Sausages are a Russian's favorite meat. Be they kolbaski, sosiski or sardelki, whether they are smoked, boiled, fried or all three at once, few countries can offer a wider array of sausage varieties. It's hard to imagine a Russian dinner party without them; after bread and pelmeni, they are the quintessential Russian food. But here's a little Russian sausage secret: more often than not, they are made from imported meat, and quite often it's Canadian.
You don't believe it? Well, don't take it from me, but from Nathan Hunt, manager of R.A. Chisholm in Russia.
MN: Who is R.A. Chisholm and how did you get started in Russia?
Nathan Hunt: R.A. Chisholm was established in 1938 in Canada by Ronald Chisholm. It was initially a dairy trading company which expanded into meat in the 1950s and 1960s. Chisholm did the first deals with large Soviet state trading companies to import Canadian pork in 1990 and 1992. But that state-run business collapsed together with the Soviet Union. By late 1993 it became clear that any future trade had to be done directly with the end users, not with government as the middle man.
It took a lot of legwork. We visited all of the meat and sausage factories and found they were very short of meat supply. They all needed to find a source of meat because Russian agricultural production was declining drastically, plummeting really, in the mid 1990s. And sausage producers, in order just to maintain some modicum level of output, were forced to look abroad to find sources of supply. Import has stayed ever since.
The meat imported into Russia is not generally used for consumer consumption until it has been processed at a factory. Some pork chops and steaks are imported for consumption without further processing, but only on a small scale for the high-class hotels and restaurants.
We bring in raw meat that can be turned into something the average Russian would consume, such as hotdog, sausage or salami. There is a far greater variety of processed meats available in Russia than in almost any country. In the U.S. and Canada, the variety of processed foods is much smaller. In Russia, an average meat factory may be making 100 or 120 different types of sausage. The only other countries with a similar culture of meat processing are perhaps Germany, Austria or Poland.
MN: Does Russia export any meat or dairy products at all?
Nathan Hunt: Russia in fact has some excess milk production that from time to time can be exported. Sometimes for human consumption, but sometimes for animal feed or other purposes. That depends on the veterinary protocol that exists between Russia and the country of destination.
MN: What is your experience with the Russian regulatory environment?
Nathan Hunt: Russian regulations are quite bureaucratic and detailed. The regulations are so complex that in some cases a very minor infraction can cause delays that cost money, even though there would be no harm to the Russian consumer. For example: eight or nine years ago, we had a container arrested in the port of St. Petersburg because the plant number was listed as 004 on the boxes. And the approved plant number in the documents was plant number 4, not 004. It took us about two weeks of writing letters to the Russian veterinary authorities to convince them that plant 004 is plant 4. That's an example of what I would call overly zealous enforcement.
Russia has an extremely elaborate, complex system of safety mechanisms to ensure that the food supply is safe for the Russian consumer. And we adhere strictly to all of their rules. We import from the United States, Brazil, Paraguay, sometimes from Australia. In each case we have to engage a local veterinarian to inspect the product to ensure that everything is exactly in accordance with Department of Safety and Hygiene Standards.
The Russian standards are strict and strictly enforced. Unfortunately, because Russia has a history of companies getting around the rules, the Russians are very suspicious of any discrepancies. So it's very hard to get even small discrepancies approved by the Russian veterinary authorities. And that's okay. Russia needs to guard its food supply very closely - they defend their consumers vigorously.
MN: Do you face any restrictions in your business?
Nathan Hunt: In 2003 Russia introduced import quotas. So it's no longer a matter of free trade, every year the government dictates how much beef, pork, and chicken will be imported into the country. The Russian government has stuck to the 2003 import quotas, with only modest annual increases. The initial level was 420,000 tons of pork, 450,000 tons of beef, and 1 million tons or so of poultry.
