The Current State of the Russian Flexible Packaging Market

Ice cream "USSR"

Statistics

In contrast to the almost-flat flexible packaging market in developed countries, the very high - in some segments quite explosive - progress of consumerism in the former Soviet Union, has resulted in a double digit increase. The Russian flexible packaging market, according to local sources, is growing at approximately 15% per year.

After the collapse of the USSR, where quality flexible packaging did not exist, foreign companies quickly filled the void. In 1998, when the ruble fell and prices for imported goods skyrocketed, local producers started to gain a growing market share due to the low cost of labor and domestically processed materials. According to the official Russian sources Rosstat and the Customs Committee, the current breakdown of the flexible packaging market is 40% imported and 60% domestic. However, local marketing officials from Russian companies estimate the import share somewhere at 30% and dropping due to the higher growth of domestic manufacturing. They claim that the turning point came at the beginning of 2005 when investments in this industry started to grow quite explosively.

There are now nearly 600 flexible packaging producers in Russia but only about 10% of them satisfy the quality level required for world class barrier products. The following companies are among the approximately 30 principal manufacturers producing more than 500 tons per month: ArdiPack, Dmitrov Flexible Packaging Plant, Danaflex, Company Slavich, ConFlex, Limaton, MKPK, Multiflex, NTL Packaging, Okhta, Paketti Group, Polypack, PO Plastic, Polygraphoformlenie-Flexo, Realplast, Slavnika, Slavpack, Technopolymer, Uniflex, Uralplastik, UralTraversPak, Fabrika Upakovki, Flexoland, Flexoprint, Flexo-Service, FG Packaging, Edas Pak, Ekort-Pak.

Materials

In the last ten years, the Russian flexible packaging market has transformed rapidly, becoming more like those of the world's most developed countries. However, even with the abundance of oil and gas resources in the country, the antiquated chemical industry inherited from Soviet times produces only basic components for plastics. This industry was operating until 1991 and fell apart after the disintegration of the Soviet Union. This left some key suppliers of polymerization catalysts, high-impact polystyrene and PET pellet stock beyond the country's borders in newly created states. Russia does not produce metallocene polyethylene, linear LDPE and numerous other modern film substrates. The country still imports practically all adhesive, inks and lacquer components for flexible packaging.

In 2005, the frozen food industry's consumption of laminated film and foil was about 5,000 tons and the use of regular LDPE film for bags and wrap was 4,000 tons. The volume of this segment is about $40-$45 million a year. According to Alexander Tikhonov, production director of ConFlex (the key flexible packaging supplier from St. Petersburg), the packaging substrate volume breakdown in this segment is as follows: PE film (25%-30%), BOPP+PE (50%-60%) and PET+PE (25%-30%). PE film supply is being produced entirely by local companies as well as about 70% of BOPP+PE and PET+PE film.

The rapidly growing Russian ice cream segment has increased the application of modern laminates and various multilayer film substrates. According to Alexander Kuts, marketing manager from Company Slavich (Pereslavl-Zalessky, Moscow Region), the volume of this segment is about $70-$80 million a year and consumed about 6,000 tons of PP film and 4,000 tons of laminated foil in 2005. The packaging substrate volume analysis in this segment shows a 15%-20% share in foil-paper and multilayer composites and a 65%-70% share in metallized, clear and white pearl BOPP. Foreign companies supply nearly 60% of multilayer barrier laminates. The whole supply of metallized paper comes from domestic manufacturers, while BOPP film stock amount is almost equally divided between foreign and domestic suppliers.

Equipment

Among the experts it is generally agreed that the rapid progress in packaging has been achieved through extensive importing of production machinery and technologies. Only 10% of capital equipment in the plastics industry is modern; the rest is comprised of decade-old machines which manufacture low quality, plain film.

