World's Biggest Food Market Provides a Template For Moscow

Semmaris

Moscow city government is pressing ahead with plans to create two huge warehouse and logisitics complexes to supply food to the hospitality, restaurant and grocery industry.

It identified at least two sites for agricultural and produce markets in the south and the north of Moscow, and is working on the infrastructure requirements along with a business plan which secures potential tenants.

The critical issue, according to Valentin Gavrilov, Director of Research at CBRE in Russia, is to persuade wholesale suppliers of fruit and vegetables to move from their historic locations as well as encouraging specialist dealers in refrigerated products like meat to move from the inner city.

"The first thing they have to do is create a pool of potential tenants. If they get 50 percent of the planned number they will be able to see the demand. If it is low, that will be a challenge," said Gavrilov.

"The easy fruit for them would be the big retaileres like Dixy and Magnit but almost all those companies have already built their logistics so it may be difficult to tempt them to move to new premises."

The city authorities want to reduce the number of central markets, which total about 50, according to Moscow's Trade and Services Department.  Supermarkets will replace about half of them, but this does not address the issue of logistics and transportation of foodstuffs within the city.  The plan to create two major wholesale markets catering to the professional food and catering industry would have an even greater impact on the avilability of fresh, high quality produce.

The wholesale food markets on the edge of the city would be integrated with Russia's agricultural sector and nearby airports, while competing with food markets within the city boundaries.

The inspiration for the project comes from the French market of Rungis, located in Orly, south of Paris. When the traditional central Parisian food market of Les Halles was demolished in the 1970s, the associated businesses were moved 12 kilometers away, to the suburbs.

Now the largest food market in the world, Rungis is seen as an example for Moscow, not only in size and structure but also through its principles, such as promoting regional and local produce, and giving exposure to small manufactures. A special working group, including both government and business representatives, was established last August to implement the project.

The concept gained momentum after Moscow Mayor Sergei Sobyanin visited Paris to familiarize himself with the town-planning solutions in one of the largest cities of Europe. The Marché d'Intérêt National de Rungis occupies an area of 250 hectares and generates a turnover measured in billions of euro.  

Experts from Rungis who have been providing consultancy services in more than 30 countries will coordinate the logistics and the safe storage of all food products in the fine foods and bulk wholesale trade, according to Victorya, a company providing logistic and storage services for the Moscow market.

Representatives of the company that operates Rungis will "share their experience in operating a major food wholesale market and advise how to organize and improve the distribution of perishable food," said Mayeul Nicolas, Rungis Consultant Coordinator at Semmaris company.

The commune of Rungis was first mentioned in a royal charter in the 12th century, about the same time that Les Halles was expanded by royal command to provide shelter for merchants who brought produce from across the country. The two were combined after a decision to redevelop the site of Les Halles and move the market out of the city center and closer to air and other transportation routes. Rungis became the largest food market in the world with a turnover of more than 7 billion euro.

Similar thinking lies behind the planning of Moscow's proposed central market. "The mayor's resolution was to create wholesale logistic clusters around Moscow," said former deputy mayor for economic policy, Andrei Sharonov, who left City Hall in September to become head of the Skolkovo School of Management. The locations were chosen so that four main routes along which food gets into Moscow — Lenigradskoye shosse, Kiyevskoye shosse, motorway M5 Urals and the southern route — "all converged on the market."

The strategic aim is to promote Russian agriculture. The country was once an agricultural superpower, second only to the United States as a grain producer. But that was before the communist revolution. Today Russia is a major food importer: the world's largest importer of dairy products, valued at $3.5 billion; beef, valued at $4 billion; of apples and pears; and the third-biggest importer of fresh fruit as a whole.

Government strategies to achieve self sufficiency have worked in the poultry industry.  It expanded rapidly because of subsidies. So far the policy has largely succeeded: 80 percent of Russian poultry consumption is met from domestic production. However international experts, such as Dennis Groesbeek, general director of Meyn Moscow, a producer of poultry processing equipment, expect rapid consolidation as the government reduces subsidies. Russia currently has 200 poultry processors. The UK has five.

"If you look at our industry, the subsidies have helped but they also work against the business. It becomes like a drug. People don't move any more if they don't get subsidies. At the end of the day if the government does not move, the banks don't move. And nor does the customer. You always see this triangle. They're caught in a trap but it's changing," Groesbeek said.

The rapid evolution of Russia's food and drink industry, valued at  $270 billion to $300 billion last year, makes public sector planning of logistics and warehousing a challenge.

The Rungis-style markets would cater to wholesalers and smaller companies at first, said Gavrilov. "One target is fresh food restaurants, hotels and cafes. If we look at the project's size it could probably supply the whole of Moscow demand."

The future of the smaller markets depends on how quickly the project gains scale, he said. "If the government is not able to accommodate big tenants the smaller markets will survive but move to new formats like farmers markets," Gavrilov said.

The Moscow authorities' initiative is based on the city's program to create a network of wholesale terminals in Moscow region to develop food supply and the retail trade by 2016. The consolidation of food importation and distribution near major transport hubs will improve the efficiency of the market and that will equally benefit domestic food producers.

Rather than one or two central markets, the project is intended to create a network of food markets located in several regions of Russia. A total of 60 billion rubles ($2 billion) will be spent to implement the project, Kommersant reported.

While in Moscow it's still unclear when the market will be opened and how exactly it will operate, in St. Petersburg a market called Agropolis will occupy 96 hectares, located between the Ring Road and Pulkovo airport. A part of the market of about 50 hectares will open next year.

Nicolas said the market would promote Russian produce but also had to provide individual and commercial customers with consistent and guaranteed quality. "Rungis market is important for French consumers as it serves the  independent food retailers in Paris, providing an alternative outlet for French produce and helping to increase the quality of food products in term of freshness and hygiene conditions," said Nicolas, adding that more than six million people visit the Rungis Market every year.

"Regarding Moscow, the number of visiting customers will depend on which type of products and activities will be localized on the market platforms." The structure of the Moscow market is likely to be similar to that of Rungis, which has five departments: fruits and vegetables, meat, fish and seafood, dairy, and flowers and plants.

Moscow's existing food markets have come under pressure from municipal authorities with one eye on their valuable land. They have removed the covered stalls that had sprung up around the Soviet-era market buildings, or rynok, which are now too small to accommodate more than a handful of traders. Markets like Usachevsky rynok are a shadow of their former selves, while traders have raised prices to compensate for the fact that fewer customers now visit.

Mayor Sergei Sobyanin said in April that with opening of the central market, the city's other markets would not be closed, but some of them would be reconstructed, including Dorogomilovsky market. Located in central Moscow, it supplies some of the city's best restaurants.

Nicolas said Moscow needed the large wholesale terminal to develop its retail trade. "It should be a one-stop shop for Moscow food professionals," he said. The market would face added challenges, such as independent  food distributors who are already integrated into the food chains, along with the city's famously congested roads.

Even a well-equipped central market would not be enough to revolutionize the region's food supply industry. Farmers and food processors would require a matching improvement in refrigeration and transport infrastructure in order to be able to supply such a large, wholesale market.

This suggests that when Moscow gets its own version of Rungis, it will only partly replace the city's existing markets, even for restaurateurs who require food in commercial quantities.