What stimulates and restrains the export of products from Russia to China

During a visit to Beijing this week, President Vladimir Putin said that trade turnover between the two countries will exceed $200 billion by the end of 2023. Russian companies are counting, in particular, on expanding food exports. Pork shipments are expected to begin next year, and grain exporters are hoping for restrictions on wheat trade to be lifted. However, for now, product distributors operating in the Chinese market note the harsh approaches of Chinese importers. And experts talk about the need to increase the capacity of the logistics infrastructure.

China ranks first in the world in food imports: in 2022, according to Yakov and Partners estimates, the country purchased $236 billion worth of such products. According to the director of the company Oleg Shenderyuk, in the current conditions the market is especially attractive because of the ability to make payments in national currencies. As Russian President Vladimir Putin noted on October 18 during his visit to Beijing, external factors—common threats—strengthen Russian-Chinese interaction, and trade turnover between the two countries this year will exceed $200 billion.

Russian agricultural holdings hope that their products will take a significant part of exports from the Russian Federation to China. Beijing has already begun to provide targeted relief on the import of a number of goods. Thus, in September, the Chinese side lifted restrictions on the import of Russian pork—producers had been waiting for this for almost 15 years.

However, the Ministry of Economy clarifies, preparation for full shipments will take up to a year. During this time, you need to sign a protocol on product requirements, agree on a veterinary certificate, obtain certificates for suppliers, and register companies in CIFER – the Chinese food supply system.

The head of the National Meat Association, Sergei Yushin, notes that for now we are talking about a fairly narrow product line. But some manufacturers have already begun to reconsider their work strategy. The Siberian Goldman Group announced the suspension of the production of canned meat for the retail market of the Russian Federation in order to concentrate on exports to China. Yakov and Partners estimate the potential for pork supplies from the Russian Federation to China to be approximately 200 thousand tons per year.

The volume of Russian food supplies to China is growing even without pork. The Agroexport Center, subordinate to the Ministry of Agriculture, calculated that in January-August the Russian Federation sent more than 5.5 million tons of food products to China, which is 2.7 times more year-on-year. In monetary terms, exports increased by 86%, but the center does not disclose the cost of supplies. Analysts explain the dynamics by increasing shipments of rapeseed, sunflower, soybean oils, meal, cake, fish, seafood and peas, for which access to the Chinese market was received at the end of 2022.

Growing demand

President of the All-Russian Association of Fisheries Producers (VARPE) German Zverev notes that after China joined the WTO in 2001, the country strengthened its role as a “world factory” for fish processing and over 20 years its imports increased tenfold, to $18 billion. Russia and Norway supply pollock, cod and herring for processing at Chinese sites. Although, according to Mr. Zverev, the attractiveness of the Chinese processing sector is now declining due to the triple increase in average salaries in this industry over the past 15 years.

On the other hand, the expert notes, the Chinese population, which has become noticeably richer since 2010, is discovering premium-level seafood – primarily live crab. In addition, he clarifies, increased supply is facilitated by easier access to the market. Previously, enterprises received permission after registering with the now abolished General Directorate for Quality Control, Inspection and Quarantine, and the procedure dragged on for years.

But, VARPE warns, the introduction of export duties on seafood tied to the ruble exchange rate could complicate the sale of frozen crab in China. Here, Russia competes intensely with Canada, and deterioration in price positions threatens to reduce sales, noted Mr. Zverev.

President of the Association of Fishing Fleet Shipowners (ASRF) Alexey Osintsev says that today part of the supply of frozen fish to China is gradually being replaced by Russian semi-finished fish products. According to Chinese customs data cited by ASRF, in January-August 2023, exports of fillet, minced meat, and surimi from the Russian Federation to China increased by 176% year-on-year. Mr. Osintsev adds that there is a growing interest in the country in healthy eating and dishes made from highly processed fish products – noodles and surimi sausage, fish nuggets. This allows Russian products to be positioned as premium, adds Oleg Shenderyuk.

The trend is not limited to the fish market. Marketing Director of Blago Group of Companies Kirill Melnikov notes that a significant part of the Chinese population today prefers more expensive sunflower and rapeseed oil, which creates the preconditions for increasing supplies. Blag, according to him, already has more than half of its total exports to China.

Executive Director of the Oil and Fat Union Mikhail Maltsev clarifies that over the past ten years, consumption of vegetable oils in China has increased by 6.3 million tons with an average annual rate of 3.5%. The Efko Group of Companies says that in this area over the past five years the volume of supplies has increased by more than one and a half times.

