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USDA GAIN: Livestock and Products


15 March 2012

USDA GAIN: Russian Livestock & Products Semi-annualUSDA GAIN: Russian Livestock & Products Semi-annual

Russia’s WTO market access commitments for beef and pork should lead to expanding consumption in 2012 as import substitution practices via the TRQ were undone at the end of 2011. Meanwhile, African Swine Fever outbreaks continue unabated, and Russian restrictions on EU live swine trade adds to the list of SPS barriers Russia continues to impose on foreign suppliers prior to its WTO commitments coming into force. Russia’s openness toward increasing Belarus meat supplies remains stable but may be growing tenuous

USDA GAIN: Livestock and Products

Swine and Pork

Pork production in 2012 is expected to increase on slightly better than anticipated results in 2011. While production continues to grow, it simultaneously remains held back by African Swine Fever, especially among vulnerable private households and increasingly out-dated agricultural enterprises. Increased live swine and pork imports in 2012 as compared to the previous estimate reflect better market access – related to both better TRQs and future sanitary commitments per Russia’s WTO Accession. Russia’s has taken recent action to restrict live hog trade from the European Union, but such actions should also be resolved no later than WTO Accession. Russia’s widespread restrictions against Brazilian pork in 2011 have been mostly maintained and will continue to create opportunities for alternative suppliers such as Canada as well as the European Union and the United States, especially since Russia eliminated country-specific quota allocations at the beginning of the year. A wild card for 2012 will be whether Russia continues to allow Belarus to export pork in excess of agreed bilateral volumes.

Production: Swine and Pork

Swine Inventory

FAS/Moscow has lowered its expectation of 2012 swine inventory growth to 1.0% on some producers’ less bullish outlook following WTO Accession. A lower estimate for 2012 ending inventory of 17,500 head also reflects lower than expected ending inventories in 2011, which grew only 0.6% on the year.

While overall growth in inventories was again slow in 2011, the trend of shifting inventories from households to agricultural enterprises continued. Agricultural enterprises grew at 5.5% while private households shrunk by 6.0%. Farmer-held inventories, while small, shrank by almost 20%. If the trend holds unabated by changing market conditions, ending inventories would be set to grow 1.1% by the end of 2012. State support remains concentrated at promoting industrial pork production at agricultural enterprises while ongoing African Swine Fever outbreaks and control programs continue to cut down household inventories.

Swine imports

The largest concern of the domestic swine industry regarding WTO Accession is potentially resurgent import levels of live hogs from Europe after the tariff falls from 40% back to 5% in mid-2012. The tariff was last at 5% in 2009 when Russia imported 1.2 million head. Russia is considering renegotiating a higher tariff immediately upon joining the WTO in anticipation of increased imports in the second half of 2012. Russia has also suggested it will be prepared to use the WTO safeguard mechanism to protect against import surges.

On March 2, 2012, Russia took steps to immediately curb such EU live swine imports by restricting them for alleged veterinary health concerns. Considering such a measure could be seen as inconsistent with Russia’s WTO commitments upon Accession, FAS/Moscow’s forecast assumes live swine trade resumes no later than upon WTO Accession. Pre-Accession trade is estimated at roughly 55-60,000 head per month. Post-Accession trade is estimated at 100,000 head per month.

Aside from finished hog trade, imported breeding stock is gaining in importance. For the first time in recent history in 2011, U.S. companies worked around European transit barriers to export breeding swine to Russia. Non-EU suppliers of breeding swine also include Canada.

Pork production

According to the Rosstat, live-weight pork production increased 3.6% in 2011 over 2010. Agricultural establishments increased output by 9.4% as a result of continued state-support for the construction of new facilities and modernization of existing facilities.

The Russian Union of Swine Breeders (RUSB) reported the top-10 largest companies produced 717,000 MT of pork in 2011, which is 100,000 MT or 16% more than the top-10 in 2010. The three largest producers: Agro Holding Miratorg, OOO "GK Agro-Belogorye, and Cherkizovo Group produced 144,800 MT (7.7% of Russian pork production), 106,000 MT (5.7%), and 101,200 MT (5.4%) in 2011.

The Ministry of Agriculture estimates slaughter-weight pork production will increase 100,000 MT (or 4.4%) to 2.4 MMT in 2012 over 2011. RUSB forecasts that Russia will increase pork production by 8.2% to reach 2.6 MMT in slaughter weight in 2012 and 7.8% in 2013. While WTO Accession may be causing new projects to undergo further deliberation, much of the production gains expected in 2012 and 2013 will come from the implementation of projects already launched.

Domestic Support
While Russia’s top producers state their operations will continue to be successful after WTO Accession, RUSB has been very vocal petitioning for increased domestic support to counter alleged potential losses caused by WTO Accession. RUSB believes Russian pork producers will lose RUR20 billion ($667 million) from WTO Accession and proposes the GOR allocate this sum annually to subsidize pork production. Their claims point out that 85% of Russia’s pork facilities remain inefficient and combined with private households, account for 54% of pork production. Nonetheless, support when provided to date continues to be funneled to the aforementioned, successful and expanding agricultural enterprises. Given Russia’s WTO Accession commitments on domestic support allow it to double its total trade-distorting expenditures and initial estimates suggest such support will grow from roughly $4 billion in 2011 to $5.5 billion in 2012, it is quite likely Russian producer confidence, if shaken, can and will be restored. The Russian pork sector is likely to be a large beneficiary of any increase in Russian domestic support. Earlier in 2011, Russia approved and allocated RUR9.0 billion ($300 million) in subsides to support poultry and pork producers as compensation for increased feed costs in 2011.

