Russian Federation - Livestock and Products Annual
Pork production is expected is rise in 2010, with imports are flat, while beef output is predicted to be lower than 2009 and increased imports, according to Morgan Haas and Mikhail Maksimenko in the latest GAIN report from USDA Foreign Agricultural Service. Meat consumption will likely fall.Report Highlights
State subsidies for the livestock breeding continue to stimulate continued investment in pork and new, developing investment in beef. Pork production is forecast at 2.290 million metric tonnes (MMT) in 2010, up from 2.205 MMT in 2009. Pork imports are forecast at 750,000 metric tons (MT) in 2010, flat from 2009. US pork quota is approaching the danger zone of not filling in 2009 if strong second half sales do not emerge quickly. Concerns on potential future plant restrictions, Russian recognition of the currently valid pork certificate, and increasing US pork prices are potential hurdles to pass. Beef production is forecast at 1.255 MMT in 2010, down from 1.280 MMT in 2009. Beef imports are forecast at 800,000 MT, up from 700,000 MT in 2009.
Executive Summary
State subsidies for livestock breeding continue to stimulate continued investment in pork and new, developing investment in beef. Pork production is forecast at 2.290 MMT in 2010, up from 2.205 MMT in 2009. The Russian pork industry is slowly advancing but remains heavily reliant on continued state financial support to expand further. Imports of live hogs for slaughter have skewed domestic production capacity. Beef production is forecast at 1.255 TMT in 2010, down from 1.280 MMT in 2009. Beef production in Russia remains an offshoot of the dairy industry. Vertically integrated companies are increasing market share as less efficient producers exit the market.
Imports of red meat are not only down a quarter from the halfway point last year but the United States has also lost considerable market share. Regardless of the global slowdown, trade was heavily impinged by numerous plant restrictions, H1N1-related bans, and uncertainty on the pork certificate. Pork imports are forecast at 750,000 MT in 2010, flat from 2009. This reflects Russia's persistence to provide protection to its swine industry from competition and draw nearer to self-sufficiency targets. US pork quota is approaching the danger zone of not filling in 2009 if strong second half sales do not emerge quickly. Concerns on potential future plant restrictions, Russian recognition of the currently valid pork certificate, and increasing US pork prices are potential hurdles to pass. Beef imports are forecast at 800,000 MT, up from 700,000 MT in 2009 on expectations of Russia's relative willingness to import beef over pork and poultry.
The GOR's stated goal is to become more self-sufficient by substituting imported meat with domestic production. While there is no stated self-sufficiency goal on beef, the pork and poultry goal is 85 per cent by 2012.
Unlike most countries in the world, in Russia, prices for food – especially meat – have increased since the onset of the economic crisis. According to the Ministry of Agriculture, prices for meat in the Russian market grew through the entire chain – production, processing and retail – from July 2008 to June 2009. Prices are expected to continue to grow in 2010.
Falling incomes and growing food prices will decrease Russian meat consumption 11 per cent in 2009. The National Meat Association of Russia reported if poultry prices continue to rise, consumers are more likely to increase consumption of non-meat products rather than switch back to beef and pork at current prices. Russia's growth in the meat processing industry slowed in 2009, compared to 2008. Production of ready meat products will continue to decrease in 2010.
Production
The Russian pork industry is slowly advancing but remains heavily reliant on continued state financial support to expand further. Post projects the pig crop will grow 3.7 per cent in 2009 and 3.3 per cent in 2010. Growth in pig stocks is largely tied to investment in construction and renovation of swine operations, and more widespread use of genetic stock from Europe and Canada. Post expects pork production to increase seven per cent in 2009, then slow to four per cent growth in 2010, since the number of constructed and renovated hog farms decreased in 2009. Generally, the economic environment for swine production in 2009 was favourable for Russian producers. Feed prices were lower in 2009 than 2008, and sufficient feed supplies will lower them again in 2010.
Beef production in Russia remains an offshoot of the dairy industry. Post generally expects low productivity and reproductive inefficiency to further decrease the cattle herd and beef production three per cent in 2009 and another two per cent in 2010, continuing a long decline in the cattle herd. Poor cattle husbandry and economic returns within the beef industry continue to deter potential investors. To turn this tide, Russia is now actively attempting to develop a commercial beef industry. Post currently estimates the beef herd accounts for only about two per cent of total beef production, which means a turnaround is still 10 years in the distance before beef cattle play a significant role in Russian beef production. For now, dairy cattle, particularly dairy bulls and culled dairy cows, will remain the primary source of domestic beef.
