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RUSSIAN MARKET REMAINS PROMISING DESPITE SANCTIONS

RUSSIAN MARKET REMAINS PROMISING DESPITE SANCTIONS



Russia has long been seen as a coffee market that will see strong growth. Sanctions imposed after the annexation of the Crimea have dampened growth, but there is still plenty of potential in the country in the longer term, particular if changes occur that help the economy improve.

Matthew Barry, a beverages analyst at Euromonitor International, told Coffee & Cocoa International: “Two years after the annexation of the Crimea, which caused the worst crisis in relations with the West since the Cold War, the economic situation in Russia continues to worsen. 2015 saw real GDP and wages both fall by more than 3 per cent whilst inflation broke 15 per cent, caused by a devastating combination of sanctions over the conflict in Ukraine and the plummeting price of oil.

“Even so, the Russian coffee market is still promising, and the accession of Russia to full member status in the International Coffee Organization in April of 2015 was a clear symbol of its growing importance to the world coffee market.

“The question is whether or not Russia’s deteriorating economy will overwhelm its growing demand for coffee. Long-term trends and past Russian consumer behaviour suggest it will not, although without a general economic turnaround slow growth is the best that can be realistically hoped for.”

The Russian middle class, whose spending has driven coffee’s growth, has been badly affected by the economic crisis than other groups, but demand for coffee remains resilient.

However, as Mr Barry explained, demand for coffee can only grow so much at a time when wages are falling and devaluation of the rouble is driving up the price of imports.

“The conditions exist for Russia to be a high-growth coffee market, but there are just not enough roubles in Russian pockets right now for that to happen,” he said.

Russia is a major oil producer and thus quite heavily dependent on the oil price. Should the oil price rise from its current level of circa US$50/barrel, even to a modest US$60/70 a barrel would it be a major positive development for the Russian economy and restore strength to the rouble, making coffee imports cheaper.

“The sanctions will not stay in place forever,” said Mr Barry. “Although Russia is unlikely to renounce the Crimea or its support for rebels in Ukraine, cracks are starting to show in the unity of the European Union. Although the US and more strongly anti-Russian countries such as Poland will probably keep them in place for a long time, it is doubtful that multilateral sanctions can stay in place indefinitely, which should provide further economic relief.

“Coffee’s transition from a luxury to a basic foodstuff will keep demand afloat during the recession, but it will take a major economic turnaround for Russia to fulfil its potential as one of the world’s great coffee markets.”

For more information see the forthcoming July 2017 issue of Coffee & Cocoa International.

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