We are probably doing between 1,000 and 2,000 tons of imports into Russia every month. Some of our products are not subject to quotas. The quotas do not apply to fat, for example, which Russians import a lot of: The little white dots you see in your sausage are actually little pieces of fat - they add flavor and texture to the meat. Certain types of offal and variety meat - livers, hearts, kidneys - are also not subject to quotas.
MN: Are you active throughout Russia?
Nathan Hunt: We would like to be active throughout Russia - we are more active now in the regions than we used to be. We used to sell nothing to the regions, but now we sell to those regional buyers that have financial mechanisms set up for prepayment. We sell to people who have money - end of story. And the further you get away from St. Petersburg or Moscow, the more likely you are to encounter a buyer who will say "I do have the money, but I will only have it after I sell the product that you give me. So, give me the product, I'll turn it into sausage, I'll sell it, and then I'll pay you for it." And for us, that doesn't work. We say, "no, no, no, you pay us for the product, then we'll give it to you, you can turn it into sausage, and you can pay yourself back."
MN: Some Western companies have mechanisms to help their customers get money. Do you do that?
Nathan Hunt: Absolutely, that's an important part of success in all sectors of the Russian market. It's important to help your client find ways to finance the business. We were tremendously successful in the 1990s because we discovered that earlier than others. We had very complex, very useful financing mechanisms in play that allowed us to be the largest importer of meat for processing in Russia in 1997. In the last two or three years we have been able to reinstate some of the financing mechanisms that had been dormant or cancelled because of the financial collapse. We spent a lot of time researching those options and that has helped our Russian business significantly.
MN: What is your biggest challenge in the Russian market?
Nathan Hunt: The biggest challenge is always getting paid.
MN: How many people do you employ in Russia, and what do they do?
Nathan Hunt: We have 15 people. We only have a representative office here in Russia - we don't sign contracts or sell things from this office. All selling is done from the head office in Toronto. Our people here on the ground primarily fulfill logistics functions, such as helping with customs clearance, helping with in-country transportation, getting the product down from St. Petersburg to Moscow, helping our clients follow the supply schedule. If the schedule says we should have six shipping containers of ham this week, where are they?
MN: Do you work in other CIS countries?
Nathan Hunt: Yes, we are dealing with Belarus and Georgia, for example. The challenge is always how to marshal our own resources in order to get our product into these markets. The markets are there, but it takes a lot of time and effort to develop these markets.
MN: How would you assess the Russian meat industry in general?
Nathan Hunt: The domestic meat supply is finally starting to increase. The increase began with poultry after the 1998 financial crisis. The ruble was so severely devalued that for about a year imports of U.S. chicken - which had been Russia's largest poultry import - severely declined and people were forced to look for other sources. That was a real boom to the domestic poultry market. Poultry production has been increasing ever since and the poultry sector in Russia has largely recovered from the collapse of the late 1980s and early 1990s.
In pork, the process has only just begun. Pork production declined steadily until a few years ago, but we believe it bottomed out in about 2005 and is now increasing. This was helped, particularly this year, by a government support program which essentially provides interest-free loans to anybody prepared to invest large amounts of money in hog-raising.
In the long term we believe that there will still be imported meat in Russia, but in much smaller volumes. Russian agriculture will recover and will be able to supply much of the domestic demand. We believe that the real future in Russia is in agricultural production. Rather than bringing in meat or selling chickens to the Russians, the future will belong to those who invest in projects to produce chickens here, or raise hogs here, or sell equipment needed to feed cattle in feed lots.
We believe that investments in agriculture will pay off over the next 10 years. Investments in agriculture are probably a little safer for foreigners than some other investments, since agriculture isn't a strategic industry. It's not like investing in a gold mine or a defense factory. We know of no significant cases where foreigners have been forced out or deceived by their partners in an agricultural venture. And generally, the local authorities are very favorable and quite happy to find agricultural investors. So far, they have been taking great care to ensure that foreign investors in the agricultural sector are treated right.
By Dietwald Claus
