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 IS THE BEST IN FINNISH
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.
Raul Lönnström 07.07.2015 2 VALIO IN FIGURES
Turnover of EUR 1,950 mln. Milk intake is 1 900 million one third of revenue derived 2 000 1,900 litres from abroad
The number of employees is Valio processes 80% of all milk 4400, 1000 of them abroad 4 400 80% produced in Finland
Company is owned by 17 cooperatives There are 15 plants in Finland, 2 7 100 18 in Estonia, and 1 in Russia 7 100 Finnish milk farmers
1905 1955 1992 1998 2009
Raul Lönnström 07.07.2015 3 VALIO GROUP’S TURNOVER AND PERSONNEL
Turnover*, Average Employees, € million number of 31 Dec 2014 employees 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.
Raul Lönnström 07.07.2015 4 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.
Viola is the most reliable brand Oltermanni is # 1 cheese Market leader in Moscow and in processed cheese brand in Russia St.-Petersburg
Since 1908 Since 1956 Raul Lönnström 07.07.2015 5 Non-dairy products Valio quality, Russian plant and raw milk
Lactose-free Valio quality, Russian Own production in products ??? plant and raw milk Moscow region
Raul Lönnström 07.07.2015 6 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!
Raul Lönnström 07.07.2015 8 RUSSIAN DAIRY SECTOR – MILK PRODUCTION
Milk production in Russia, Mkg
60000
55715
51886
50000 NOTE!
46524
Only data from large
42452
42176 farms is reliable
39241
47236
40000
35819
38333
34136
33462
33316
33255
32874
32570
32363
32274
32259
31988
31861
31847
31756
31646
31339
31070 30529
30000 32167
KaikkiAll producers tuottajat
29896
22413
20000 25287
Agriculture companies
19020
17496 Maatalousyritykset(large farms)
16662
15963
15676
15524 15390
10000 15271 14752
14495 (suurtilat)
14395
14375
14313
14246
14163
14135
14047 14001
0
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Raul Lönnström 07.07.2015 9 RUSSIAN DAIRY SECTOR – CHEESE
CHEESE CONSUMPTION, PRODUCTION AND IMPORTS
900 High dependency on 800 imports!
700 Effects from Russian
600 import ban are seen in 2014 figures 500
1.000 1.000 tons/a 400 Cheese import from EU to Russia in 2013 was 300 257 ktons and in 2014 200 only 133 ktons (-48%).
100 Valio´s share was about 15 % in both years. 0 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
Source: USDA FAS http://apps.fas.usda.gov/psdonline/ps Raul Lönnström 07.07.2015 dHome.aspx 10 RUSSIAN DAIRY SECTOR – BUTTER
BUTTER CONSUMPTION, PRODUCTION AND IMPORTS
400
350 High dependency on 300 imports!
250 Russia was the biggest 200 export destination for EU 1.000 tons 1.000 butter. From EU to Russia 150 was exported 30 ktons butter in 2013 and in 100 2014 c. 21 ktons (-30%),
50 more than half of EU´s export was a Finnish 0 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
Source: USDA FAS http://apps.fas.usda.gov/psdonline/ps Raul Lönnström 07.07.2015 dHome.aspx 11 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.
Raul Lönnström 07.07.2015 12 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
Raul Lönnström 07.07.2015 13 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, impact of especially cheese and butter. Government has embargo also big concerns about falsified products.
Source: Eurostat until 2009,EWPA, GDT USD-rate previous month/week 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 %.
Raul Lönnström 07.07.2015 14
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 %!!
Raul Lönnström 07.07.2015 15 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 impact of • stocks already in country to be sold to regular clients embarg • decision to increase capacity in Moscow plant o • 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
Raul Lönnström 07.07.2015 16
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… Raul Lönnström 07.07.2015 17 Raul Lönnström 07.07.2015 18