Russian Meat Market
Research of the Company "Agriconsult"
Meat sector is one of the drivers of Russian agricultural production. Meanwhile during 1992-2001 live stock and raw meat production in Russia were going straight down with some negligible exclusion: cattle stock reduced from 52.2 to 27.4 million heads, pig stock - from 31.5 to 16.2 million heads, poultry stock - from 56.8 to 34.7 million heads, ship and goat stock - from 51.4 to 15.6 million heads. And only since 2002 this sector started to show some positive dynamics (except for cattle stock which kept declining). According to preliminary report of Federal Service of State Statistics, in 2011 stock in major segments of animal husbandry constituted: cattle - 20.07 million heads, pigs - 17.3 million heads, poultry - 47.1 million heads, ship and goats - 22.4 million heads.
Measures taken by federal and regional authorities - including those initiated by national priority project "Development of Agro Industrial Complex" and "State Program of Agriculture Development During 2008-2012" - contributed to positive changes in Russian stockbreeding. Today animal husbandry increasingly attracts Russian and some of foreign investors. Performance of Russian meat market and its potential stimulated some companies to build new stockbreeding complexes and renovate existing facilities using cutting edge equipment and breeding technologies.
Still, this agricultural sector has a number of unsolved problems, among them:
* worn out condition of production facilities, lack of equipment and up-to-date technologies, excess of hand labor;
* low level of integration of production stages, i.e. between meat farmers, grain farmers, scientists, banks, feedstuff manufacturers, meat processing companies, retailers, etc.;
* low profitability of cattle farming; very small stock of meat cattle in Russia;
* insufficient governmental support in comparison to countries with developed stockbreeding;
* underdevelopment of livestock breeding;
* underdevelopment of infrastructure of meat market, worn out condition of major production facilities which causes extra production costs.
PRODUCTION OF MEAT AND POULTRY IN SLAUGHTER WEIGHT
During 2005-2011 production of major meat kinds and poultry in slaughter weight increased from 4920 to 7410 thousand tons or by 50.6%; in particular of poultry - from 1388 to 3175 thousand tons (by 128.6%), of pigs - from 1569 to 2414 thousand tons (by 53.9%), of ship and goats - from 154 to 188 thousand tons (by 22%). Production of cattle declined from 1809 to 1635 thousand tons (by 10.6%).
During 2005-2011 total import of chilled and frozen meat and poultry declined by 33.9% - from 2585 to 1698 thousand tons*. During the same period import of poultry reduced by more than 3 times - from 1318 to 419 thousand tons; import of pork increased by 19.7% - from 585 to 700 thousand tons; import of beef declined by 18.2% - from 674 to 570 thousand tons. Import volume of other kinds of meat (goat meat, mutton and others) was insignificant dancing around 10 thousand tons annually.
Major importers of beef to Russia are Brazil, Uruguay, Australia, Paraguay, USA; of pork - Brazil, Germany, Canada, Denmark, USA; poultry and edible poultry byproducts - USA, Brazil, EU countries.
Significant part of imported meat and poultry goes to meat processing facilities. Imported raw meat enjoys high demand thank to lower prices (in comparison to domestic suppliers) and sustained quality. However, imported meat is mainly supplied frozen (over 95%) unlike domestic product.
Trend of increasing export of meat products from Russia stimulated by growing domestic production of raw meat started in 2009. So, in 2011 export of poultry constituted about 20 thousand tons with more than 20 times increase over 2005. Russia mainly exports whole chicken, chicken pieces and byproducts. Russian poultry export is driven by supplies to Abkhazia, Vietnam and Hong Kong - more than 97% of export. Export volumes of pork and beef are currently insignificant.
MARKET VOLUME AND CONSUMPTION
Total consumption of all kinds of meat increased by 22.4% during the review period - from 7505 thousand tons in 2005 to 9189 thousand tons in 2011. Increased consumption was mainly satisfied by growth of domestic production (especially in poultry and pork segments).
During the review period per capita consumption of meat and meat products (in raw meat terms) increased by 23% - from 52.4 to 64.5 kg annually. Poultry consumption rate grew from 18.9 to 25.9 kg/person (by 37%), of pork - from 51.1 to 20.6 kg/person (by 36.4%). Per capita consumption of beef declined from 17.4 to 16.6 kg/person (by 4.8%).
Significant increase of pork consumption is related to relative saturation of poultry segment, increase of consumer incomes and wider possibilities of pork processing (into sausage, smoked meat products, delicacy, etc.).
In 2011 total meat consumption (meat and meat products) was mainly driven by poultry - 40.1%, while pork and beef provided respectively 32% and 25.7% of consumption volume.
Despite robust growth observed during recent years, consumption rate of meat and meat products is still lower than recommended norm of 70-75 kg/person annually (Order of the Ministry of Health and Social Development of Russia #593n dated August 2, 2010 "Approval of Recommended Norms of Consumption of Food Products Corresponding to Contemporary Health Demands"). In comparison to developed countries meat consumption rate in Russia is far lower.
WHOLESALE PRICES FOR MEAT IN SLAUGHTER WEIGHT
Prices for meat in Russia demonstrate significant growth.
Growth of the average annual prices for meat in slaughter weigh during 2005-2011 constituted:
* poultry - by 30.7% (from 55,683.6 to 72,782.2 RUR/ton, VAT not considered)
* pork - by 51.2% (from 82,345.1 to 124,490.7 RUR/ton, VAT not considered)
* beef - by 101.7% (from 77,008.9 to 155,308.0 RUR/ton, VAT not considered)
Thus, beef demonstrated the highest increase of prices which was mainly related to decline in domestic production and undersupply of this kind of meat. The smallest increase of prices was observed in poultry segment. Price increase in pork segment approximately corresponds to inflation rate, in poultry segment price growth is lower than inflation rate and in beef segment it is higher.
