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HOW TO SUCCEED IN A TURBULENT BUSINESS ENVIRONMENT The experience of Valio in trading with Russia in dairy sector
Raul Lönnström
for EESC seminar 7 July, 2015
Valio company was founded in 1905 as a cooperative group to export best quality Finnish butter.
Valio still mean the best quality to the present time. In all countries and markets.
VALIO IS THE BEST IN FINNISH
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1905 1955 1992 1998 2009
VALIO IN FIGURES
2 000 Turnover of EUR 1,950 mln.
one third of revenue derived from abroad
The number of employees is 4400, 1000 of them abroad 4 400
7 100 Company is owned by 17
cooperatives
7 100 Finnish milk farmers
1,900
80%
18
Milk intake is 1 900 million litres
Valio processes 80% of all milk produced in Finland
There are 15 plants in Finland, 2 in Estonia, and 1 in Russia
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VALIO GROUP’S TURNOVER AND PERSONNEL
Turnover*, € million
Average number of employees
Employees, 31 Dec 2014
Valio Oy 1,714 3,734 3,570
Valio Russia 258 475 354
Valio Baltics 92 371 371
Valio Sweden 97 51 50
Valio USA 58 24 23
Valio China 48 7 7
Valio Group total 1,950 4,662 4,375
*) Turnover of Valio Oy and the subsidiaries include sales within the Group.
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VALIO IN RUSSIA Valio operates in Russia since 1908. Head office is in St.-Petersburg. Personnel: 400 + Key markets: Moscow, St.-Petersburg, “million+” cities, premium segments in CIS.
Since 1956 Since 1908
Market leader in Moscow and St.-Petersburg
Oltermanni is # 1 cheese brand in Russia
Viola is the most reliable brand in processed cheese
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Non-dairy products
Lactose-free products ???
Valio quality, Russian plant and raw milk
Valio quality, Russian plant and raw milk
Own production in Moscow region
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VALIO WORKS ON MILK QUALITY ON RUSSIAN FARMS TO GET E-CLASS MILK DEMANDED FOR VALIO PRODUCTS
The same quality standards that in Finland (higher than the highest class in Russia,
Regular audits of contracted milk producers,
More parameters than Russian milk plants demands,
Own attestation of milk producers by Valio,
Milk producers education in Finland.
We are ready to buy the best Russian milk on
higher price! Raul Lönnström 07.07.2015 7
VALIO AUDITS PRODUCTION. ONLY THE BEST PLANT CAN PRODUCE VALIO PRODUCTS
Obligatory audits by Valio quality Management System team
Most modern production facilities
International QMS (ISO, HACCP)
Sanitary norms and allergens control
Raw martials standards
Regular quality control of each batch by Valio specialists
Best plants!
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RUSSIAN DAIRY SECTOR – MILK PRODUCTION
55
71
5
51
88
6
47
23
6
46
52
4
42
17
6
39
24
1
35
81
9
34
13
6
33
25
5
32
27
4
32
25
9
32
87
4
33
46
2
33
31
6
31
86
1
31
07
0
31
33
9
31
98
8
32
36
3
32
57
0
31
84
7
31
64
6
31
75
6
30
52
9
42
45
2
38
33
3
32
16
7
29
89
6
25
28
7
22
41
3
19
02
0
17
49
6
16
66
2
15
67
6
15
27
1
15
52
4
15
96
3
15
39
0
14
37
5
14
00
1
14
13
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14
16
3
14
24
6
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10000
20000
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Milk production in Russia, Mkg
Kaikki tuottajat
Maatalousyritykset(suurtilat)
All producers
Agriculture companies (large farms)
NOTE! Only data from large
farms is reliable
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RUSSIAN DAIRY SECTOR – CHEESE
2009 2010 2011 2012 2013 2014
Consumption 690 780 759 789 782 668
Production 400 438 425 446 430 450
Imports 310 353 344 356 364 230
0
100
200
300
400
500
600
700
800
900
1.0
00
to
ns/
a
CHEESE CONSUMPTION, PRODUCTION AND IMPORTS
High dependency on imports!
Effects from Russian
import ban are seen in 2014 figures
Cheese import from EU to Russia in 2013 was 257 ktons and in 2014 only 133 ktons (-48%).
Valio´s share was about 15 % in both years.
