Academy of Strategic Management Journal (Print ISSN: 1544-1458; Online ISSN: 1939-6104)

Original Articles: 2017 Vol: 16 Issue: 1

Estimation of the Regional Food Market State in the Context of Import Substitution

Evdokiya Lazarevna Dugina, East Siberia State University of Technology and Management

Svetlana Yurievna Badmaeva, East Siberia State University of Technology and Management

Sayan Gennadyevich Alexeev, East Siberia State University of Technology and Management

Tatiana Aleksandrovna Korsun, East Siberia State University of Technology and Management

Keywords

region, food market, import substitution, business environment, economic sanctions, food import embargo, food products, agriculture and resource potential.

Introduction

The modern Russia must entirely use its unique agrarian potential. Herewith, the main task is not only to ensure the population’s self-dependence in relation to basic food products but also to recover the lost positions among the leading exporters of food in the world. The share of Russia is 9% of the global tillage, 52% of the chernozemic soil, and 20% of the global fresh water reserves. However, herewith, the Russian ratio in the global food production is inconsiderable. For example, it is only 5% for milk, and 2% for meat [18]. Due to this, in order to reliably provide the population of the country with the national food products and to strategically regulate internal and external threats, stability of the food market, the Doctrine of Food Safety was developed and adopted on February 1, 2010.

Besides, the fall of agricultural production resulted in the decreasing food production of processing enterprises operating in the agrarian sector of economy. Consequently, it had an impact on the consumption of basic food.

References Review

Theoretical and methodological aspects of forming and developing the food market were researched in the works of foreign and Russian researchers: Britten S., McIntyre V., Borisenko E.N., Goncharova V.D., Miloserdova V.V., Uchachev I.G. et al.

Regional aspects of forming and developing the food market are described in works of such Russian researchers as Altukhova A.I., Boyeva V.R., Golovatyuk S.M., Dugina E.L., Dorzhieva E.V., Mamediva O.N., Neznamova N.V., Zaynamova N.N. et al.

However, in spite of the fair number of research works, the study of problems and the development of the regional food market in the context of introducing the food import embargo remains urgent, especially when implementing the program on import substitution.

Method

The research object is the process of forming and developing the regional food market. In the real practice estimating the state of basic segments of the food region acquires a special attention in the context of food substitution.

The object under observation is the results of researching the state of food provision, in particular, volumes of production, import and consumption of basic food products.

During the research we used legislative acts, statutory documents that regulate the activity of state, production and commercial structures functioning in the agro-food area. To make the analysis, statistical data, materials of research publications, the Internet resources and research and methodic recommendations, developments of research organizations of the Russian Federation and the Republic of Buryatia were used.

The goal and tasks of the research were set by using a number of research methods: system, structural and logical, economic and analytical, monographic ones, etc.

Results and Discussion

It is necessary to acknowledge that for the years of reforms, the mass import of food products has made Russia a considerably dependent country on import of many types of food.

According to the experience of foreign countries, food import was comprehensively substituted in the 1920s and 1980s in China, Iraq and Livia, in the 1900s in Brazil, Vietnam, Iran, Chile, etc. Herewith the import substitution was successfully built in international allocation, cooperation of labor taking, into account the impact of a number of geo-political factors that limit economic cooperation.

Russia started import substitution in the nineties of the previous century. Thus, in 1998 after the national currency devaluation Russia underwent a considerable process of import substitution. At that time the volume of import decreased approximately by 20% [7]. In 1990 this indicator moved to 28%. The next urge to intensify the import substitution was in the early 2014 when Ukrainian events were escalated, and a number of countries decided to introduce tough economic sanctions against Russia in relation to food products import [15].

To our mind, import substitution is a complex of measures taken within the economic strategy of the state development and aimed at creating the favorable competitive environment for national goods producers that substitute import food products by producing them in the country.

The introduction of economic sanctions by the European Union countries, the USA and reactive actions of Russia had a certain impact on the Russian and regional food markets development.

