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. Last Updated: 07/27/2016

3 Food Giants Build Local Yogurt Plants

Foreign oil companies may be pulling out of Russian projects and several automobile joint ventures have been postponed, but international food processing companies feel now is the time to move production to Russia.

Three major Western food producers - Germany's Ehrmann, the Netherlands' Campina and France's Danone - are pressing ahead with their plans to build yogurt factories in Moscow suburbs.

"The August [ruble devaluation] made us realize all the more how important it is to have our own production here," said Christof M?ller, head of Ehrmann's Moscow office.

The German company began building a dairy plant near the town of Ramenky, a 40-minute drive southwest of Moscow, a few weeks after the financial crisis broke out in the middle of August.

Estimated to cost around 70 million Deutsche marks ($40.9 million), the factory is to start production next fall. It will have the capacity to process 300 tons of milk a day into yogurt, sour cream, kefir and other products, M?ller said.

The milk will come from local farms, while fruit for the yogurts will initially be imported frozen from Germany, he added.

According to the Ehrmann representative, the company imported 43,000 tons of yogurt to Russia, which, by company estimates, accounted for 25 percent of the local market.

M?ller said the yogurt market could easily double in the next two or three years.

"There is no fear of surplus production," he said.

"The market is far from saturated and there is still plenty of room for expansion," he added.

Another reason Ehrmann is building a local production facility is stiff competition from Russian yogurt producers, such as Moscow's Wimm-Bill-Dann.

M?ller said the idea was to combine Ehrmann's quality "with a Russian image."

Campina, a Dutch yogurt maker, is scheduled to begin work in May on its dairy plant at Stupino, 120 kilometers south of Moscow, said a company executive who wished to remain anonymous.

The plant, which will cost more than $40 million to build, is expected to be completed in a year's time. It will produce about 84,000 tons of yogurt a year, the executive said.

Danone officials in Moscow and France were not available for comment Tuesday.

But Nikolai Yudin, an adviser to the Moscow regional government, said that the French company started work on its dairy plant near the town of Chekhov, 60 kilometers south of Moscow, several months ago, and will have invested around $2 million in the project by year's end.

According to Yudin, Danone had told the local authorities it would invest a total of $100 million in the plant in the next five years.

The factory's planned annual capacity is 150,000 tons of yogurt and cottage cheese, he said.

According to Margot Jacobs, a banking and retail analyst with United Financial Group, importers have good reasons to establish local operations, such as cheap labor and raw materials, as well as independence from the uncertainties of Russian customs policies. A weak ruble also favors local production.

But Jacobs warned that it might take investors longer to recoup their investments than they originally hoped: Russians' purchasing power has fallen dramatically because of the financial turmoil.

"When producing in the West, there is very little [food producers] can do to make their prices more competitive here," she said.

"But some of the calculations made before the crisis - payback periods of investment, volumes and prices - may have to be reviewed," the analyst added.