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The past and future of the Russian milling industry

09 March 20206 min reading

“Over the past 20 years, the Russian Federation has taken a worthy place in the agricultural export market and become the world’s number one wheat exporter. However, in terms of state support, the main focus is on grain exports, not on processed products. Over the past decade, Russian annual flour exports have fluctuated at no more than 200-250 thousand tons, although production capacities allow increasing the volume to at least 2-3 million tons.”

Igor N. Sviridenko Vice President The Russian Union of Flour Mills and Cereal Plants

The Russian flour milling industry has been developing over the past hundred years and has undergone a number of changes by the second decade of the 21st century. During the Soviet period, especially in the '60s-'80s of the last century, state programs were developed and adopted at the government level, pursuant to which the production of their own high-performance and flour-grinding equipment, contemporary for that period, was created. Almost all enterprises in the industry were either re-equipped or re-created. At the same time, special attention was paid both to the enlargement of production (in the main megacities of the country - Moscow, Leningrad, now Saint-Petersburg, Nizhny Novgorod, Novosibirsk), and bringing production closer to consumers. In accordance with the task set for the industry by the country's leadership, each regional center should have had at least one flour mill. By 1991, these tasks were practically resolved. There were 358 mills in the RSFSR, which made it possible to produce up to 20 million tons of flour per year. At the same time, old mills that do not meet modern requirements were almost eliminated.

Production was carried out at the maximum technical capacity. In respect of flour-grinding equipment, almost 100 percent capacity utilization rate was achieved, production and marketing of products were carried out in accordance with the state planning. The industry reached its peak at the end of the 1990s, and during this period undoubtedly the Russian Federation occupied one of the leading positions in the world both in terms of the level of technical equipment and flour milling volume.

However, the political changes in the country that occurred in the early 90s affected all spheres of public life without exception to the milling industry. With the onset of the market economy, the trend of consolidation of state flour mills changed to the exact opposite - there was an explosive increase in the number of flour mills (mainly small ones, with a capacity of up to 20 tons per day) with a simultaneous reduction in the number of industrial enterprises. At the same time, the number of industrial mills decreased to 285, and their share in the total production of flour by 60%.

A more cost-effective approach to the system of production and distribution of products, the desire to reduce logistics costs during the transportation of raw materials and finished products led to the redistribution of production capacities within the country. Also, in addition to the desire to reduce the cost of the production process, changes in the structure of grain export and import played a role in this. Thus, flour production began to focus closer to the areas in which marketable grain is produced. This ultimately led to the fact that the leaders in the production of flour were not the largest megalopolises in Russia, but remote regions with grain-grinding standards nearby and, at the same time, located quite far from the ports being deprived of the opportunity to develop exports. In addition, flour mills located near such large ports as the Baltic, White Sea (Barents Sea), and the Pacific Ocean through which imported grain coming in USSR during the Soviet period lost their importance and economic feasibility.

Simultaneously, with the reduction of industrial flour milling in remote regions and large megacities, road transport of flour was developed over considerable distances (up to 500-600 km), including bulk delivery by heavy-duty flour vehicles. For large enterprises, it became economically necessary to create their own fleet of such special vehicles.

Volumes freed up due to the reduction in industrial production are filled with products produced by low power mills. Many of these industries are vertically integrated and are either part of the structure of grain producers or large producers of bakery products. These productions are in more favorable conditions compared to industrial enterprises, as they have cheaper input raw materials and/or guaranteed sales of all produced volumes. Therefore, this segment has been developing rapidly in Russia for the past 20–25 years, has occupied a market share of up to 6 million tons, and now although it has slowed down somewhat this process is still far from complete.

Due to the disparity in the prices on the milling market, a significant number of unused production capacities and the unregulated development of small mills, the profitability of flour production in Russia has significantly decreased and does not exceed 5-6% for the most successful enterprises. On average, profitability is 0,5%, which slowed down the development of the industry in terms of improving the industrial segment.

Considering that about 30-40 years have passed since the large-scale renovation, reconstruction and modernization of enterprises, the industry is in urgent need of re-equipment. A number of support measures have been taken at the state level in the country both for machine-building enterprises for the food and processing industry, and directly for mills. However, an increase in state support for the industry is required, including in the direction which will allow the industry to enter new markets.

Over the past 20 years, the Russian Federation has taken a worthy place in the agricultural export market and become the world’s number one wheat exporter. However, in terms of state support, the main focus is on grain exports, not on processed products. Over the past decade, Russian annual flour exports have fluctuated at no more than 200-250 thousand tons, although production capacities allow increasing the volume to at least 2-3 million tons.

Also, the development of exports may be affected by the harmonization of the regulatory framework of foreign countries with the technical regulations of the Eurasian Economic Community (EurAsEC), as the relevant domestic regulations are more stringent than in potential importing countries. Promising foreign countries that it is advisable to organize appropriate methodological support are the CIS countries, China, Mongolia, Southeast Asian countries, the Middle East, and also North and Central Africa, including Iran, Egypt, Korea, and India.

Unfortunately, there are no real projects in these regions, although the implementation capacity is very high. In order to radically change the situation with the export of flour, it is necessary to begin to carry out state support for efforts in this direction of export at all levels.

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