The implementation of the import substitution program includes a number of specific measures aimed at providing food safety. Above all, this is a number of urgent and independent measured aimed at decreasing the debt to agricultural producers on reimbursing the interest rates. The medium-term measures aim at implementing large-scale investment projects related to constructing new enterprises and objects of infrastructure: wholesale and distributing channels. It allows to rationally use the agriculture and resource potential for increasing the agricultural and food production volumes. A number of long-term measures aim at large-scale developing of agrarian enterprises [11].

According to the Rosstat, food products account for about one third of all commodities and services. This is 15% of the GDP amount, while the ratio of agricultural products is only 4% of GDP. Herewith, in 2015 the share of food import in the retail was 27%. Above all, it is explained by the tendencies in the global economy where anti-Russia sanctions remain the main ones [14].

Table 1 shows the estimation of the state of food import in the context of economic sanctions.

Table 1: Analysis Of Food Import In 2014-2015
Types of food January-September
2015
Including September 2015 In %
As to
September
As to
August
thous.
tons
in % as to
January-
September
2014
thous.
tons
in % as to January-
September
2014 in %
as to
January-
September
2013
September
2014 in %
as to
September
2013
September
2014
August2015
Fresh and frozen meat 529 72.3 78.4 87.8 99.5 80.7 76.9
Fresh and frozen poultry 192 60.3 27.6 123.0 84.9 84.9 48.3
Fresh and frozen fish 288 59.6 37.8 78.7 122.0 94.9 70.1
Milk and uncondensed 185 77.5 20.6 77.5 84.3 122.7 120.3
Milk and condensed cream 145 105.0 15.2 90.7 78.5 81.9 92.7
Butter 65.5 67.9 6.4 78.8 81.8 114.7 85.2
Cheeses and curds 143 56.2 14.8 96.0 70.8 79.0 39.5
Fresh and chilled potatoes 541 80.4 1.2 56.9 30.1 155.1 80.6
Fresh and chilled tomatoes 535 76.6 7.1 27.4 70.4 108.2 67.1
Fresh or chilled onion and
garlic
301 77.5 8.8 82.0 91.0 140.5 98.8
Cabbage 166 70.2 0.9 83.5 108.0 134.3 37.9
Fresh and chilled cucumbers
and cornichons
87.0 64.5 0.0 33.6 18.7 117.7 178.0
Fresh or chilled bananas 889 93.2 71.7 78.4 87.6 95.5 89.9
Fresh or dried oranges 325 93.6 19.9 67.2 106.9 95.1 168.3
Fresh or dried tangerines and
citrus hybrids
328 81.9 9.9 54.5 125.0 104.9 154.9
Fresh grapes 151 74.2 38.7 77.9 109.5 94.7 115.4
Fresh apples 618 71.5 34.3 90.2 15.7 86.4 66.5
Corn 29.7 73.4 0.5 14.7 160.4 90.7 55.9
Palm oil 614 131.7 84.7 149.7 82.3 82.3 73.8
Sunflower, safflower 2.5 31.3 0.1 72.8 62.0 59.0 67.6
Coconut, palm-kernel
or babassu oil
65.4 89.7 5.5 69.5 45.6 98.7 72.8
Raw sugar 495 89.1 18.3 78.3 171.4 140.2 99.1
Salt fit for
human
302 55.0 44.0 65.1 115.1 98.4 114.2

In 2015, as compared to 2014, it is possible to observe a considerable decrease in the volumes of meat and meat products, fish products, vegetables and fruits import. Besides, the import of dairy products, sunflower oil and salt considerably decreased. At the same time the import of palm oil increased considerably because national dairy products manufacturers use substitutes of natural raw materials to reduce the products prime cost and to maintain reasonable prices for ensuring consumers’ stable and sufficient demand [17].

Table 2 shows the estimation of the state of main food import and internal consumption. In this context the decrease in the food import volume resulted in losing the food safety. That is why a strategic priority of developing the food market is the focus on own resources aimed at enlarging and concentrating in order to more rationally use the resource potential [13].