KEY MARKET OPERATORS, PRODUCTION CONCENTRATION
The highest concentration of production is observed in poultry sector. Top five companies controlled about 37% of production volume in 2010. Leaders of poultry segment are "Prioskolye" CJSC, "Cherkizovo" Group, Agro Holding "BEZRK-Belgrankorm", "Prodo" Group, "Belaya Ptitsa (White Bird)" CJSC.
Concentration of production in pork sector is lower in comparison to poultry segment. Top five operators provide about 28% of total production volume. The group of leaders includes "Miratorg" APH, "Agro Belogorye" GK" LLC, "Cherkizovo" Group, "Prodo" Group, "Rusagro" GK.
Interestingly, "Cherkizovo" and "Prodo" groups are leaders in both segments. "BEZRK-Belgrankorm" also produces both poultry and pork.
Beef segment demonstrates very low concentration of production. Top five manufacturers provide just about 3% of total production volume. The group of leaders in this segment includes: "Promyshlenny (Industrial)" AKGUP, "Firma (Firm) "Agrocompleks (Agro Complex)" CJSC, "Krasny Vostok Agro (Red East Agro)" OJSC, "Agrofirma (Agro Firm) "Mtsenskaja" OJSC, "Belorechenskoe" SH OJSC. In the future, especially as announced large-scale stockbreeding projects are completed, production concentration in this segment will grow, however would never reach the level of concentration demonstrated by poultry and pork segment due to peculiarities of production technology.
Currently beef production in Russia is mainly driven by milk farms, in other words due to culling of milk stock. Some farms have special facilities to grow calves of milk and milk-and-meat breeds.
Special meat farms worth mentioning (total cattle stock exceeds 3 thousand heads) are "Varshavskoe (Warsaw)" LLC (Chelyabinsk Region), "Zimovnikovsky" PKZ" OJSC (Rostov Region), "Yerginensky" SPK (Republic of Kalmykia), "Plemennoj Zavod Imeni Arashi Chapchaeva (Breeding Plant Named After Arasha Chapchaev)" OJSC (Republic of Kalmykia), "Tsentr Genetiki (Genetics Center) "Angus" LLC (Kaluga Region), "Fedoseevsky" SPK (Rostov Region), "Progress" PZ" OJSC (Rostov Region). However production of cattle for slaughter is currently very small. Practically all the named companies develop their breeding stock today.
The following measures taken by Russian government to support stockbreeding should be mentioned:
Soft loans (backing of interest rates). In the frames of state support policy for reconstruction, renovation and development of production facilities in Russian agriculture "Rosselkhozbank" OJSC and "Sberbank" OJSC offer long-term loans (maximum for 10 years) for agricultural investment projects including stockbreeding projects. Deferred payment period can be as long as 36 months. Drawback of this program is very large amount of bail - it can be by 2-3 times larger than the amount of loan. However there are possibilities to reduce the amount of bail if the equipment, breeding stock or other assets purchased by loans are used as bail.
Soft lease. "Rosagroleasing" OJSC offers lease deals on agricultural assets with very good terms: increased period of lease deal financing (10-15 years instead of 7-8 years offered by banks loans); possibility to lease up-to-date equipment with minimum amount of one-time investment using company's capital (minimum 7% instead of 20-30% required when bank loans are used); flexible payment schedule considering seasonal fluctuations and other peculiarities of lessee's activities. However share of lease deals in investments is still smaller in comparison to bank loans; this is related to limited list of assets offered for lease by "Rosagroleasing" (and more expensive lease deals of other lease companies). Besides, until recent buildings of production facilities were not offered for lease.
Direct financing of production and development of breeding stock. Besides backing of interest rates on loans the state can help agricultural companies with direct financing of production and development of breeding stock (financing per 1 kg of ready product, financing of breed stock purchase and/or feeding and raising, etc.).
Import quotas. Quotas are applied to import of major kinds of meat (beef, pork and poultry) to Russia. Quotas and higher import tariffs on meat imported above quota were introduced by Russian government since 2003 (for poultry import, and in 2004 for import of beef and pork) in order to support domestic manufacturers. Introduction of import quotas had a certain positive impact upon performance of Russian meat market: prices settled, domestic manufacturers improved competitiveness of their products and thus increased profitability of meat sales and managed to start extension of production facilities.
According to strategic plan of development of Russian stockbreeding until 2020 (approved by the Order of Minselkhoz of Russia #267 dated August 10, 2011), by 2020 total domestic production of all kinds of meat in Russia will reach 9636 thousand tons, import will constitute 640 thousand tons and total consumption volume is expected to constitute 9876 thousand tons. Export might make about 600 thousand tons and will be driven by poultry (400 thousand tons annually) and pork (200 thousand tons annually).
Forecast of Russian Meat Union on meat export is more moderate (400 thousand tons in 2020 including 200 thousand tons of pork and 200 thousand tons of poultry) however it is more optimistic about total consumption volume - 10.9 million tons.
There are other long-term forecasts on the review market (All-Russian Institute of Agrarian Problems and Information (VIAPI), Institute for Agriculture and Trade Policy (USA) and others) providing various scenarios of developments of the review market, however all analysts are unanimous on the following
* consumption of pork and poultry will grow while beef consumption will either decline or remain unchanged;
* by 2020 Russia will not turn from net importer into net exporter on global meat market but will get very close to that.
It is important to understand that fulfillment of the above forecasts depends on many factors including:
* financing of governmental programs,
* efficiency of budget funds spending,
* commercial financing and investment climate in the country,
* changes determined by Russia's entrance to WTO,
* possible animal epidemics in Russia,
* demographic, industrial, technological and other factors.
* Back fat and edible byproducts not considered.