Home Remedies Growing Profits

Devotion to home remedies has created an entire industry. The market for plant additives, herbal mixtures, tea and capsules increased by 2 1/2 times last year.

The simplicity, the cost effectiveness and the less rigorous quality controls involved in herb production have attracted many small companies. Unlike other medicines, herbal medicines do not have a registered standard of good manufacturing practice, which goes into effect in 2005. Market players say any standards on herbal medicines that may be introduced are likely to be based on those of the large German-owned factory Krasnogorskleksredstva.

The herbal medicine market is still small, only 3 percent to 5 percent of the entire pharmaceutical market, said Svetlana Grudacheva, an analyst from Farmexpert. "However, it's a segment with a lot of potential. Right now, many companies are interested in the market for plant products," she said.

Interest in herbs has generated only a portion of the necessary investment, said Alexei Travalev, head economist of Krasnogorskleksredstva. "Mainly, money is needed for packaging equipment, around $10,000," he said. "In addition, the Health Ministry needs to grant permission for the production of plant products to go ahead. The technology is not complex, and it's not subject to the value-added tax or profit taxes [because it's medicine]."

The volume of traditionally produced plant medicine is growing steadily.

For example, Krasnogorskleksredstva's production increased by 20 percent in 2000. Production at the Vilar pharmaceutical company grew by 30 percent and at the smaller Krasnodarsk pharmaceutical factory by nearly two times.

Recently, many small companies have appeared, particularly in the regions. If two years ago around a dozen firms were active on the market, now their number is approaching 100.

The large companies are complaining about their smaller competitors who sell their products for very low prices and have taken away a number of their regional consumers as a result. "They are noticeably winning in the area of regional sales," said Natalya Matveyeva, a marketing specialist for Lektravi Severo-Zapada pharmaceutical company.

"The consumer is reacting to the low prices. We cannot lower our prices on account of our overhead costs," said Natalya Kandybka, head of Vilar's marketing and sales department. "As a result, the small factories are hurting our business. They particularly started to grow this year."

No one is particularly concerned right now with the quality of plant products.

"Herb" factories, like all pharmaceutical factories, must adhere to GMP standards by 2005, but so far they are not hurrying to remodel their production facilities.

"It requires very large investments, around $10 million," said Kandybka. GMP standards, which imitate Western standards, are not yet clearly registered. They affect only general sanitary norms, rather than the processing of raw materials.

Production standards in the pharmaceutical industry are approved by the Health Ministry. Only after new standards are approved will the factories undertake the necessary remodeling.