Table 2: Analysis of food internal consumption and import in russia due to Introducing embargo
  Internal consumption of food Food import
Food total (tons) Share of import from the countries that underwent embargo (in %) total (tons) From the countries that underwent embargo (tons) Share of import from the countries that underwent embargo (in %)
Cattle meat 2,335,700 2.5 654,700 59,000 9.0
Pork 3,764,700 12.0 619,700 450,800 72.7
Poultry 4,250,800 8.0 522,800 338,700 64.8
Fish and sea products 3,557,800 14.9 1,014,300 530,500 52.3
Milk and dairy products 35,701,724 10.2 9,433,300 3,640,000 38.5
(as calculated for milk)
         
Including cheese 832,885 30.0 416,573 249,880 60.0
Vegetables 15,850,000 5.8 3,100,000 916,135 29.6

In the current context, to a great degree, solving the food problem depends on stable functioning of the food market.

The state the food market development during becoming and improving was stipulated by the following peculiarities: unstable demand for food, differentiation of the population’s income, non-elastic demand for food, and limited term of storing and consuming food products [1].

In spite of the fact that there are rather many definitions of the notion “food market” in the economic literature, to our mind, the food market is an integral dynamically developing system of rational formation, allocation, use and consumption of food resources that not only meets the interests of economic entities, but also ensures the food safety, as a whole.

Peculiarities of the market functioning are stipulated by the fact that food is an important strategic resource. That is why the creation of stable food fund is the basis for strengthening the country’s food safety.

The regional food market is an independent subsystem of the Russian food market. The mechanism of its functioning is stipulated not only by common but also regional peculiarities of the development. Above all, these are unique food resources, methods to produce and consume them in accordance with the mentality, level and quality of life of the population living on a specific territory.

The regional food market is a self-regulating system of economic relations between subjects within separate territories participating in the production, selling and consumption of food products taking into account the level of income, interests of counter-agents that ensure the country food safety in the context of import substitution [9].

The regional food market functions not only as a subsystem of the national market but also as a self-regulating system that based on the current agriculture and resource potential can meet the population’s needs in high quality food products at the expense of own production and at affordable prices taking into account the population’s income.

Besides, to a great degree, stable functioning of the regional food market depends on the level of the improvement of the inter-regional relationships quality. The volume and structure of food products import and export are defined, first of all, by the level of population’s actual demand, supply of local food products.

Let’s consider the state of the food market development through the example of the Republic of Buryatia. Like a number of other Russian regions, it cannot meet all needs of the population in high quality food products by its own production. Above all, it is related to the Baikal factor that causes production appreciation and consequently the increase in prices for various types of food resources. At the same time, the poor developed infrastructure causes higher losses taking into account that food products have a limited storage and consumption term. That is why the development of inter-regional relationships is important, and their strengthening contributes to filling the food market with high quality food products at affordable prices. This generates the research of the level of provision of the food market with food resources in order to strengthen food safety [7].

The analysis of food products import dynamics and structure in the Republic of Buryatia shows that 70% of food products are imported from other regions. Thus, in 2013 Buryatia could entirely meet the population’s needs in semi-finished meat by 98.9%, sausages by 89.3%, and bread and flour products by 98.9%. However, in 2014 in the context of introducing anti-Russian economic sanctions and Russian import embargo in relation to the EU countries, the situation on the food market changed. The population is provided with basic food products by 50-60% on average. This is 60% for meat and meat products, 70% for milk and dairy products, 36% for eggs, 100% for potatoes, and 80% for vegetables [12].

In 2014 as compared to 2014 more than 65% of meat and semi-finished meat, and tinned meat - three times more than for the relevant period of the previous year were imported to other regions. At the same time food products import for the specified period decreased by 6.6% (calculated according to: on commodities import and export) [8].

Besides, the food market of the Republic of Buryatia has almost lost positions of the pasta segment due to the bankruptcy of OJSC Ulan-Ude Pasta Factory. Thus, in 2014 on the food market of the Republic of Buryatia the share of meat and meat products share was 54%, dehydrated milk – 25-30%, cheeses – 5%, fish and sea products – 5-7%, confectionary– 2%, and oil – 1% [8].

