Thai exports to Russia during 1H10 rose 64.1 percent, YoY, due to a low base in 2009 and Russia's economic recovery this year. After experiencing a 7.9-percent contraction in 2009, the Russian economy resumed growth rates of 2.9 percent and 5.4 percent in 1Q10 and 2Q10, respectively. Of overall Thai exports, shipments to Russia accounts for only 0.3 percent though growth is likely to continue over the remainder of this year, thanks to the ongoing economic recovery in Russia.
Thai exports are also expected to benefit from the Thai government's recent official trip to Russia as part of their efforts to strengthen trade and investment between the two countries.The Ministry of Commerce also aims to see total trade between Thailand and Russia grow 10-20 percent this year. Thus, Thai exports to Russia will likely improve over the remainder of this year, especially amid higher demand in Russia with expected economic improvements during 2H10, albeit likely at a slower pace than in 2Q10. The Russian government projects that their economic growth could reach 4.0 percent this year.
KResearch holds the view that a bright future is ahead for our exports of farm and food products to Russia thanks to high demand there. Among the products with potential would be fresh fruit (e.g., pineapple, pomelos, oranges, papaya and coconut), processed/canned vegetables and fruit (canned sweet corn and canned pineapple), fresh/chilled/frozen shrimp, rice, sugar and animal feed, etc. In addition, among other promising products should include automobiles and parts, plastic pellets, electrical appliances, gems, garments, etc.
Nonetheless, there are many obstacles for shipments to this market. Similar to European consumers, most Russians prefer temperate vegetables and fruit, as well as other western foods, whereas most Thai shipments to Russia tend to be tropical fruit and vegetables. Other downsides would include high logistic costs due to the long-haul shipping distances to this marketplace and the nature of fruit and vegetable shipments – as perishable products – that adds to transport and storage costs.
Non-tariff barriers (NTBs) are another obstacle for our shipments of food and farm products to the Russian market, especially rice and fishery products that are required to pass stringent inspections and obtain certification from related agencies in both Russia and Thailand (Department of Agriculture, Department of Fisheries) before being sold in the Russian market.
Suggestions: Thai businesspersons should focus on boosting their competitive capabilities in the Russian market. To this end, emphasis should be placed on penetrating local markets with high potential – namely Moscow and St. Petersburg– being economic centers with a combined population of 15 million, equivalent to 10.6 percent of the country's total population. In addition, Thailand should take advantage of privileges provided via trade-related agreements, such as GSP privileges granted by Russia and other CIS states, because Thai farm produce is currently subject to high tariff rates of up to 456 percent, whereas the tariffs on industrial products are set at up to 218 percent. Thai exporters should also focus on processed farm and food products to meet the demand in that market, thus reducing storage costs relative to the shipment of perishables; this would also overcome some tariff barriers. For industrial products, emphasis should be placed on raw materials and intermediate/capital goods in order to gain lower tariff charges being assessed than on finished products.
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