group. Talking about opportunities I shall say that the market is sustainably growing. The spread between IPO and MPO in 2015 was 76USD/MT (av.price IPO - 690; MPO - 766) At the same time 32,000MT of palm oil were imported from Netherlands for av.900USD/MT. (Avarage price 2015 - 722USD/MT HS1511) Talking about the price of SFO vs PO shall note that this (the spread) has its influence on the market but you asked me to share some marketing tips for Malaysian traders interested in Russian market, please here you are: 1) Do not be afraid of traders from Moscow or St Petersburg 2) IPO positions are strong but not undefeatable I have a good instance of one trader (not giving the names) who took over some share of the market in a year (pushing out EFKO) 3) The key to this market belongs to a trader who is ready to give better conditions of payment For more information or tips please contact me directly.
8 years ago

Dr. Ahmad Mustafa

8 years ago

Dear Mr. Aleksey Thank you very much for your informative presentation. you\'ve demonstrated very good insights with regard to utilizing the tropical oils in food industry. I was wondering about the oleochemical industry in the Russian Market. could you please give me an idea about the consumption of palm and sunflower in the non-food (technical) applications? Thanks

Aleksey Udovenko:
Dear Eng. Ahmad Mustafa, for this purpose we conducted a market research some years back. To be more precise I would ask you to contact me directly. The research is little bit out dated but the market structure is the same. Briefly saying there are some big players on the market and I would be proud to introduce you to them in case you are interested.
8 years ago

Aleksey Udovenko:
and not only Oleochemicals there is growing market potential for PKC. Products for cattle breeding are in demand.
8 years ago

Dr. Ahmad Mustafa

8 years ago

Thank you.