In the first half of 2024, Russian pet food imports plunged 40% compared with the previous year, partly owing to problems in making payment for delivered goods in trades with politically friendly countries, according to increasing complaints from Russian businesses.
Yet Sergey Dankvert, head of Rosselhoznadzor, the Russian state veterinary watchdog, said a rise in Russian domestic pet food production is the key reason driving down imports. He made the remarks while speaking with a local publication, RBC.
He also insisted that a sufficient number of companies have permission to deliver their products to the Russian market, repeating Rosselhoznadzor concerns that the composition of pet food exported to Russia from Western countries often differs from what’s stated on the label.
“Whether this is Monge or Hills [exported to Russia], we don’t object, but when it is written ‘duck’ on the package, and there is no duck in there, our cats are getting offended,” Dankvert claimed. Rosselhoznadzor suspended imports of pet food under the Hills brand in February 2024, citing severe production violations of control standards both from the pet food manufacturer and the Italian regulators.
Russian veterinary authorities estimate that imports now account for only 2% of the pet food sales on the local market. Kirill Dmitriev, president of the Russian National Association of Zoo Industry, said that according to his calculations, this figure is actually closer to 8%, though he admitted that a steep decline in imports in recent years is an undeniable trend.
Despite the dynamics, it is too early to count out pet food imports to Russia, Dmitriev said, revealing that some new importers are contemplating plans to fill the vacant niches. For example, he said, several Turkish pet food factories have recently started exporting specialized pet food to the country, and there are negotiations with promising new Asian suppliers.
Transferring money is a challenge
Mounting veterinary restrictions might not be the only factor driving Russian pet food imports down. In the past few months, Russian businesses have increasingly complained about difficulties maintaining trade with politically friendly countries like China, Türkiye and United Arab Emirates (UAE) because making payments for delivered goods has become a big challenge.
Chinese banks have started increasingly scrutinizing payments to and from Russia following the December 2023 threat by U.S. President Joe Biden to impose secondary sanctions against banks and financial institutions in third countries facilitating trade with Russia. Banks in Türkiye, UAE and several other countries also took extra precautions when dealing with Russian clients.
In the first quarter of 2024, Russian imports from China dropped by 20%, following one and a half years of consistent growth, RBC reported, citing the official customs data.
Dmitriev argued that he would not attribute the drop in imports entirely to the problems in making payments to foreign supplies, though he acknowledged the issue is rather pressing. However, he added, the downward dynamics should be attributed to a cocktail of different factors, including veterinary restrictions and an upshift in domestic output. He believes Russian pet food companies have to be creative to keep the wheels of imports in motion; establishing working schemes requires out-of-the-box thinking.
In an interview, Yulia Dolzhenkova, development director of Zooinform, a Moscow-based pet industry media business, agreed that problems with making payments to Chinese suppliers are not among the key factors dragging down Russian pet food imports, since the share of Chinese pet food firms in the trade flow is non-significant.
Supply chain gaps: Equipment and parts
Still, for the Russian pet food industry, the problem of making payments to China has another dimension. “Russian pet food firms that try to scale up operations primarily work on Chinese equipment or source some components in China,” Yulia Dolzhenkova said, adding that problems in sending money to China put brakes on some development plans. “However, despite the sanctions, many [pet food companies] manage to find schemes and routes for making payments to China.”
Virtually all Russian pet food companies mull expansion plans to be executed on the base of Chinese equipment, she commented. Nevertheless, solutions to the payment hurdles come at a certain cost. “All these processes greatly extend the delivery time and drive cost up significantly,” Yulia Dolzhenkova said.
She added that the increase in prices is the key factor driving the growth of the Russian pet food market up in monetary terms, and rising costs along the supply chain are what spurs the dynamics.
Dmitriev agreed that the existing difficulties affect the costs of financial settlements, as importers have to bear expenses at every stage, and the longer the supply chain, the higher the costs. “One of the consequences of this is that imported pet food is rather expensive on the Russian market,” Dmitriev said.