Vertically integrated companies are increasing market share as less efficient producers exit the market in the pork industry while the beef sector remains mostly stagnant. At the end of June 2009, private households in Russia represented 39.5 per cent of the national swine herd (versus 43.5 per cent in 2008) and 49.3 per cent of the national cattle herd (versus 48.6 per cent in 2008). Rising input prices significantly affected small Russian pork producers, since private households have a limited ability to pass on higher costs to consumers and competition with large producers is becoming fiercer.
According to Rosstat, agricultural enterprises produced 16 per cent more pork and five per cent less beef in the first half of 2009 than 2008, and Post will hold these projections for the remainder of the year and into 2010.
Imported hogs artificially boosting domestic production
Russian import controls on pork have spawned a new industry – importing finished hogs for slaughter. Since live hogs are not subject to the pork TRQ, the financial incentive to import them rather than the meat grows every year the GOR tightens its pork policy. The price difference at the border between imported and domestic pigs is roughly €0.35 per kg live weight. Domestic producers have tried to close this loophole for years without success. Most recently, the Ministry of Agriculture tasked the Union of National Swine Breeders to prepare and submit a proposal regarding this issue by 1 September 2009. These results are yet unknown. In the meantime, the importation of live hogs for slaughter continues to aid the development of slaughter and processing establishments.
In the period from 2005 to 2008, the number of live pigs imported to Russia jumped seven-fold to over 600,000 head. Already through June 2009, imports total 543,359 head, including 269,942 from bordering Lithuania. These 543,359 hogs represent approximately 40,725 MT of pork or 16 per cent of the entire annual pork quota. In the absence of changing live hog or pork policy direction, USDA expects this trend to continue in 2010 and beyond.
Consumption
Falling incomes and growing food prices will decrease Russian meat consumption 11 per cent in 2009. Russian actions to limit import volumes through tariff and non-tariff barriers ultimately lowered total meat supply this year, leading to higher prices. Post forecasts pork consumption will decrease five per cent in 2009 but rebound three per cent in 2010 on the basis of production growth. Beef consumption will decrease 20 per cent in 2009, resulting from drops in production and imports. However, Post does expect a four per cent rebound in 2010, reflecting increased imports available to consumers.
Russia's growth in the food processing industry slowed in 2009, compared to 2008. Through June, Russia decreased production of sausage 10 per cent, decreased production of semi-ready products 0.4 per cent but increased production of cuts 10 per cent. Reducing production of value-added products follows consumers' reduced purchasing power and increased willingness to prepare meat at home rather than buy it at the retail level.
The National Meat Association of Russia reported if poultry prices continue to rise, consumers are more likely to increase consumption of non-meat products rather than switch back to beef and pork at current prices.
Trade
Imports of red meat are not only down a quarter from the half-way point last year, but the United States has also lost considerable market share. While total pork and beef imports decreased 25 per cent and 29 per cent, respectively, US trade is down 36 and 92 per cent, respectively.
Regardless of the global slowdown, trade was heavily impinged by numerous plant restrictions, H1N1-related bans, and uncertainty on the pork certificate. While Post currently feels the US quota can still be nearly fulfilled with a strong second half, this doubt will grow if with either new barriers to trade occur or US prices increase. Post holds 2010 pork imports steady to match 2009 levels, reflecting Russia's persistence to provide protection to its swine industry from competition and draw nearer to self-sufficiency targets. This also reflects the extraordinary number of non-tariff barriers that traders have faced in the past year and the expectation that this type of trading atmosphere is likely to continue in 2010. Like previous years, the European Union again reallocated portions of its frozen beef quota to 'other countries'. This year, the transfer amounted to about 80 per cent of the EU quota. Brazil has again been the largest benefactor of this reallocation to 'other countries' and through the first half, has shipped more beef than all other suppliers combined – 138,000 MT. While US beef trade is down 92 per cent through the first half, increased liver trade is helping cushion the US loss. Post forecasts 2010 beef imports 14 per cent above 2009 on expectations of Russia's relative willingness to import beef over pork and poultry.
Imports of offal and other prepared meat down surprisingly
Imports of bovine offal were flat while swine offal was down seven per cent through June. This is somewhat surprising since Russia has, in the past, typically compensated low imports of meat with higher imports of offal in order to supply the processing industry and help alleviate inflationary pressures at the consumer level. Sausage imports were down 22 per cent through June.
Prices
Unlike most countries in the world, in Russia, prices for food – especially meat – have increased since the onset of the economic crisis. To a great extent, the GOR's quest to reduce imports in order to help domestic producers become more profitable has been the root cause of price inflation. According to the Ministry of Agriculture, prices for meat in the Russian market grew through the entire chain – production, processing, and retail – from July 2008 to June 2009. At the farm, prices rose 32 and 22 per cent for pork and beef, respectively. The processors' price grew 19 and 23 per cent, respectively, and the retail price grew 30 and 23 per cent, respectively.
