Portrait of the Russian eco-consumer

The price of organic food is considerably higher than that for traditional products, sometimes even higher than for premium class items.

The margin is very big.

Picture: Fushi Bar in Moscow

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Factors affecting the interest of consumers in eco-products are:

* improving financial status
* ecological issues in the cities
* reduced level of free medical services, stimulating thinking about health
* publicity about GMO in the food chain
* publicity about unhealthy ingredients in packaged food
* publicity about use of chemicals in agriculture
* eco-lifestyle “fashion” imported from western cultures
* most eco-products coming from countries where Russian consumers trust product labelling.

All these factors create a new type of Russian consumer who is eager to buy healthy food, natural and organic products. The interest of Russian consumers in organic products is confirmed by research of the Comcon Company. According to their research, over the last 5 years (since 2000), the number of Russians who are ready to pay more for organic products has increased by 10 %. Over the same period, in Moscow, those ready to pay more for organic products increased by 21 %.

In the first half of 2005, 56 % of Muscovites were ready to pay more for eco-products. It is interesting that, even in the group of people with low incomes, for example, who only have money for food, 37 % are ready to pay more for healthy food. In the high income group this figure reached 78 %.

Based on the same research, the middle class in Moscow and St. Petersburg from 25-45 years old and with a high level of education are the most active in the consumption of eco- products. They agreed with the statement:

- “I am very busy and can't be bothered myself but I am ready to pay more if I am sure about the quality and safety of products”.

I would add that there are two groups of people within this category:

- the high income segment of the population, who want to follow western fashionable attitudes.

-  the middle income people, who want to improve their health via correct nourishment.

According to market research from the “ARMI-marketing” Agency, among consumers who are interested in buying organic producsts, 13 % shop in pharmacies, another 13 % in specialized stores and 74 % in the eco-department in supermarkets.

In October 2005, another company, CVS Consulting, conducted its own research asking visitors in big supermarkets in Moscow what kind of food they prefer to buy. 65 % of them said they never buy a product if it has preservatives, 50 % refuse to buy products if they have chemical additives, and 33 % don’t want to eat food with GMO.

Sometimes consumers do not understand completely the term “eco-product”. They associate it with quality and think that an organic product is a natural one of high quality. For this reason they are ready to pay more. For a long time some producers have used the word “ecological” and “bio” without any support of certification. Today, as a result, some consumers don’t understand the terms, and some don’t trust this kind of product claim from local producers. This is why they don’t really believe such claims as “organic”, “bio” and “eco” on the labels of honest producers. Today, according to CVS Consulting Agency, about 38 % of consumers in Moscow don’t trust information on product labels.

This is why the most important priority today is consumer education. The development of the eco-market depends on consumers’ knowledge and trust. Russian consumers are more suspicious than those in the west. This is a sad legacy of the Soviet past and corrupt public officials. As a result, it will require hard work from producers, distributors, retailers and the mass media to explain to Russian consumers why they should buy a product that looks like a traditional one but costs three times more.

Local production

When discussing the Russian eco-market, it is impossible not to pay attention to local production. Despite the fact that today the main part of the market is imported products, experts believe that Russia has considerable potential for developing local production and exporting some products.

According to data on the development of ecological and bio-dynamic farming and agriculture from the non-profit partnership “AGROSOFIA”, in 2004 there were more than 100,000 hectares of land devoted to ecological and bio-dynamic management in Russia. Only one-third was used for agriculture. The balance, 70,000 hectares, was used for gathering products that are growing wild. Certification of these areas was carried out on the initiative of western companies (60 %) and Russian companies (40 %).

In 2005, the initiative for certification was half Russian, half foreign. The areas under ecological and bio-dynamic cultivation have not changed and in the case of wild gathering have increased slightly to 75,000 hectares.

“AGROSOFIA” indicated that in 2005 there were almost the same number of certified organic farms and processing companies in Russia as in 2004 - 30. Most of these farms are in the black earth zone of Russia (the cities Kursk, Tula, Belgorod), Siberia (Omsk, Novosibirsk), the north-east (Arkhankelsk) as well as Southern Russia (Stavropol). The main items produced in these areas are buckwheat, millet, alfalfa, flax, and wild berries and plants are gathered. Most of these products are exported.