African Swine Fever (ASF)
In 2011, ASF continued its tear throughout European Russia, from the Caucus Mountains to the Article Circle. According to a presentation by a Deputy Head of VPSS in late 2011, ASF was registered among domestic pigs in 36 stations in 11 regions while it was revealed among wild boars in 5 regions of the country. At the time of reporting, Volgograd, Nizhniy Novgorod, Arkhangelsk, Tver, Murmansk, and Kursk regions had all registered their first-ever cases of ASF in 2011. VPSS specified the North-Caucasus Federal District and South Federal District as an endemic unfavorable zone for ASF and considered ASF detections in the other locations as single cases resulting from transportation of infectious materials outside the endemic zone. Since the presentation, first-ever outbreaks have additionally been found in the regions of Voronezh, Ivanovo, Saratov, and Karelia. The outbreak in Ivanovo was nicknamed the “biological bomb."

According to the Deputy Head, the main reason for the wide spread of ASF is mismanagement by the local veterinary services during outbreaks, which are not following Ministry of Agriculture instructions, including:

  • absent isolation of pigs at farms
  • lack of accounting for local livestock numbers and locations
  • delays in imposing quarantine
  • deficiency of veterinary drugs for stamping-out in the first quarantine zone, and
  • improper disposal of carcasses
The Deputy Head’s forecast for 2012 was very negative, indicating a new wave of ASF expansion would hit the center of European Russia. In February, VPSS established a new commission, which has since shut-down select Russian facilities found to be in violation with veterinary regulations.

Starting March 1, 2012, private households in the Krasnodar region were prohibited to raise more than three pigs for finishing as well as their access to wild animals and birds. Implementation of the new rules is likely to be difficult; however, the local authorities continue promising to help pork farmers develop alternative livestock production. According to official local statistics, 46 cases of ASF were recorded in the region during the previous four years – 91,000 thousand animals were destroyed and compensation to producers from the regional budget totaled RUR428 million ($14.3 million). In January 2012, 30,736 pigs were destroyed after ASF was found in a Kransnodar commercial herd. In February 2012, the Head of Russia’s Veterinary and Phytosanitary Surveillance Service (VPSS) estimated 240,000 pigs had been destroyed throughout Russia in the past three years.

In 2011, Russia reported exports of raw pork from the regions of Kransnodar, Kamchatka, and Murmansk as well as the city of Moscow. The pork was destined for the disputed Georgian territory of Abkhazia, Panama, Belize, and Norway. Russia also reported exports of live swine from the Stavropol region to Georgia and from an undisclosed region to Mongolia. Russian exports of pork and live swine to its Customs Union partners of Belarus and Kazakhstan are not reported.

Trade

Pork

Pork import prospects in 2012 are much improved from last fall when the then-set TRQ quantities for 2012 were significantly lower. However, the combined 2012 TRQ quantity for pork and trimmings at 430,000 MT still remains below the 500,000 MT of access provided in 2011. Russia’s commitments to eliminate non-science-based sanitary barriers by its WTO Accession have specific benefits for pork trade. Harmonization with Codex Alimentarius standards on tetracycline-group antibiotic residues would help to eliminate one of the tools Russia has used to restrict foreign supply and stir volatility in pork trade. Such reforms should assist but are unlikely to singlehandedly assure Brazil’s attempts to regain substantial pork access.

In 2011, pork imports from non-Customs Union partners increased 3.7% by volume (11.5% by value) to reach 682,000 MT (886,000 MT CWE). The European Union remained the largest supplier and increased trade 47,000 MT. EU gains were led by an additional 26,000 MT of pork destined for the Special Economic Zone of Kaliningrad. Simultaneously, 2011 was a tumultuous year for Brazil as Russia maintained a near ban on Brazilian pork, ultimately reducing pork sourced from Brazil by 91,000 MT. In the spring following plant audits, Russia restricted virtually all Brazil’s pork slaughterhouses and held this position through the end of the year. In the fall, Russia’s interest in Brazil’s use of ractopamine in swine feed has been seen as prolonging the resumption of their trade. Canada did well to pick up the lost Brazilian sales, increasing sales from 67,000 MT in 2010 to 112,000 MT in 2011. The remaining gap also allowed Chile to increase trade. Limited by a country-specific TRQ allocation, U.S. sales were constant at just under 60,000 MT. Non-quota pork from Ukraine appeared from nowhere to reach 13,000 MT. Belarus reports pork exports to Russia totaled $187 million in 2011, indicating Belarusian pork exports far exceeded agreed levels. [Note: According to market experts, Belarus was on target to export 270,000 MT of meat and poultry to Russia in 2012 – 10,000 MT more compared to 2011.]

Consumption

Consumption of meat and poultry are all well positioned to increase in 2012 as well as into the near future with the coming of WTO commitments on market access paired with a high domestic support ceiling. Both components should help ease annual price inflation of animal protein and increase consumption.

Russia’s Ministry of Health Order #593 of 2010 recommends 70-75 kg per capita consumption of meat, poultry, and offal, including 25 kg of beef, 1.0 kg of sheep meat, 14 kg of pork, and 30.0 kg of poultry. Rosstat reported Russia was close to the recommended norms in 2010.

Pork

FAS/Moscow increased the 2012 forecast for pork consumption by 10% compared to the previous forecast and 2.6% over 2011 due to an improved outlook for domestic production in the immediate future and significantly better market access.

(March 2012)

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