In the context of the existing conditions the most important task for the agro-industrial complex is to activate import substitution of the agricultural and food products. In order to solve it within the action plan, it is planned to create private cattle farms in the Ivolginskiy and Mukhorshibirskiy Regions, two dry feed lots in the Dzhidinskiy and Khorinskiy Regions of the Republic, to construct vegetable stores in the Ivolginskiy and Mukhorshibirskiy Regions, slaughterhouses in the Tunkinsky and Yeravninskiy Regions, and to build a greenhouse complex in the Seleginskiy Region [2].

Besides, it is planned to implement investment projects on constructing the second line of the Vostochno-Sibirskiy pig complex, Buryatptitseprom LLC poultry production unit, Buyan LLC commercial dairy farm, as well as a production and logistic complex in producing and bottling the deep water of the Baikal. As a consequence, the food and processing industry will maintain the tendency of moderate growth of production. Herewith, the average annual tempos of the production growth will be 1.1 – 4.2% [3].

In order to strengthen the competitiveness of food enterprises, the Republic of Buryatia implements the target comprehensive program related to supporting goods producers [5]. This way, in 2012-2015 the Republic implemented a number of investment projects: Development of Capacities on Producing Sausage and Delicatessen Products at the Buryat Meat Processing Company LLC, Organization of Milk Processing Production in the Dzhidinskiy Region, Expanding Production Capacities on Meat Processing at EcoFood LLC, and Technical Reequipment of Waffles Production at CJSC Konditerporm.

Besides, the following food enterprises reconstructed and modernized their production capacities: Kudarinskoe LLC, Bichurskiy Butter Plant LLC, Petropavlovskiy Meat Integrated Plant LLC and OJSC Moloko. These measures resulted in the growth of the agricultural and food production on average by 2.5-3%, and thereby ensured the increase in production of all commodity groups [3].

In addition, the foundation of integrated production structures in the agro-industrial sector of the region: Dzhidinskaya Meat Company LLC, APO Dzhidinskoe LLC, as well as the

1. Garantiya-2 LLC – RUB 21 mln.,

2. CJSC Vostochno-Sibirskiy Pig Complex – RUB 623.7 mln., and

3. CJSC Togtuuti – RUB 10.5 mln.

4. Over the recent years new productions have been open in Buryatia

5. Selenga meat processing factory,

6. Pokata LLC, Pishchevik Agricultural Consuming Cooperative (Dzhidinskiy Region),

7. Peresheek LLC (Kiahtinskiy Region), and

8. Nadezhda LLC (Yeravninskiy Region).

In spite of the consequences of the financial and economic crisis that had a critical impact on some sectors of the republic economy, the social and economic development of the Republic of Buryatia for 2008-2015 is characterized by the advancing growth of basic macro-economic indicators as compared to the average Russian ones [4].

As a consequence of the act “On Protecting the Baikal Lake” and YUNESCO decision on determining the status of the “Global Population Lot”, the food production is appreciated.

Prolongation of the economic sanctions by the European countries till the late 2016 and the Russian embargo for importing many types of food products open up new opportunities for the comprehensive import substitution in the country. Thus, according to the experts’ estimation, losses of foreign companies from the Russian counter-sanctions since August 1, 2014 made up about EUR 120 bln. In this context large agricultural holdings of Western countries try to find new ways to promote food export to the Russian market, including re-export through Byelorussia and Kazakhstan [10]. The import substitution program is successfully implemented in a number of Russian regions: the Belgorod, Voronezh, Rostov, Kursk, Tambov Regions, the Krasnodar Territory, the Republic of Tatarstan – production of meat and dairy products, vegetables and fruits, the Arkhangelsk and Murmansk Regions – fish production. It allowed to substitute almost 70% of food import [16].

The creation of food chains includes development, production planning, processing, distribution among consumers. However, the creation of efficient food chains requires additional investment resources and time. Thus, for example, sheep breeding will require from 2 to 4 years, meat and dairy sub-complex and food enterprises - from 3 to 7 years subject to direct state support [19].