Russia is often thought of as an exporter of raw materials; this is certainly true of natural products. Most common is the harvesting of items growing wild. Some of these items, like sea-buckthorn, wild berries, some mushrooms, cedar nuts, herbs, etc., are unique on the world market. The specific climate and ecological conditions in some areas of Russia, like the far east of the country, make it relatively easy and quick to obtain eco-certification. This factor is very important to Russian and foreign investors.

Investing in gathering and processing raw materials for export is attracting interest from both Russian and foreign investors. The two joint-ventures companies that are exhibitors at EXPO are good examples..  Also there are several companies in the far east of Russia who sell their raw material products very successfully to the USA.

Natural & functional items

The natural & functional product category is interesting to Russian producers. More and more of these companies have introduced these types of  item into their ranges. According to data from our VPH research, the number of producers working in this segment was about 50 in 2004 and more than 100 in 2005. It is a similar situation to that of the distributors who add organic items to their lists but are not exclusive eco-businesses. In the same way, producers are not exclusively eco-producers but simply add eco-items to their price lists.

Producers understand the advantages of this fast growing market segment - premium price products with big profit margins. The consumers of these products are from big cities and have medium or higher incomes, usually with higher education.

The situation today is as follows: many responsible and honest producers with high quality products prefer to stay in the natural segment and not try to move into the organic segment. This is not because of production or certification issues. It is because the producers believe that, without advertising the symbols which show eco-certification, it is not worthwhile getting the certification. Because of this, special qualifications or symbols will not bring additional sales or higher prices. Two examples are the farms “Bellaya Dacha” and “Novikov”, which supply fresh fruit and vegetables. They use biological methods of plant protection and their products are not treated by any chemicals to extend shelf life. They don’t want to get an organic certificate because of a lack of eco-certificate awareness in Russia.

Another important factor that stops some producers moving their products to the organic segment is their lack of knowledge about how to obtain Russian eco-certification.

Government attitudes to organic products

In other markets, one factor for market development has been some form of regulation relating to certification and standards for labelling and product claims. We have a joke that the State begins to take interest in a market only when it is developed enough to start making a good profit and when the producers don’t need any support. I think that the situation with the eco-market is different. The State has accepted the potential of the market and has begun to take some action even though the market is not yet established. The Russian authorities have made some progress in this area.
Based on the law today:

- Voluntary certification is already possible;

- The method and details of implementing Government certification are still under discussion.

Moreover, the Ministry of Agriculture in Russia, the State Standards Committee and “AGROSOFIA” are working together to create Russian standards for eco-production as close as possible to the proposed international standard. This international standard is an attempt to harmonize US, Japanese and European standards.

During the period 2003 to 2005, the Upper House of the Federation of Russia held two international conferences on ecological agricultural production where very important subjects were discussed, such as:

- the establishment and introduction of laws for  production and sale of ecological agricultural products;

- the creation of federal and regional programmes to support the development of ecological agriculture;

- the need for State supervision of the production and sale of eco-products by creating a system of accreditation and certification of companies. These regulations will cover the method of production, processing, storage, labelling and sale of eco-products based on the requirements of eco-agriculture.

A few Russian regional governments have paid some attention to developing the eco-market. Good examples are Kaliningrad (Baltic Sea) and Belgorod (in the south of Russia and on the border with Ukraine), where some eco-agriculture projects were successful due to government support which included a subsidy.

The Moscow regional government has begun to pay attention to this market also. On their initiative, SVC “Moscow Ecological Product” has been established. This organization helps producers sell their products in the Moscow area. Unfortunately, this experience has not been very successful because:

- this certificate can guarantee quality and safety of products such as baby food, but has nothing in common with the eco-certification that is accepted  worldwide;

- companies which get this certificate say that the government has not done anything to educate consumers about this symbol and the certificate it represents.

Meanwhile, this negative experience is nevertheless experience, and we hope the next attempts will be more successful. But the above example shows us that the government does understand something about the eco-market.