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Cargill at the eastern frontier

11-Dec-2003

International food processor Cargill is set to construct a $50 million malt plant in Tula Oblast of Russia. Company spokeswoman Irina Kalygina told the Russian Vedomosti newspaper that the corporation is looking into the possibility of constructing the plant in the town of Yefremov, and that building work will probably start in spring next year.

The plant is scheduled to be launched in mid-2005. Cargill has not disclosed the final capacity of the future plant, but it is believed that the facility will produce beer exclusively for the Russian market. The executive director of the Russian Brewers' Union, Viacheslav Mamontov, believes that the capacity of the plant might be something in the region of 100,000 tonnes of malt a year.

The move certainly highlights Cargill's ambitions. The Russian brewing market is not an easy place to live, as a number of western companies have found to their cost. The country does not grow its own barley, and many foreign businesses have found that they have to import raw material from abroad.

 

In addition, competition among malt producers in the country set to increase considerably within the next couple of years. According to the Russian Brewers' Union, the country currently consumes about 1.2 billion tonnes of malt per year, about a third of which is produced inside the country. The rest is imported.

 

However, many industry experts believe that this ratio is set to change. The Tula subsidiary of Russian brewing giant Baltika, for example, is set to build a 100,000-tonne malt plant next summer. According to the company, this will provide for meeting not only its own demand, but also that of other breweries. If Cargill decides to go ahead with the construction of the Tula plant, it will undoubtedly encounter some stiff competition.

 

This is not the first time that Cargill has looked to invest in the Tula region. In 1996, the company became the majority shareholder of a glucose processing plant located in Efremov, near Tula, about 380 km southeast of Moscow. Initial investment plans include a minimum $5 million upgrade of the facility.

 

"With products from Mars and other local and western manufacturers fuelling the demand for higher quality confectionery, soft drink and bakery products in Russia, acquiring a glucose plant enables us to serve customer needs for quality glucose sweetener faster than building a new facility," said Eivind Djupedal, vice president of Cargill Russia.

 

Indeed, Cargill was one of the first western corporations to attempt to penetrate the Russian market after the fall of communism. The company opened its Russian office in 1991 and activities in the country now include the supply of food and agricultural commodities as well as financial markets activities. In 1993 Cargill opened a wholly-owned Russian subsidiary, Cargill AO, designed to serve farmers in the Russian agricultural belt.

 

According to Djupedal, the company's acquisition process started in mid-1994. A grain and oilseed supply chain business unit was also established and in 1998, Cargill acquired the majority shareholding in a grain elevator in Bryukhovetsky, southern Russia. In 2002 Cargill invested $1.5 million in a joint venture called Fennolma with a partner called Olma Group, and a production facility was built to manufacture compound chocolate coatings and confectionery fillings and supply key ice cream, bakery and confectionery producers in Russia.

 

According to Cargill chairman Warren Staley, these initiatives must be seen in the context of the company's long term strategy of diversification. "Cargill aspires to be the global leader in providing our food and agricultural customers with distinctive solutions that enable them to succeed in their businesses," he said.

 

"Supplier diversity is a key priority for many of our customers as it contributes to their business success and the overall economic growth of the community. Cargill is also committed to supplier diversity because it enhances our ability to provide distinctive value for our customers and foster prosperity in our communities."

 

Cargill estimates that projects currently underway and under study in Russia will require an investment of $150-200 million over the next two to three years. With over $150 million invested in the Russian agricultural and food processing sectors, Cargill is one of the leading foreign investors in Russia. In total Cargill Russia employs 1,020 people, over 99 per cent of whom are Russian nationals. In total, the company has 98,000 employees in 61 countries.