Scandinavian dairy giant Arla Foods has agreed to form a joint venture with its Russian distributor, Artis, as competition for space on the growing Russian dairy market intensifies.
Arla, which owns the Lurpak butter brand, said the venture would sell and promote butter and cheese in Russia's "rapidly growing market".
Competition for a piece of that market is also growing following investments from both foreign firms and the star of the homegrown scene, Wimm-Bill-Dann.
Max Sørensen, head of Arla's Eastern Europe division, said: "Our joint venture partner has a strong and proven record in sales and distribution of dairy products, particularly in the St. Petersburg region. The next step is to expand into Moscow and other Russian cities, which are enjoying impressive economic development."
Arla has already been exporting dairy products to Russia from several years.
But the deal with Artis "opens up a range of new opportunities for reaching Russian consumers", said Finn Hansen, head of Arla's overseas business.
The venture, if cleared by Russian competition authorities, will be 75 per cent owned by Arla and 25 per cent by Artis.
Russia's potential as an emerging market for dairy, as in many other food and beverage sectors, remains large. More than 10 Russian cities have at least one million inhabitants.
The country's largest dairy firm, Wimm-Bill-Dann, has recently begun to see the benefits of a two-year investment programme to modernise and expand across different regions. Its sales rose 31.6 per cent last year to €991m.
Foreign firms have also upped their game in Russia. French group Danone, which bought shares in Wimm-Bill-Dann, claimed recently to hold a near-25 per cent share of the dairy sector and plans to increase output this year.
Unlike some other emerging markets, consuming dairy is in Russians' blood, dating back over the generations. Arla said Russia's retail butter market had sales in excess of 200,000 tonnes per year, of which 50,000 are added value products.
The yellow cheese market is around 100,000 tonnes, including 40,000 tonnes of added value products. Speciality cheese, meanwhile, sells around 30,000 tonnes.
High raw milk prices due to a lack of quantity and quality in Russia itself has created greater cost challenges for dairy firms there in the last couple of years, however. The country is also considered a bit of a regulatory minefield in places, and has been accused of protectionism in the past by banning dairy imports from some neighbouring countries in Eastern Europe.