The food market of the Republic of Buryatia functions on the basis of developing intersregional relationships. At the present time food products are supplied from 30 subjects of the Russian Federation, basically from neighboring regions of the Siberian Federal District. Suppliers of basic food products are large and medium-sized enterprises. As the share of smallsized enterprises still remains low, it is stipulated by a low level of their competitiveness.

To a great degree, the efficiency of the regional food market functioning depends on the level of interregional food relationships development, because they have a considerable impact on providing the population with basic high quality food products at affordable prices.

3.1. The food market and its structure were formed and developed under the influence of a group of negative macro-economic factors that affect above all the food production. In particular, these are growing tempos of inflation, crisis of non-payments of enterprises, organizations, population, and disruption of stable interregional relationships. Herewith, it is necessary to note that in the context of the introduced anti-Russian economic sanctions almost all mentioned factors have an impact on the state of the food market business environment.

Above all, this is the fall of the population’s actual demand for national food products. Finally, it caused a number of negative consequences restraining the development of the food market: tendencies to naturalization of the population’s consumption, especially crop products, and as a consequence, the decrease in the share of food products acquired in the trading chain, and accordingly the increase in the share of consuming own products. Under new conditions these tendencies come with a decrease in the range of the consumed products, substitution of food products that are more valuable for the diet by less valuable products. Above all, it is related to the re-allocation of the family budget for buying less caloric food products at more affordable prices. Herewith, it is necessary to note that this tendency is related to the redistribution the population’s free time in favor of basic food production within home and private farming. In its turn, it affects the efficiency of functioning of the Russian food complex enterprises. Thus, according to the data of the Goskomstat of the Russian Federation, the ratio of own production in creating the food fund is 93% for potatoes, 74% for vegetables, 60% for meat, 50% for milk, and 43% for eggs.

3.2. At the present time like before private farms of the population produce considerably less grains, sugarbeet and other agricultural crops than large agricultural enterprises do. Herewith, it is necessary to note that the introduction of anti-Russian sanctions created specific pre-requisites to increase the volumes of national production and ratio of food commodities not only on the internal but on the global markets, too [20].

In the modern context, when implementing the import substitution program, the demand for food products remains relatively stable. Along with this, the consumption per capita is still far from rational and economically developed countries: Japan, Great Britain, etc. For example, according to the data of the National Fund of Consumers Protection, the average citizen of Russia consumes by 42% food more as compared to the average statistical citizen of economically developed countries and on average only 64% from the rational standards defined by the World Health Organization (WHO).

It is possible to observe that over the recent years there has been great differentiation in the population’s average food products consumption per capita in families with different levels of income, composition and place of residence: rural or urban.

Besides, considerable change of the currencies rate and consequently the growth of prices for basic food products, tariffs for energy products, etc. affected the level and quality of the region population lives. Since January 1, 2016 the rates for some types of property taxes (transportation, land) have increased. In particular, the property tax is calculated in 28 Russian regions according to the cadaster price of the real estate. Finally it caused the increase in the size of the Buryat poor population from 16.9% in 2014 up to 17.9% in 2015. As the result of the decreasing work places and salary, the population’s incomes considerably decrease. Thus, according to the data of the “Public Opinion” Fund, above 60% of Russians have to save on buying food products [3].

Additionally, in the Republic of Buryatia in 2015 the situation is complicated by unfavorable weather conditions (fires and droughts) that resulted in catastrophic growth of losses in grains and vegetables and reduction of food production volumes.

Conclusions

Based on analyzing the state of the regional food market development in the context of import substitution, it is possible to define the factors that restrain its development. Under these conditions it is necessary to estimate the agriculture and resource potential, to reveal threats and to define opportunities of its more rational use. Taking it into account, it is possible to give the following recommendations: to research the mechanism of functioning and tools of its regulation, top priority areas of development. All these issues can be an object of the future agro-food researches.

Acknowledgements

The research results stated herein were obtained within the grant “Young Researchers of the East-Siberian State University of Technologies and Management”. The authors express gratitude to the management and personally to the Principal – Doctor of Economics Saktoyev Vladimir Evgenievich for the comprehensive support of the young researchers’ activity.

References