Pork Commentary: Russia Report28 May 2013
RUSSIA - Last week we spent in Russia, writes Jim Long.
The following is our report:
- We attended and exhibited Genesus at VIV Moscow, a poultry and swine exhibit held every two years at the Crocus Convention Center on the outskirts of Moscow.
- VIV is mostly a poultry show as it takes the big hitters from that industry to pay the big cost of exhibit space. A few square feet of space not quite the cost of an acre of Iowa farmland, but getting close.
- Moscow is expensive, hotels, transportation, restaurants and housing make you wonder how well ordinary people can live in such a costly environment. On the flip side, Moscow continues to grow, construction towers are everywhere. Apartments and Commercial complexes and such are going up at a rapid rate. Moscow is the shiny magnet drawing people from all over Russia to what they hope is a better life. New York, London and Moscow have the most billionaires in the world. Conspicuous consumption is a very evident in Moscow.
- Russia's economy is fueled by huge production and exports of oil and natural gas. Approximately half of Russia’s federal budget is financed by such revenues and royalties.
- The Russia swine industry has recently gone through what was thought of as tough times with the price dropping below the cost of production for many producers. It was very shocking for producers as they had previously had a long period of time of profits of around $100 per head.
- Most of us who have been in the swine for any length of time have seen swine are a commodity with industry price and cost cycles. The Russian industry has had recently a new experience of a more open market with entry into the World Trade Organization (WTO). Previously Russia swine market had been protected by tariffs and import quotas.
- Current Russian swine prices are approximately 74 rubles a Kilogram give or take $1.07 US liveweight a lb. Break evens are about 58 Rubles or 90¢ liveweight a lb. Feed is about the same cost as the US. The difference is generally lower productivity and/or higher overhead of very expensive facilities (give or take $10,000 a sow farrow to finish) with credit being expensive (14-16 per cent) except with some special farm loans.
- A person very familiar with the Russian market tells us there are about one million sows in newer more modern facilities, about 750,000 sows in old Soviet style barns and about 600,000 sows in backyards. Most of the old style Soviet barns and many backyard facilities will disappear over the next ten years to modernize the business. Russia is and will be looking for the most modern swine technology as its industry modernizes.
- Russia has about 145 million people. They are a meat eating culture. Per capita consumption of pork is about 23 kilograms; if incomes continue to rise it is not inconceivable Russia per capita pork consumption could reach European levels of 45-50 kilograms. That would mean up to the equivalent of about 40 million more hogs a year pork demand would be needed by either domestic productions and or Pork Imports. This is not inconceivable over the next decade.
- Talking to building and equipment people at VIV, the recent market downturn has scared potential investors from the scene. Expansion has slowed. A dedicated pork producer told us the lower market was a blessing it will sort out the “quick buck” people who thought producing hogs was easy and profitable. Certainly in our opinion there seems to be a new awareness in costs and productivity. The WTO agreement has put the Russian Industry on notice that Global pricing and supply are now part of the equation.
- Russia is a major global grain producer – Crop Update – all planted, it’s raining, all good so far but it’s still early in the season.
Ariant - Genesus
While in Moscow we had the honour of participating in the Official Signing of a major Swine Genetic Contract between Genesus and the Company Ariant of Chelyabinsk in the region of the Urals.
This is the largest Swine Importation between Canada and Russia ever undertaken. Eight 747's will deliver 6,300 Genesus breeding animals including registered purebred Duroc, Yorkshire and Landrace.
The signing ceremony and reception was held at the Moscow residence of Canada’s Ambassador Sloan with Canada’s Agriculture Minister Gerry Ritz and Ariant Director Alexander Askenov. Minister Ritz said: "This contract is significant for Canada, there has never been so many purchased at one time from our country."
Ariant currently produces 300,000 head per year. Ariant has a “field to fork” strategy with land holdings, grain production, feed mills, meat processing and a network of 350 branded stores, for the Genesus natural pork product.
Vsacheslav Matveyev – Director Ariant Swine said: "For our new facilities we need the best breeding animals so our partner became Genesus. Formerly Ariant bought from Austria and Denmark. Their pig industry has small farms we needed genetics designed for a large scale production. Canada and Russia have similar large scale Agro-holdings with very similar climate."
Deputy Prime Minister of Chelyabinsk region, Ivan Felkin, at the reception underlined the importance of co-operation with Genesus for the development of the region. "Interaction with the Canadian Company Genesus will allow our region to increase the intensity and development of our swine industry. The agreement with Genesus I rate as the beginning of a progressive co-operation of combining elite Genesus pigs from the country of the Maple leaf and their Canadian Experts to bring the most advanced technology to the field of pig breeding to the Urals."
"Ariant is one of the leading Agro-businesses of Russia. Genesus is extremely pleased to partner with Ariant, a company with a visionary 'field to fork' strategy. We see this agreement as a further affirmation of Genesus’ Global reach." said Jim Long, President & CEO, Genesus Inc.
|Author: Jim Long, President & CEO, Genesus Genetics|
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