The analysis of the industry's equipment (see chart) shows that out of 200 extruders, 160 are single-ply without the capacity to produce high strength or high barrier film. A majority of them cannot control film thickness with the level necessary to assure good printability. Only 17 extruders or less than 10% are advanced machines capable of producing modern multilayer barrier substrates. This situation leaves a lot of room for growth, keeping in mind that average, principal Western European or US manufacturers run about 10-12 specialized extrusion lines. There is not a single flexible packaging producer in Russia with more than three modern extrusion lines.

A similar situation exists in laminating, coating and printing equipment. A company such as ConFlex (St. Petersburg) with its state-of-the-art 8-color flexo press Astraflex by Windmoeller & Hoelscher (with Heliostar rotogravure station) is more the exception than the rule. The majority of film converters have basic machinery that makes low cost and average quality packaging. However this situation is changing. In July 2006, Fisher & Krecke, a leading German printing equipment supplier, announced the sale of 10-color 16S-10 CI flexo press destined for Polypack, the flexible packaging producer in Kursk Region. This machine is the first of this class in Russia.

Service

For the last two years the most frequently used words in the lexicon of Russian flexible packaging suppliers are "partnership" and "customer service". Today, more and more Russian companies in this business learn that lower prices do not always win in competition with foreign companies that offer an unwavering delivery schedule despite higher prices.

For instance, Russian food producers in the St. Petersburg region often prefer Finnish companies over their local competitors with a similar choice of quality film. European companies also offer a better quality of substrate, especially in co-extruded multilayer laminates used for frozen food and ice cream.

In order to meet competitive demand, local suppliers began changing their mode of operation by improving their performance in several ways. Polypack (Zheleznogorsk, Kursk region), one of the top film suppliers for food packaging, has significantly cut lead time for its products and recently began to open credit lines for its customers. FG Packaging (Podolsk, Moscow region) introduced an around-the-clock shipping timetable and saves storage space with just-in-time delivery. DZGU (Dmitrov, Moscow region) uses a personal touch by assigning customer service managers to deal with companies on an individual basis, spending time with the users and offering training and educational seminars. This trend is gaining popularity and was unheard of 10 years ago.

Rosupak 2006

The Krokus Expo International Exhibition Center in Moscow

At Krokus, the combined exhibition area size and the number of exhibitors were about the same as that of the older Sokolniki Center; however, there was a new energy present at the Rosupak 2006 show. The MVK management deserves credit for the festive atmosphere during which plenty of free fruit and ice cream was available, and 27,000 fresh roses were given to female attendees. The opening ceremony, which included speeches from Russian officials and the leaders of the world's packaging industry (specifically the US, China, Poland, Turkey and South Korea), was marked by an unusual finale - a live elephant coming out of a giant gift box. Despite the festivities, a business mood prevailed. There were 22 trade events including the International Packaging Day conference where over 300 packaging professionals from around the world were in attendance.

The national pavilion layout was first introduced at this show for small Chinese, Taiwanese, Polish, Turkish and South Korean companies in order to introduce them to the Russian packaging market in hopes of bringing them in as individual exhibitors in the future.

Seventy percent of the exhibitors came from Russia and represented small businesses, local materials distributors, and equipment suppliers from Western and Central Europe. The rest of the show floor was dominated by European companies offering their established product lines.

Despite the relatively low attendance when compared to Western European and US run packaging events (approximately 28,000 packaging professionals), the show's significance was evident by the presence of Dr. Carl Olsmats, General Secretary of the World Packaging Organization (WPO).

Though the future is bright for flexible packaging in Russia, it is still a volatile and competitive market. In the years ahead we will see more foreign investments coming into this industry. The most important goals are to increase production of co-extruded barrier film for the food industry, increase the share of multilayer shrink film and twist film in specialized food packaging (confectionary, frozen food and ice cream) and increase the manufacture of PP and PS supply for thermoforming applications. This industry is on an upswing despite the growing prices of polymer raw materials. It is fed by the growing prosperity of the middle class, the ongoing purchase of new and used production equipment, and the increasing availability of low cost petrochemicals and a skilled labor force.

Specialized food packaging