Average US pork prices ($2.76/kg) at the Russian border in the first half of 2009 were below both world prices ($2.97/kg) and Brazil ($3.16/kg). There is question whether this the United States can maintain this price advantage through the remainder of the year. Unfortunately, the financial crisis has exaggerated the complexity of the problem of pork and beef supply by limiting resources for purchases through the supply chain. In the context of imports, this problem was compounded when the exchange rate moved from RUB23/US$ in September 2008 to RUB32/$ in August 2009 and even reached RUB36/$. Meat prices in 2010 will remain high, as the GOR continues its efforts to replace imports with domestic production.
Marketing
There are no financial premiums or discounts for beef quality in Russia outside of beef versus veal. Beef from culled dairy cows and beef from beef breeds are essentially sold at the same price. However, the Ministry of Agriculture's State Program of Development is currently encouraging enterprises to invest in beef breeds. These same companies have developed networks with restaurants to advertise beef steaks and demonstrate quality differentiation between meat from beef and dairy breeds. These investors hope once popularity grows for high-quality beef and the industry becomes profitable, Russia will be properly positioned to offer commercially sufficient beef volumes.
Policy
The GOR's stated goal is to become more self-sufficient by substituting imported meat with domestic production. While there is no stated self-sufficiency goal on beef, the pork and poultry goal is 85 per cent by 2012. In striving to achieve this goal, Russia has decreased access to its market through the use of tariff and non-tariff barriers.
TRQ system
Tariff-rate quotas on beef, pork and poultry meat imports for 2009 were modified after Russian officials held consultations with major trading partners in late 2008. Out-of-quota duties were sharply increased on imports of pork and poultry, which exceeded the quota volumes in 2008, but lowered on beef imports.
The out-of-quota duty on pork increased from 40 per cent but not less than €0.55/kg to 75 per cent but no less than €1.50/kg.
The 2009 quota for 0203 pork imports became 531,900 MT after merging the previously separate 502,200 MT pork quota and 29,700 MT pork trimmings quota. The allotments are designated for the European Union (253,400 MT), the United States, (100,000 MT, up from 50,700 MT), Paraguay (1,000 MT), and 'other states' (177,500 MT).
The out-of-quota duty on fresh/chilled and frozen beef was lowered from 40 per cent but not less than €0.40 per kilogram to 30 per cent but not less than €0.30 per kilogram.
The 2009 quota for 0201 fresh/chilled beef impost (excluding high-quality) was rolled over from 2008 at 28,900 MT. The allotments are designated for the European Union (28,400 MT) and 'other countries' (500 MT).
The 2009 quota for 0202 frozen beef imports (excluding high-quality) was rolled over from 2008 at 445,000 MT. The allotments are designated for the European Union (351,600 MT), the United States (18,300 MT), Paraguay (3,000 MT) and 'other countries' (72,100 MT).
Domestic support for livestock
In August, the Ministry of Agriculture increased the level of state support to agriculture in 2009 from 100 billion rubles to RUB183 billion (approximately $5.8 billion), now 30 per cent higher than 2008. This will go to the new construction of 156 investment projects in livestock breeding, including 42 swine farms, 32 poultry farms and six projects for beef cattle production. In the first half of 2009, 85 new farms were constructed, including 31 swine farms, 37 poultry farms and 17 beef cattle farms. From 2006 to 2008, state funding added the following annual swine capacity: 193,600 head, 810,100 head and 894,700 head, respectively. In 2009, GOR also budgeted RUB3.5 billion for 23 regional beef cattle programmes to promote beef breeds. The programmes should total 105,000 MT (live weight) of cattle in 2009, up 26 per cent from 2008.
Russian Minister of Agriculture, Yelena Skrinik, underlined that there have been some problems with the utilisation of available credit subsidies. RUB1.5 billion of resources, which were transferred to regions were not utilised in January-June 2009. In response, the Minister tasked regional administrations to transfer those resources to the final recipients in order to speed up renovation of old and construction of new livestock facilities. She also said that in order to better use available resources, the Ministry of Agriculture will create an information and analytic centre. This centre will follow use and efficiency of resources transferred by the Ministry to the regional budgets for the support of agricultural production. The Minister of Agriculture underlined that farms which receive state subsidies should prove their efficiency. Currently, there are about 4,000 farms receiving subsidies. This number will decrease in 2010. Those which do not produce appropriate volumes of high-quality meat will be excluded from the list of recipients. The Ministry is developing evaluation methods for the efficient application of subsidies.
