2 April 2008

10 minute read

2009

Annual and Semi

2008

Annual

Semi-Annual

2007

Annual

Semi-Annual

Report Highlights:

Imports of red meat into Russia totaled 1.38 million metric tons in January-September 2007. Pork production is expected to increase by 8 percent in 2008, while beef production is likely to fall by 3.5 percent. The National Priority Project for agriculture attracted large investments from private companies and provincial budgets in 2007. Declining beef production, combined with limited availability in the world market, has led the Russian veterinary service to lift a ban on meat products from Poland. The Federal Customs Service issued an order providing a new list of approved customs declaration points authorized to handle meat and meat products. As of January 1, 2008, Russia no longer differentiates between meat and meat products for retail trade and for further processing. The Russian veterinary service has inspected an additional 43 Brazilian meat processing facilities that will increase Brazilian meat exports to Russia. Russia and the United States are currently negotiating new health protocols for live cattle, live pigs, live horses and bovine embryos. Veterinary certificates for beef and bovine semen have been negotiated.

Executive Summary

Pork production is expected to increase 6 percent in 2008, due in most part to growing investments in swine production and higher reproductive yields. This growth is directly related to investment credit subsidies as laid out by the National Priority Project in agriculture as well as imposition of import restrictions. By contrast, beef production is expected to decrease 3.5 percent in 2008 as poor cattle husbandry and generally negative profitability continues to scare away potential investors. Production of beef fell by approximately 5 percent in 2007. The Federal Customs Service issued an order in late 2007 announcing a new list of approved customs declaration points authorized to handle meat and meat products that left out many major points in the Russian Far East and the port of Saint Petersburg. Russia and the United States are currently negotiating new health protocols for live cattle, live pigs, live horses and bovine embryos. Veterinary certificates for beef and bovine semen have already been negotiated.

Overview

Private plots generate 48 percent of cattle, 43 percent of swine and 54 percent of sheep and goats in Russia. The Russian government recently approved a new program that will succeed the National Priority Project in agriculture (NPP) titled, “The State Program for Development of Agriculture and Regulation of Food and Agricultural Markets in 2008-2012,” that encourages pork and beef production and attempts to address Russia’s declining cattle numbers. This program includes import-substitution policies designed to stimulate domestic livestock production and to protect local producers.

In the beginning of 2007, the economic environment for swine production was generally unfavorable. The average production cost was RUR40-45/kilo of live weight, while the farm gate price was RUR40/kilo live weight. Pork producers have been expressing concern for years about sales after implementation of the NPP as pork consumption is growing at a slower rate than pork production. As a result, the pork sector has been lobbying the Russian government to regulate imports in spite of the meat TRQ agreement.

From January-September 2007, 1.38 million metric tons (MMT) of red meat was imported. A 12-year decline in beef production has resulted in limited beef availability in the Russian market leading to a spike in prices. In response, the Russian government has been force to take steps to increase the availability of beef by lifting a meat ban on Poland and by looking to Latin America for higher volumes of product. Feed stocks decreased during the first 11 months of 2007 compared to the previous year which will likely create even greater financial problems for livestock operations in 2008 as feed prices continue to skyrocket. Grain prices increased rapidly in Russia through the middle of July 2007 before stabilizing at high levels as harvest progress reports were released.

The Russian pig crop is expected to increase by 6 percent in 2008, while cattle herds are predicted to decrease by 3.5 percent. Some meat market analysts predict that by 2012, as new and modernized pig farming complexes reach planned capacity, pork production could reach 3.5 MMT – up 75 percent from 2008 estimates.

According to the Russian Statistics Agency (Rosstat), 1/3 of all Russian “large farms” are unprofitable. Many of these are involved in livestock production. Small, inefficient producers are uncompetitive and have already begun disappearing from the market.

The Russian veterinary service continues to playa decisive role in meat import supply management.

Production

Swine production is expected to increase by 6 percent in 2008 and will equal 41.7 million pigs. Larger pig stocks are sustained by high meat prices and subsidized credits as part of the now expired NPP. The forecast of 2008 swine production was increased slightly over the previous forecast due to slighter better than expected reproductive yields. The forecast for pork production was also revised and increased by 1.5 percent. This represents a 6 percent increase overall in 2008 from normal slaughter weights and higher reproductive yields. Some meat market analysts predict that by 2012, as new and modernized pig farming complexes reach planned capacity, pork production could reach 3.5 MMT – up 75 percent from 2008 estimates.

Cattle inventories are forecast to decrease 3.5 percent in 2008, continuing a 12-year decline in this sector. In 2008 the cattle herd is forecast to decrease a further 3 percent due to low production and reproductive efficiency. As a result, beef production is expected to fall 3.5 percent. Beef production also fell 4 percent in 2007, as poor cattle husbandry and general negative returns have not made beef an attractive area for investment.

Under the NPP, 114 new pork production facilities are to be built and are expected to raise domestic pork production (live weight) by 855,000 MT in 2008 and 950,000 MT in 2009 (in comparison to 2005 numbers). Many of them will feature foreign equipment imported under a resolution adopted in November 2006 that extended duty-free importation of all agricultural machinery and equipment that are not produced domestically. The Russian government has set a goal for annual domestic pork production of 2.4 MMT (once all proposed measures are fully implemented and successful).

