Report Highlights

Growth in consumer demand for meat products continues to outpace production and import growth. Swine numbers are forecast to increase 8 percent in 2008 while cattle numbers are expected to decrease 3 percent. During the first 6 months of 2007 beef and pork prices grew 3.2 percent and 2.6 percent - substantially lower than during the same period in 2006 where beef and pork prices grew 9.7 and 7.4 percent. Rising feed costs are expected to push meat prices up even higher by the end of 2007 and into 2008. Imports of beef and pork into Russia totaled 632,000 metric tons (product weight) from January to June 2007, up 26 percent compared to the previous year. Russian officials plan to introduce a new mechanism for distributing meat tariff rate quotas for 2008 and 2009. Russian veterinary specialists recently concluded inspections of U.S. beef facilities. A list of approved U.S. beef establishments for export to Russia will be made available soon.

Data included in this report are not official USDA data. Official USDA data are available at http://www.fas.usda.gov/psdonlineonline.

Executive Summary

Beef production is forecast to decrease 3 percent in 2008 as poor cattle husbandry and generally negative financial returns continue to scare off potential investors. By contrast, pork production is expected to increase 8 percent in 2008, largely due to growing investments in swine production, better reproductive yields and availability of investment credit subsidies. Livestock policies under the National Priority Project for Agriculture (NPP), active since 2005, and the recently approved State Program for Development of Agriculture and Regulation of Food and Agricultural Markets in 2008-2012, encourage swine production and attempt to address Russia’s declining cattle numbers. Russia and the United States agreed on new veterinary certificates for beef and beef products and for pork and pork products in late 2006. Russian veterinary specialists recently completed inspections of U.S. slaughter and processing facilities. Demand for livestock genetics continues to be strong. A list of approved facilities for export to Russia is expected by the end of October 2007 with a resumption of trade shortly thereafter.

Overview

The Russian government is taking active measures to develop the livestock industry. The three-year National Priority Project for Agriculture (NPP) began in 2005 and calls for the construction, renovation and modernization of large, commercial livestock farms as well as for extension of credit to smallholders and private plot producers who generate approximately half of total livestock products. The Russian government recently approved a new program that will succeed the 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.

From January to June 2007, 623,000 metric tons of red meat was imported. A decade-long decline in beef production resulted in limited beef availability in the Russian market. In response, the Russian government was forced to take steps to increase the availability of beef by lifting beef bans on major trading partners, and by reallocating the majority of the European Union’s beef tariff-rate quota (TRQ) to developing countries (mainly Brazil).

Swine production increased in 2007, but remains below the Ministry of Agriculture’s expectations. The Russian Statistics Agency (Rosstat) reported that as of August 1, 2007, the swine herd was 9.9 percent larger than in 2006, totaling 17.6 million head. Russian government officials are worried that rising grain prices will force smaller farmers to slaughter their pigs sooner and depress herd growth potential. The effect of rising input prices on small producers in Russia is significant, as private households account for roughly 50 percent of livestock production in Russia, but have limited ability to pass on higher costs to consumers.

Russia hopes to increase domestic meat production 42.6 percent over 2006 figures by 2012. Under the new program, Russia will extend its TRQ regime on imported meat beyond 2009, remove the country allocations currently within the TRQ regime, and increase its out-ofquota tariff rates (see GAIN report RS7051). Despite these efforts, Russian livestock breeders are struggling to satisfy rising per capita meat consumption growth that fell sharply during the economic reform efforts of the 1990’s.

Production

Pork production is expected to increase 8.3 percent in 2008. The pig crop will equal approximately 42.2 million head. Larger pig stocks are a result of growing investment in construction and renovation of swine operations, availability of investment subsidies credit to smallholders and private plot producers, and more widespread use of better genetic stock. Improvements in feeding and breeding technologies and the growing use of modern management techniques are expected to boost swine potential in 2008 and 2009.

The Russian Statistics Agency (Rosstat) reported that as of August 1, 2007, the swine herd totaled 17.6 million head - 9.9 percent larger than in 2006. There is some concern, however, that rising grain prices will force small farmers to slaughter their pigs sooner and depress herd growth potential. The effect of rising input prices on small producers in Russia is significant, as private households account for almost 50 percent of livestock production in Russia, but have limited ability to pass on higher costs to consumers. In 2006, 48.2 percent of cattle, 43.8 percent of swine and 53.2 percent of sheep and goats were raised at private households.

The Russian pork industry is becoming more productive as it consolidates and follows the vertical integration model seen in the west. Vertically integrated companies are increasing their market share as they have already begun slowly to absorb less efficient producers being squeezed out of the market by higher feed prices and poor management. Some market analysts predict that 15-20 pork companies will go under by mid-2008 and get taken over by some of the bigger players. On the other side of the coin, there is less certainty on the rate of industry consolidation, as almost half of all swine raised in Russia are done so on private households. Industry consolidation appears inevitable, but the structure of ownership within the swine industry leads some analysts to conclude that rate of consolidation will proceed slowly.

Under the NPP, 114 new pork production facilities will be built and help increase domestic pork production (live weight) by 443,000 metric tons by the end of 2007, 855,000 metric tons in 2008, and 950,000 metric tons in 2009. Many of the new pork production facilities will feature foreign equipment. If all proposed measures are fully implemented and successful, annual domestic pork production is intended eventually to reach 2.4 million metric tons.

Cattle beginning stocks are forecast to decrease 3.7 percent in 2008, continuing the decadeand- a-half decline in this sector due to low productivity and reproductive efficiency. As a result, beef production is expected to fall 1.1 percent. The commercial beef cattle industry in Russia is in its infancy, and has far to go before it will become profitable. Dairy cattle remain the primary source of domestic beef (bull calves and spent dairy cows). Converting dairy cattle into beef will continue to depress the recovery of Russia’s beef cattle industry. The challenge remains in making beef an attractive area for investment as poor animal husbandry and general negative returns continue to scare investors away.

Further Reading

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October 2007