by Oleg Nikishenkov, Fruit World Russia, Moscow
Sergei Sobyanin, Moscow mayor, said that almost one-third of the Russian population has moved to live in Moscow. According to the city hall estimations, some twenty million people permanently live in Big Moscow (the city and its suburbs) and almost the same number of people comes to the Moscow region to work and to do shopping every day from neighbor regions. From this standpoint, Russia is a unique case of monocentrism: a country with an evidently huge territory, in fact, the largest in the world, but with majority of population living on a relatively small piece of land, called the Moscow region. In fact, Moscow has turned into a Eurasian center with gigantic and highly-intensive food distribution flows.
If you drive by car along the MKAD – the Moscow ring road, which encircles the city, you’ll see that the megapolis got surrounded by a very tight belt of enormous size in repsect of their buildings. These are hundreds of different logistic centers, redistribution and wholesale facilities, huge food storages and gigantic mega-malls and food markets. All of them have grown up quite recently, in place of forests and picturesque grasslands Moscow so beloved by locals, who used to spend their weekends there. Not anymore: needless to say, that all these new facilities brought ecological problems for the city and its surroundings, with thousands of tracks producing traffic jams, congested waste facilities and millions of migrants, attracted by the huge market capacity of the “Russian Babylon”.
Agricultural clusters instead of forests and picturesque grasslands
Irina Koziy, head of the Moscow-based RK Marketing consultancy, believes that the city has inherited this role of a gigantic Eurasian food hub yet from the Soviet era with its centralized state-controlled redistribution of alimentation across the Soviet empire. “A great deal of fruit shipments to the regions of Russia and even for neighboring countries, which do not directly import food stuff, has been formed (redistributed, packed, mixed and send out) in Moscow”, the expert said.
The scale of business of new distribution centers is truly impressive. “Agriculture clusters”, as they sometimes prefer to call themselves, have an annual turnover, measured in millions of tonnes, with up to several hundred companies from fresh and dried fruit segments operating on one marketplace. The clusters usually have their own customs posts, rail terminals, cross-platform hubs for hundreds of trucks, and parking lots for several thousand cars.
The program to build new distribution centers was announced by the Russian agriculture ministry back in 2014. According to the plan, Russia is to develop in coming few years more than twenty new gigantic centers across the country with capacity of over three million tones annual turnover each, more than half of them will be placed in Moscow region. Overall investment in this infrastructure is valued at 200 billion rubles (some $3.5 billion). One of the goals of the ambitious program was to help agrarians to get rid of middlemen, which leave the farmers only with half of the profit they could make. “We have adopted a special law, which specifies new requirements (for food distribution) in order to avoid intermediaries and outrage that took place in other fruit and vegetable markets, to make the civilized trade, to help wholesalers find the clients not in the center, but in the borders of Moscow, to deliver the small amounts of products directly to Moscow markets and restaurants”, Sergei Sobyanin, Moscow mayor said.
Another goal was to help farmers to comply with requirements of retail chains, which, as it expected, will dominate the Russian retail trade completely quite soon (their share is already at 50% and it keeps growing). The report on losses in food distribution network, published at the year when the program was announced by the Russian agriculture ministry, stated that almost 80% of local fruit in the country is being produced by small independent farmers, and most of them do not know how to store and process and forward fresh fruits to chains to comply with their capricious requirements, so the Russian farmers used to suffer from underdeveloped infrastructure of national storage and distribution facilities. The ministry estimated losses in fruit segment, originated from underdeveloped infrastructure factor, at up to 40% at least.
Gloomy giants for everyone’s good
So, the ambitious distribution centers program was to fix this. And the Russian agriculture authorities are ready to subsidize 20% of capital expenditures and significant part of credit rates for distribution centers developers. Now one can see tens of brand-new facilities, and retail chains themselves made their contribution into huge construction: the X5 group has erected six distribution centers, while its closest rivals Dixi and Magnit, have built four, all in the Moscow region. Several independent logistic groups also put up their own “clusters”. All these centers are so gigantic that they measure their territory in how many football fields it can fit in. Certainly, Muscovites don’t like them as they are too huge for the landscapes, looking like gigantic “Wall of the Seven Kingdoms” from the “Game of Thrones” movie. Authorities are trying to calm down Muscovites by saying that these gloomy giants are for everyone’s good.
Fruit producers not always agree with that: they complain that work of Moscow-based big distribution centers (particularly of retail chains) looks absurd sometimes: to get on the shelves of stores belonging to chains they have to bring first their products to Moscow, where centers make pre-sale preparation and packaging. Afterwards, fresh products are shipped back to the regions of origin. Sergei Yastreb, general director of the Yagodnaya Polyana farm from the south of Russia, complained at a fresh produce conference, held in fall 2017, that his fruits and berries are to make 1.6 thousand kilometers trip to Moscow’s distribution center and then go back to regions to be sold in the local stores of federal retail chains. And there is no way you can change this now. Pavel Dolbzhinsky, CEO of the Radumlya distribution center, replied that chains can’t make distribution centers in regions because of one or another farm, the center has a package line, among other, it will be too expensive to build it on the location where fruits grow. So, on their way to Moscow’s distribution centers of retail chains, and then back to regions fresh fruit lose part of their weight, brightness and consumer properties. The same problem they tried to avoid back in 2014, looks like a vicious circle. “Moscow will not be giving away its role of the country’s prime shopping and distribution center for a long time. Because regions aren’t ready yet. And it also doesn’t want to, probably”, Irina Koziy concluded.