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Food retail – import ban on Ukrainian milk and dairy products

Russia has temporarily banned imported milk and dairy products from Ukraine. The ban commenced on 28 July and follows a material surge in the number of bad cases, to 196 in 1H14 from 37 in 2013. Ukrainian milk and dairy products have joined previously banned imports of certain kinds of chocolate, pork and potatoes.

Imported food products from Ukraine are important for the traditional food retail channel in Russia. Further additions to the banned list cause traffic redistribution to modern formats, as large chains can find other reliable suppliers more expediently. This trend has already emerged in 2Q14, with upbeat LFL traffic dynamics despite the elevated levels of food inflation. The leaders in this sense were Dixy and Magnit, which improved 2Q14 LFL traffic 240bp QoQ and 210bp QoQ, respectively. Subject to various milk and dairy categories, we estimate that Ukrainian imports account for 70% of SKUs. Listed Russian food retails are not expected to face material issues replacing those products, and are likely to enjoy traffic inflows from unorganised trade, which is less flexible in terms of supplies. As the outlook on the ban being lifted is vague, we see the LFL traffic being supported by it in 2H14.

Our fundamental ratings and target prices for these stocks can be found in the Market Data section of this report.

Maria Kolbina
VTB Capital analyst

food retail

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