Domestic livestock production is currently cost prohibitive due to unreasonably high production costs, feed conversion ratios and rising energy prices. As a result, 65 percent of swine farms operate with an inefficient business model. Such farms cannot compete with the other 35 percent that operate using the latest technology available. Modernized swine farms are stable due to the fact that they many have their own feed supplies, use modern technologies and management practices, and, in many cases, have their own processing and trading facilities. In general, meat production costs are much higher in Russia in comparison with other countries that export meat to Russia. The Ministry of Agriculture has identified several areas where pork producers need to improve, including:

Swine genetics: Russian breeds represent only 35-38 percent of meat consumed, while domestic meat usually accounts for 60 percent of consumption in other countries, according to Dr. Andrey Lisitsin, Director of Scientific Research of the Institute of Meat Processing. Meat processing companies cannot rely solely on domestically produced meat for their products due to a lack of uniformity and brand standards. Furthermore, at the beginning of 2007, the farm gate hog price was RUR40/kilo, in comparison with RUR50/kilo in the summer of 2006. At the same time, processors were forced to pay RUR60/kilo to ensure appropriate and stable quality.

Integration of new technologies and equipment: Most farms currently use equipment purchased over a decade ago, while Russian agricultural machinery factories sit almost idle. Manual labor is the current modus operandi for more than 50 percent of pig farms.

Education of managers and workers at all levels of farming: Many old cadres are not familiar with modern, up-to-date technologies and management methods.

Construction of swine farms with 200-300 head per farm: This objective would not require significant levels of investment. An efficient system for swine collection and transportation from the production site to the slaughterhouse should be developed to ensure the quality and safety of the meat.

Improve current storage, transportation and trade networks: The predominant players in the Russian meat market are small companies that, in most cases, deliver meat by unrefrigerated ground transport to small collection centers. Meat is then stored at a temperature of -2 to -6 degrees Celsius in most cases, instead of the required -18 degrees. This is mainly due to Russia’s lack of modern cold storage facilities.

Processed meat production totaled 2.3 MMT in January-November 2007, up 15.7 percent from 2006. Sausage production also increased 6.5 percent to 2.1 MMT, according to Rosstat. Of the 5 MMT of meat produced in Russia, 3 MMT was produced by small farms or private households. Animals are slaughtered at on–farm facilities under generally unsanitary conditions. According to Dr. Lisitsin, so far as he is aware, Russia is the only country where carcasses are washed with water and brushed after slaughter, which significantly reduces the shelf life of the meat products to 10-15 days, whereas the shelf life of chilled meat from Argentina is 90 days and from Brazil, 120 days.

Feed Stocks

Feed stocks decreased during the first 11 months of 2007 compared to the same period in 2006. Low feed stocks will create even greater problems for livestock operations in 2008 as domestic feed prices have been skyrocketing. Grain prices increased rapidly in Russia through the middle of July before finally stabilizing at high levels as harvest progress reports were released (see RS8013).

Increases in the consumption of feed by the livestock sector and potentially high demands on grain exports will place upward pressure on grain prices beginning late fall 2008. To limit the negative effects of grain exports on feed prices, the Russian government issued a resolution on December 15, 2007 that authorizes the government to impose, as deemed necessary, the export of several “essential commodities” such as grain and grain products (see RS7094).

Currently Russia is developing protocols to register feed produced from genetically modified organisms (GMOs). A Russian government resolution transferred the testing and registration of feeds containing GMOs to the Ministry of Agriculture’s Federal Veterinary and Phytosanitary Surveillance Service (VPSS). VPSS has developed the draft administrative regulation for registration and has already begun accepted applications based on the procedures described in that draft (see RS7078).

Consumption

Pork consumption is expected to grow 5 percent in 2008. Beef consumption is expected to remain flat but only if beef imports are allowed to grow to compensate for declining domestic production. The steady increase in pork and beef prices continues to dampen red meat consumption in Russia. Restrictions on red meat imports, such as tariff rate quotas (TRQ) and regular trade disruptions imposed by the Russian veterinary service, contribute to increasing prices and force consumers to look for alternative animal protein products such as poultry and fish.

Trade

Russian statistics indicate that red meat imports totaled 1.38 MMT from January-September 2007. This figure increased 4 percent by volume compared to the same period in 2006, according to the Russian Federal Customs Service (Customs). The total value of these meat imports reached $3.48 billion from January-September 2007 compared to $2.84 billion during the same period a year earlier.

Russian beef imports increased 25 percent during the first nine months of 2007 in relation to 2006. From January-September 2007, frozen beef imports totaled 488,000 MT -- 66 percent of which came from Brazil. Other significant suppliers of beef include Argentina (16 percent of total beef imports), Paraguay (8.5 percent), and Ukraine (5 percent). The share of carcasses and half-carcasses in relation to total beef imports increased in 2007 after the Russian veterinary service inspected and approved numerous Ukrainian meat processing facilities. Ukraine has traditionally exported beef carcasses and half-carcasses to Russia.

Russian pork imports increased 5 percent year-on-year during the first nine months of 2007. From January-September 2007, fresh and frozen pork imports totaled 446,405 MT –- 66 percent of which came from Brazil. Other significant suppliers of pork include Denmark (13 percent of total pork imports), Canada (10 percent), the United States (10 percent), and Germany (5.5 percent). 71 percent of total pork imports were boneless pork, 15 percent carcasses, 10 percent bone-in cuts, 2 percent fresh cuts boneless and 1 percent fresh carcasses.

Further Reading

-

You can view the full report, including tables, by clicking here.

List of Articles in this series