Estonian dairy enters Russian market

TALLINN - Still reeling from an EU prohibition slapped on Estonian dairies earlier this year and feeling the effects of double tariffs from Russia, the AS Lacto dairy company purchased 90 percent of the shares in the Novgorod dairy factory and plans to increase profits by starting production on Russian soil.

"The project was initiated midway through 1997, but the European Union exports prohibition and the double duties Russia imposed on Estonian food products in March had a strong effect on speeding up the process," said Lembit Saveljev, AS Lacto's financial director.

AS Lacto President Jakub Hairdary told the Baltic News Service (BNS) that the Estonian company is planning to invest almost $5 million in the Novgorod dairy facilities over the next three years, hoping to establish itself firmly in the Novgorod, Moscow and St. Petersburg sales markets.

"The exports prohibition to the EU has caused inconvenience for all the Estonian dairies, including Lacto, forcing them to find new markets," Saveljev said. "But AS Lacto's production capacity has remained on the same level as it was before the end of last year."

In addition, Saveljev said there is enough demand for Estonian dairy products in Russia to justify the company's move into the new market.

"According to Saar-Poll, an Estonian market research company, 82 percent of the Russian respondents in a recent poll wish to see more Baltic dairy products on the markets," Saveljev said. "The local companies do not keep up to the quality requirements sufficiently."

The Baltic News Service (BNS) recently reported, however, that Russia expects Estonian and other foreign dairy products to start losing market share in Moscow and other areas of Russia because local companies are constantly improving the quality of their products.

Igor Laidinen, director of the company Baltkom which specializes in the sale of Baltic milk products, told BNS that Russian companies will be able to successfully compete with Baltic and other foreign dairy producers in terms of both quality and price in two to three years.

Laidinen forecast that the Moscow-based dairy companies Ochakovo, Lianozovo and Ostankino will soon become market leaders in the Russian capital.

"The situation will be similar to that on the Estonian market, where imported dairy products have a market share of 20 percent," he said.

But Laidinen added that he believes the best Baltic dairy companies, will be able to retain their market share thanks to the popularity and high quality of their products.

The Novgorod factory employs 150 people with a production capacity of 100 tons of milk per day. The factory is using local raw products from the Russian milk producers.

"Lacto started production in Novgorod in April this year, but since the packages have to comply with the local regulations, the assortment will be supplied under the Lacto trademark hopefully beginning in September. We have made some industrial investments in the facilities already," said Saveljev.

Lacto hopes to improve product quality by constructing a new dairy factory in Rapla, which is scheduled for completion in autumn 1998. "This facility, together with the production lines, will comply with all the necessary EU directives" Saveljev said.