The far eastern region of Russia has the potential for investment in tourism, logistics and border trade and now agricultural investment is also grabbing attention, in particular, the dairy sector.
Areas in north-east Asia already have a shortfall in dairy products and are increasingly seen as an instant market for dairy producers in Russia's eastern region. Mengniu Dairy which is a 20% state-owned company based in inner Mongolia is already one of the major suppliers of milk and other dairy products into mainland China.
It has now entered a joint venture with Moscow-based AFK Sistema Group which is involved in multiple sectors including IT, communications and real estate. The two companies will invest US$750 million between them to develop the dairy industry in the region and to increase milk production to around 500,000 tons annually. The project would be the largest of its kind in Russia and one of the largest globally.
Sistema's subsidiary Agroholding Steppe already owns 150,000 hectares of land in the area which can be used as pasture. The joint venture intends to distribute milk in the far eastern area of Russia and cross the border into China where it will be sent to Mengniu's production facility in Heilongjiang.
The formal structure of the venture has not yet been announced although both parties agreed to proceed in September when they attended the Eastern Economic Forum in Vladivostok. It seems likely that, initially at least, production would be arranged whereby each company utilises its facilities and shares the profits. This may take the project longer to get off the ground but it also provide long-term stability.
It is estimated by the Russian National Dairy Manufacturers Union that the area has a 700,000-ton pa difference between demand and supply with an incredible capacity for market expansion. They estimate the total market capacity is in the region of 1 million tons and that alongside markets in this region it could also extend into the markets in South Korea, Indonesia and Vietnam which have a constant shortage of supply. It seems, however, that the transportation of raw milk is an issue and the Union recommends local processing before exporting the final product.
It is prudent, however, for the group to remember that this is not the first time that attempts have been made to exploit this market. In 2017, RusAgro had planned to invest $1billion into the area to produce up to 600,000 tons of milk annually. Even though the company is the largest in the sector within Russia there has been no real progress on the project despite claims that their commitment remains unchanged.
If one or both of these projects are successful it seems likely that Hong Kong can help drive sales and take a key role with its connections of seaports in the Vladivostok basin, testing expertise and international certifications. Hong Kong-based resources in marketing and branding will also mean it has huge potential as a key hub for storage and distribution.