Source: USDA FAS
http://apps.fas.usda.gov/psdonline/ps
dHome.aspx
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RUSSIAN DAIRY SECTOR – BUTTER
2009 2010 2011 2012 2013 2014
Production 246 207 217 216 219 235
Imports 107 118 120 124 144 130
Consumption 349 324 334 340 361 363
0
50
100
150
200
250
300
350
400
1.0
00
to
ns
BUTTER CONSUMPTION, PRODUCTION AND IMPORTS
High dependency on imports!
Russia was the biggest
export destination for EU butter. From EU to Russia
was exported 30 ktons butter in 2013 and in
2014 c. 21 ktons (-30%), more than half of EU´s export was a Finnish
butter
Source: USDA FAS
http://apps.fas.usda.gov/psdonline/ps
dHome.aspx
RUSSIA: GOVERNMENT EFFORTS
Due to deficit of local milk production the aim is to support local milk production and development of dairy industry. The dairy market is dominated by international companies, e.g. Pepsi, Danone, Valio, Lactalis. Locally owned companies are more like regional players. The government has already for a long time supported local milk production and processing with no significant effect to decrease imports. The quality of raw milk is generally lower than in EU. Embargo supports the development of the Russian dairy sector. The new Minister of Agriculture Mr. Alexander Tkachev is encouraging companies to invest, increase milk production and processing.
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RUSSIAN EMBARGO
Embargo implemented 7 August 2014 for one year. 25 June one-year extension of the ban.
Countries involved: United States of America, the EU member countries, Canada, Australia and the Kingdom of Norway
Includes dairy products with the exception of baby foods and lactose free products.
Due to the ban additional measures has been raised to control the imports: on the border quality control performed by the customs and Rosselkhoznadzor (Federal Service for Veterinary and Phytosanitary Surveillance).
Recently also necessity to register the allowed products to Rospotrebnadzor (Russian Federal Service for Surveillance on Consumer Rights Protection and Human Wellbeing) as special dietary products
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IMPACT OF THE EMBARGO
The world market balance has been affected: strong drop in commodity prices world wide.
Increasing imports from Belorussia, South America, Switzerland, New Zealand etc
• capacity in Belorussia in good use, raw material flow in from Poland and Baltics
• new countries approved by Rosselkhoznadzor e.g. Egypt, Turkey
Availability of consumer products have changed, especially cheese and butter. Government has also big concerns about falsified products.
Increase of the consumer prices in Russia by 25…30 %. The consumption of cheese has declined by 25 % and the dairy products in general 10 … 15 %.
Source: Eurostat until 2009,EWPA, GDT
USD-rate previous month/week
impact of embargo
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IMPACT ON VALIO GROUP
Most of the products sold in Russia were imported from Finland and Estonia.
Russian sales dropped from 8.000 tons/month to current 2.000 tons/month, which is now mainly local production. Only minor volumes of water, juices etc are imported to Russia.
In Finland immediate redirection of production from consumer products to industrial. Personnel reductions in Russia and in Finland so far totally c. 700 persons.
Due to the basic principles of Valio all milk from the owners has to be processed. The Russian export has been replaced by industrial butter and powder sales to industrial markets.
The milk price for the producers has dropped by 25 %!!
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IMPACT ON VALIO RUSSIA Embargo started August 2014 and still continues most likely
until August 2016.
At first stage autumn 2014, getting prepared:
• a recovery plan was created
• stocks already in country to be sold to regular clients
• decision to increase capacity in Moscow plant
• agreement with existing co-packer to increase production
• negotiations with potential suppliers in Russia and Belarus.
• planning of personnel reductions
Second stage autumn and winter 2014/2015, implementation:
• slower sales of existing stocks
• investment to additional capacity in Moscow plant
• planning of new launches and stating of sales in January 2015
• implementing of personnel reductions
Third stage winter 2014/2015 and spring 2015, new start:
• adjusting the and reorganizing resources
• sales increase to recover back the position on the shelves
impact of
embargo
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RUSSIA IS STILL AN OPPORTUNITY FOR VALIO
There has been crisis before: 1998, 2009 and now 2014. Valio has earlier survived on the market; lost some sales but always recovered.
Valio has a great reputation in Russia. In the informational environment the company is mentioned in positive manner more often than all foreign dairy companies in Russia combined!
In longer run the balance between production in Russia and EU to be reconsidered by the owners:
• before embargo: EU 90 % - RUS 10 %
• now RUS 90 % - EU 10 %
• after embargo new balance: EU xx % - RUS yy %
Continuation of embargo will strengthen the volume of local production as the government is expecting. At the same time increase of our local production keeps the shelves reserved also for Valio. This will smoothen the comeback of Valio’s imported products after embargo, when ever it is over…
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