PAVLISHCHEVO, Russia – For Olga Druganina, Russia's economic turmoil has been a great business opportunity.
Four years ago, the former employee at an industrial machines company began to develop her modest farm near Moscow as a business. She started out simply wanting to feed family and friends, but Russian bans on foreign foods and the plunging value of the currency encouraged her to expand and tap the growing national demand for local produce.
First came President Vladimir Putin's sanctions on U.S. and European Union food products in 2014, a response to international sanctions over Russia's role in the Ukraine crisis. Over the last year, the low oil price has brought down the value of the Russian ruble, making imported food more expensive.
"It was a little agriculture to supply our family's needs but when it happened that the sanctions appeared, all that gave a push to our farm's development," Druganina says. "We started developing and got a lot of interest from both small shops and chain stores, and in general from people who want to consume healthy food."
Now, as part of a farmers' cooperative selling high-end organic dairy products to moneyed Muscovites, Druganina employs 18 people and keeps more than 450 cows, sheep, goats and even buffaloes. Her products — cheese, milk, and traditional berry-flavored yoghurts — sell at a premium at the LavkaLavka chain of boutique shops across Moscow, a growing presence named after the Russian for "market stall." Its customers include many who would previously have bought now unaffordable or unavailable imported products.
Local food producers like Druganina are the most visible beneficiaries of the Russian government's policy of import substitution, aiming to replace costlier imported goods with home-grown alternatives. While Putin has called for Russia to head toward self-sufficiency in food, this will take years.
At the other end of the market from Druganina, McDonald's is another surprising winner from Russia's refocusing on domestic food.
At a time when sharp food price rises have put Russian family budgets under pressure, the ability to compete on price is key for fast food retailers. Food prices rose 14 percent last year, according to the state statistics agency, at a time when real wages are falling and unemployment rising.
A long-standing policy to source as many ingredients as possible locally has paid off for the U.S. fast-food giant, which says it serves 1.1 million customers a day in Russia. McDonald's opened 59 new restaurants in Russia last year and picked out the country as a high growth market in its 2015 financial results. That's particularly surprising considering the Russian economy shrank 3.7 percent last year and is forecast to remain in recession in 2016.
McDonald's is "definitely benefiting" from having a Russia-based production network for many of its products, says Moscow-based analyst Vladimir Pantyushin of Sberbank, who points out that the company's signature Big Mac is cheaper in Russia than almost anywhere else in the world when compared to local earnings. The Big Mac is also the centerpiece of the localization strategy, with all its ingredients produced in Russia.
It is a surprising turnaround for a company which less than two years ago was under apparent political pressure in Russia. Some of its flagship restaurants were temporarily shut down in Moscow by Russian health watchdogs at a time when Russia was hit with U.S. sanctions over the Ukraine crisis.
Pantyushin said many Russian consumers are switching to cheaper food products — swapping out beef for chicken, for example — and avoiding imported fruit and vegetables.
"Right now it's maybe even historically the deepest effect on consumption levels since the 1990s," when Russia was in economic chaos following the collapse of the Soviet Union, he said. However, modern consumers are not faced with empty shelves and have more choice when looking to cut spending.
"Back then, I remember people were really living on basic staples, like cereals," Pantyushin said. "Meat was expensive but even more importantly, meat was not available in the same quantity that it is now."
Ellingworth reported from Moscow.