Chinese exports

 

Citric acid is a natural antioxidant and is widely used in the food industry as an additive E330 — in confectionery and bakery products, canned food, sauces, soft drinks and alcoholic beverages, etc. It is also used in the chemical and oil industry, and in medicine and cosmetology you can't do without it when preserving blood and in the production of a number of cosmetics. The list of applications in different industries is very extensive.

 

The most important problem is that all of the above industries are literally 100 percent dependent on imports — Russia currently does not have any of its own production of citric acid. Until 2010, it was produced in Belgorod, covering almost 35 percent of the Russian market's needs. But then Chinese products flooded the world markets.

 

Meanwhile, according to the industry research of the marketing agency ROIF Expert, the capacity of the Russian market of citric acid is estimated at 60 thousand tons annually, together with the CIS countries — 70 thousand tons.

Scarcity as a premonition

 

The coronavirus pandemic has made serious adjustments to the established supply chains. And the fact that it started in the Celestial Empire (according to open industry sources, 95 percent of citric acid in Russia came from China) led to a large deficit of this product in 2021. By November, citric acid prices, according to industry experts, rose from $0.71 to $1.13 per kilogram, that is, by 59 percent, and manufacturers began to warn of a potential shortage. And, accordingly, prices for final products rose by at least 15 to 20 percent.

 

Some industries experienced difficulties, such as the Union of Soft Drinks Producers and Rusprodsoyuz. And despite the fact that the Association of Confectionery Industry Enterprises and the Russian Guild of Bakers and Confectioners surveyed by the media did not note a serious shortage of citric acid, Russia needs to develop its own production of this indispensable component in order not to depend on foreign producers.

All at once

 

At the end of 2021, several citric acid plant projects have been announced. For example, a project to establish a plant for deep processing of grain into citric acid in Bashkiria. In the Penza region, a protocol was signed on the implementation of a project to build a citric acid plant.

 

However, the construction of a deep processing plant remains a very capital-intensive process. For example, in the same Penza region the volume of investments three years ago was estimated at 20 billion rubles, planning to process 275 thousand tons of grain. By the way, the production of 1 kilogram of citric acid requires about 1.87 kilograms of corn grain.

 

The payback period of such investments was not even mentioned, although industry experts generally estimate it as "from ten years". As for the production margin, it is low.

 

However, the main task (or problem - depending on the point of view) remains competition with Chinese producers.

 

Organization of citric acid production is a complex biotechnological process involving a significant set of equipment, large production areas and, as a consequence, high capital intensity, as well as placing special demands on the competencies of the team, says Andrey Krushinsky, General Director of Organic Acids. "We face the task of reviving production in the Russian Federation and forming a new industry based on proven global experience," he suggests.

Denis Grevtsev, Acting General Director of Citron, agrees with this opinion. "The specificity of citric acid production is that the task is to launch not a citric acid production shop, but a complex of redistribution (a set of technological stages of raw material processing), where the final product will be citric acid. Technologies of citric acid production more than ten, variants of realization of the scheme of the general plant economy hundreds. And here we have to choose between maximizing the profitability of production and reducing the payback period," he believes.

 

Competition with global producers is inevitable. According to open sources, the largest Chinese factories produce this product on average about 1,600 thousand tons per year. This allows exporting the product at a very low price, which is difficult to compete with. And as a result, finding an investor for production turns into a huge problem due to the risk of not recouping the investment. Consequently, the only strategy for creating such a production facility in Russia is to focus on a large volume with mandatory government support.

A market for two

 

It is in this paradigm that Russia's domestic needs for citric acid will already begin to be met from 2025, and by 2027 imports will be virtually reduced to zero. The plants of the two companies Organic Acids (Tula region) and Citron (Voronezh region) are already under construction.

 

"In May this year we expect equipment, we plan to start installation with the aim of launching production of the 1st stage in 2025, the second - in 2027. In parallel, we meet with consumers, actively visit exhibitions, a little later we will start developing the website and launch it by the end of October this year", - shared promising plans Andrei Krushinsky. He added that today the Ministry of Industry and Trade pays special attention to the development of the industry - the plant is being built with the financial support of the Industry Development Fund. In general, investments in the project, which according to plans will cover the need of the Russian market in citric acid and in about 10 years will reach the payback point, will amount to about 19 billion rubles.

 

"No one will dare to realize such a project without a government loan," agrees Denis Grevtsev. And emphasizes that in today's economic realities, this is practically the only way out, as "an investor would rather put money in the bank at 16% than invest in a project with bank financing at 20%. The profitability of the project risks to be zero".

Lemon plans

 

The revival of citric acid production is a strategic task for Russia. Not only the course on import substitution, but also ensuring food security is at the top of the agenda. Especially today, after the coronavirus pandemic and under the conditions of sanctions restrictions, "putting all eggs in one basket" means dooming oneself to serious problems in case of supply chain disruption.

 

The construction of two large enterprises at once forms a healthy market competition, and the existing demand and logistics will allow to influence the pricing policy, thus leaving the choice of product to the consumer.

 

There are nuances associated with the planned overproduction of citric acid — it is the development of export supplies and building a competitive policy by producers, especially with those countries that already have their own production. Especially since today more than 60 percent of the world market of citric acid is occupied by enterprises from the Celestial Empire, so it will be very difficult to cut into the already established supply chains.

 

But it will be no less interesting. And we will be watching with interest the launch of Russian production facilities and the development of competition in the new production segment.

 

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