According to Agrifood Strategies President Albert Davleev, China annually imports more than 1.5 million tons of poultry products – almost a third of poultry production in Russia, and 90% of imports are by-products – legs and parts of wings. The price of such good quality products for China can be ten times higher than their cost in the country of origin, he points out. Damate Group also notes that such products are consumed in China. In addition, the growth in exports of these items to China does not significantly affect the balance of the Russian market, notes Sergei Lakhtyukhov, general director of the National Union of Poultry Farmers.

Tough Partners

But working in the Chinese market comes with many challenges. President and co-owner of the Pobeda confectionery factory, Vitaly Muravyov, says that Chinese partners will “try to do everything their own way and find their own benefit.” The best trust is 100 percent advance payment, he points out. It is also necessary to register trademarks in advance, otherwise the importers themselves will do this, even before the first delivery and in different classes, Mr. Muravyov points out. According to him, as soon as a product becomes minimally recognizable on the Chinese market, mass counterfeits begin.

Sergei Yushin confirms that Chinese companies are tough negotiators. The Chinese market is a “tidbit” for manufacturers and suppliers from all over the world, and the price factor is the determining factor here, so Chinese importers tend to buy in large volumes and at a discount, he says. As the expert notes, when exporting, sometimes you have to sell with zero profitability in order to cope with excess domestic supply. Although prices for pork and the cost of this meat in China, for example, are higher than in Russia, he points out.

As Vitaly Muravyov notes, in China, working with one importer is fraught with the fact that he begins to dictate his terms, limit the range, and twist arms. Pobeda, according to him, decided to work with two contractors, dividing the assortment. Managing Director of the United Confectioners (factories Krasny Oktyabr, Babaevsky, Rot Front) Andrey Orlov says that it is also necessary to adapt the recipes and packaging of some products to meet the expectations of Chinese consumers.

Difficulties have also increased due to export duties introduced by the Russian government, tied to the ruble exchange rate, adds Mr. Muravyov. The measure, he says, also affected jelly products, the export of which has decreased. “Marmalade is produced by a huge number of manufacturers all over the world, and it is not difficult for the Chinese to replace us with others with a more attractive price,” noted Mr. Muravyov. Efko Group of Companies cites as a barrier the requirements in China for the content of GMOs in fat and oil products that are inflated relative to European standards and the need for processors to register in two control systems.

Limited potential

Further expansion of agricultural exports is hampered by the current restrictions of the PRC on supplies, says Oleg Shenderyuk. The lifting of bans occurs at the intergovernmental level and takes a long time. Coordinating the admission of Russian beef to China took ten years, poultry meat – nine years, the expert explains. Export of rapeseed, corn and rice is possible only from certain regions, and restrictions on the supply of winter wheat, in force since 1997, have not yet been lifted, Mr. Shenderyuk points out.

The Union of Grain Exporters says that the interest of Chinese business in Russian wheat is “very great,” but so far exports are only possible from Siberia. According to market participants, from July, the first month of the season, to mid-October, the Russian Federation exported only 60.8 thousand tons of wheat to China. The union noted that the supply issue can be resolved at the highest level. According to the Yakov and Partners company, without restrictions, the Russian Federation could supply 5 million tons of wheat per year to China. As Bloomberg reported, China is updating records for wheat imports amid falling world prices. In January-August, the country purchased 9.56 million tons of this grain, more than 60% from Australia.

However, another factor that is currently limiting the supply of Russian food to China is lengthy and expensive logistics. Cargo from the Russian Federation is forced to undergo additional phytosanitary control at Chinese customs, which leads to delivery delays, explains Andrey Orlov. In addition, railway logistics, which manufacturers rely on when exporting to China, according to Stanislav Vetoshkin, project manager in the agricultural sector of Yakov and Partners, is always significantly more expensive than sea logistics.

Therefore, in his opinion, the ports of the Far East should become transport hubs for the development of exports to China. But there are no specialized terminals there, exports go directly without an elevator or in containers, and the region’s railway infrastructure – BAM and Trans-Siberian – is overloaded, he notes. According to the expert, without expanding the infrastructure, it will not be possible to export more than 1.5 million tons of grain through these ports. Mikhail Maltsev also notes that given the increase in the volume of supplies of oil and fat products to China, the load on the land part has increased significantly and requires an increase in capacity on the Russian side.

Anatoly Kostyrev, Ekaterina Rakitina