Deputy Prime Minister Zubkov: help small farmers
First Deputy Prime Minister, Viktor Zubkov, criticised the Ministry of Agriculture on recent agricultural growth of farms. Private farms and household production represents about 50 per cent of all meat but as reported, neither has been thoroughly considered. Specifically, Mr Zubkov suggested that the Ministry should reintroduce farm cooperatives and establish specific farmers' markets especially devoted to these producers, while also allowing them to contract through traditional retail channels.
Novel H1N1 virus
On 26 April 2009, the Russian Federal Veterinary & Phytosanitary Surveillance Service (VPSS) announced restrictions on imported meat and poultry products from several countries, linking the control to the presence of H1N1 flu virus in humans. Russia imposed these restrictions on several US states, but by the end of August, most restrictions on pork and beef had been lifted.
The GOR created a Commission for preventing the spread of H1N1, headed by the First Vice-Prime Minister, Victor Zubkov. The commission will consider the following issues: prevention of H1N1's spread, anti-epidemic and anti-epizootic measures, imports of livestock products, and other international issues related to the entrance of H1N1 from abroad.
Within Russia, H1N1 is currently present within the local human population, and the number of infected people is likely to grow in the fall. Also within Russia, there are no reports the virus has jumped to or from different species and no scientific studies to indicate the virus may pass to meat tissue. However, Russian authorities have not yet formally de-linked H1N1 to any future import restrictions. Restrictions are still in place on pork products with certain production dates and origins. These remaining barriers may be removed in September 2009, following an upcoming meeting of the Russian H1N1 Commission.
EU experts inspect Russian control system for product safety
In April 2009, EU experts toured several VPSS veterinary laboratories and veterinary centers to inspect the Russian system of laboratory control of product safety of animal origin. This included meeting VPSS representatives from Moscow, Moscow oblast and Leningrad (St Petersburg) oblast. A report on the results will be published in October.
President Medvedev: increase food security, decrease import dependence
President Dmitry Medvedev stated in June 2009 that Russia will import only one-quarter of all meat products consumed in the country, compared to one-third imported in 2008, in order to improve Russia's food security. Speaking on the meaning of food security, President Medvedev explained that "Security is a method of guaranteeing certain interests in any sphere or a way for the state to establish such conditions where the Russian population will have access to food products for normal, adequate prices."
In accordance with the food security concept mentioned by the President, Russia should, to a significant degree, ensure self-reliance for domestic production of the major varieties of food products. President Medvedev acknowledged, currently certain requirements of the concept have not been reached. In particular, Russia does not meet the set requirements in terms of dairy, meat, and poultry output. He further claimed, the decrease in imports of meat and dairy products during the crisis helped the development of domestic agriculture and ensured absence of price hikes for corresponding food items purchased with foreign currency, which is a good thing from Russia's food security standpoint.
According to the President, food security has different aspects, and there are different methods of how to achieve it. As an example, he mentioned imports to Russia of significant volumes of cheap imported meat products, in particular, so-called 'Bush legs'. At the same time, he underlined that such dependency was 'rather dangerous' since as soon as the foreign currency exchange rate changes, for example, the rate of US dollar to Russian ruble, the prices for corresponding food products increase automatically. This did not happen now, he said, because a substitution of meat imports with domestic production took place. It also prevents the emergence of epidemic, pandemic and animal epizootic outbreaks. If such problems happen, then the imports stop and the country might find itself in a rather serious situation, President Medvedev concluded.
World Trade Organization accession
Russia is moving forward on parallel tracks in its WTO accession, both individually and as a part of a proposed Custom’s Union with Belarus and Kazakhstan. The Customs Union of Russia, Belarus and Kazakhstan has formed a united negotiating group for WTO accession talks. Draft Customs Union code is set to be finalized by November 2009. The three countries will develop a unified approach that would ensure further negotiation progress on conditions mutually beneficial for the customs union and the WTO. At the same time, Belarus and Kazakhstan can maintain the results of the Russian negotiations to the maximum. The group will participate in negotiations both on behalf of the customs union and separately on behalf of each country of the union. This approach does not exclude the possibility that each country will conduct separate bilateral negotiations with the WTO, but that all three countries intend to join the WTO under identical conditions. No customs union or trade bloc has ever acceded as a single entity to the WTO, or its predecessor organisation, the General Agreement on Tariffs and Trade (GATT).
As a result, Russia will heavily consider all potential WTO accession outcomes when negotiating the new poultry and meat agreement. This is one of the few areas that the three countries of the proposed Customs Union also have very different market access – Russia being the only one with a TRQ system in operation.
Further Reading
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