Korean food firms strained by war in Ukraine

A child tries to grab a box of Lotte Confectionery's Choco Pie product in Russia in March. Courtesy of Lotte Confectionery

By Kim Jae-heun

Korean food companies operating in Russia are finding themselves in a tougher situation due to the country's ongoing invasion of Ukraine. The international community has decided to impose economic sanctions on Russia, which resulted in a decline of the ruble's value and an instant economic recession in the country.

Orion, Lotte Confectionery, Paldo and Lotte Chilsung Beverage are preparing countermeasures in order to better cope with a possible crash in their profits in case the conflict is prolonged.

Orion is particularly worried as it has shown significant growth with its all-time top-selling Choco Pie in Russia. Orion recorded 117 billion won ($94.69 million) in sales last year, up 31.4 percent from the previous year. The confectionery giant currently runs two production facilities in Russia and plans to open one more factory soon.

Orion said the situation is not urgent yet as it has already secured enough raw materials for local production for the next two to three months.

“We are looking for local suppliers (in Russia) in case the war drags on and we face a shortage of raw materials. We have plans to utilize our overseas branches worldwide including one in China,” an Orion official said.

Lotte Confectionery is also watching the economic situation in Russia closely, as it has invested 34 billion won to increase the production line there. It is working on securing emergency money while increasing its stocks of raw materials for food production.

Lotte Food also had plans to export its canned ham products starting in the first half of this year, but decided recently to call it off.

Paldo, which is leading the cup noodle market in Russia, has two production facilities in the country, which are 1,000 kilometers away from the conflict zone in Ukraine.

“There is no big trouble (at our facilities), but we are watching the situation closely every hour,” a Paldo official said.

Orion, Lotte and Paldo have been targeting the domestic market in Russia. Also, their primary banks in Russia have been excluded from the SWIFT payment system due to Western countries' economic retaliation measures.

If the invasion persists, local food firms can see their profits decline due to a decrease in demand for their products and falling value of the Russian currency.

“If the war in Ukraine continues into the second half of this year, Korean companies can face various problems. There will be shortages of raw materials and price increases for logistics services in Russia, which can pressure the food companies to raise the prices of their products,” an industry insider said.