In an official letter sent to Medvedev by the Russian Association of Manufacturers of Perfumery, Cosmetics, Household Chemicals and Hygiene Products (a public association, which unites leading local and foreign diaper manufacturers operating in Russia), producers said that their Russian production is associated with high costs, such as high customs duties for the supply of raw materials, which are needed for their Russian businesses. Other problems mentioned in the letter were the traditional Russian bureaucracy and a high level of corruption.
In the case of duties, according to producers, despite earlier state promises to lift duties on the imports of polyacrylic superabsorbent to Russia, they still exist.
Petr Bobrovsky, head of the association, says the duty on superabsorbent is set at the level of 6.5%. At the same time, due to the devaluation of the Russian currency, the ruble, caused by Western sanctions and associated with the financial crisis in Russia, its value in recent years has significantly increased.
A principal decision of the Russian government to lift the duty on absorbent and some other types of raw materials, which are used by majors in their Russian production, was taken as far back as in May 2016, however, so far, it has not yet come into force. According to estimates of producers, lifting of the existing duties could result in the reduction of their Russian costs by 5-7% or even more. In addition, it could increase the competitiveness of their local production.
An official representative of the Russian Ministry of Justice confirmed that the draft order, regarding the lifting of duties for raw materials, which are used in the domestic industry of personal care and hygiene products, was submitted for state registration several weeks ago. However, according to the results of the legal and anti-corruption expertise, the ministry of Justice returned it for the revision to the Russian Ministry of industry and trade.
The date of the new revision of the order is unknown, which sparks serious concerns for producers.
This is confirmed by Bobrovsky, who says global diaper producers have made serious investments in expanding their Russian production since May 2016. However, remaining duties have prevented these capacities from being commissioned and they are currently unused. This may pose a threat of the complete freeze of new investment projects by producers in Russia.
In addition to duties, the companies are still unhappy with the the high level of corruption that exists in Russia. This complicates implementation of many of their local investment projects.
Antonina Tsitsulina, president of the Russian Association of Children’s Goods Producers, says that lifting duties on imported raw materials will result in the reduction of the cost of Russian production at all of the global majors. This would allow them to cut prices of the final product and significantly increase sales in Russia, which has just started to recover from the consequences of the financial crisis.
The financial recession in Russia has resulted in increased diaper prices and subsequently a decline in consumer sales, however, amidst the ongoing recovery of the market, producers hope to restore their positions in the local market to up to pre-crisis figures by the end of this year.
According to data from the Russian Ministry of Industry and Trade, retail prices for the products of global diapers’ producers operating in Russia are practically comparable to each other. For example, the cost of Huggies is varied from RUB 320-350 ($5.40-5.90) for the average package of 16-18 pieces, while Pampers pricing ranges from RUB 350-400 and Libero from RUB 480-500.
Last year the Russian diaper market amounted to RUB 6.7 billion ($120 million) in dollar sales, which, according to Denis Manturov, Russia’s minister of industry and trade (and the person who oversees the development of the diaper industry in the Russian government), is a very small figure for the country. The market has potential to grow by 10 times in the mid term.
Representatives of P&G and Kimberly-Clark Russia declined to comment. A spokesman from SCA Group Russia did not respond to the request.