Report Highlights

Slaughter rates have and will continue to increase in 2010 and 2011 as widespread drought throughout Russia sharply decreased current and future feed supplies. As a result, red meat supply will be larger than earlier expectations but adversely impact supply potential in 2011. Red meat imports to date are revised upward, reflecting year-to-date trade and have similar market access potential in 2011.

Summary

Changes in USDA Moscow's forecast for swine and pork reflect the shortage in feed supplies that will mostly impact 2010 and 2011 inventories, realised imports through the first six months of 2010, as well as revised expectations of live hog trade. Although kills increased in 2010, slaughter weights were adversely impacted as hogs were marketed earlier than expected and incurred reduced weight gain from the historically hot summer.

Swine Inventory

Total swine inventory increased 1.8 per cent to 16.6 million, while agricultural enterprises increased swine inventory 8.0 per cent. Private households account for 36.6 per cent of swine herd at the end of June 2010 (39.7 in June 2009).

Imports of live swine for slaughter are down sharply in 2010, as the tariff was raised from five per cent to 40 per cent but not <0.50 €/kg. The domestic pork industry continues to push for full closure of the market but slaughter houses will continue to require imported hogs until the domestic industry can fill capacity.

Russia imports pedigree swine to improve domestic breeding stock from the European Union and Canada.

Production

Russian livestock production represented 46 to 52 per cent total agricultural production value during 2000-2008.

Russia produced 4.4 million metric tons (MMT) of meat and poultry meat (live weight) in the first half of 2010, 8.3 per cent more than the first half of 2009. Agricultural enterprises increased meat and poultry production 14.7 per cent (live weight) in the first half of 2010 compared to 2009 (in 2009 – 10.1 per cent over 2008).

The Ministry of Agriculture plans that Russia will produce 82 per cent of total meat and poultry supply to the Russian market in 2012. According to Ministry figures, Russia currently supplies 69 per cent of its beef, 75 per cent of its pork and 75 per cent of its poultry.

Feed Supply

Russia will experience problems with feed supplies for the remaining part of 2010 and in 2011 due to the 2010 drought in the Central, Volga and Ural districts of Russia. In total, 27 regions were declared emergency drought situations in 2010. The grain harvest in 2010 will be lowest since 2003 when 67MMT of grain was harvested. The drought adversely impacts not only the 2010 feed supply but also the seeding of winter crops for next year's feed supply, as well as presents a new threat to Russia's developing pork and beef industries.

The government of Russia (GOR) has taken several measures to soften the drought's impact. The GOR postponed state grain purchases, instituted a grain export ban and decided instead to release 3MMT of grain from the state reserves for drought-stricken regions. Grain is being distributed on the basis of a quota system to enterprises in the processing and milling industry. The shares for each region are based on meat and milk production volume. The regions themselves will be responsible for distributing the grain internally. Furthermore, Prime Minister Vladimir Putin said the GOR will provide 35 billion rubles (RUB; US$1.2 billion) in financial aid to drought-stricken farmers, including RUB10 ($300 million) billion in direct payments and RUB25 billion ($830 million) for three-year discounted federal loans. The money is being disbursed in two stages, the first in August and the second in October-November.

Pork Production

Higher feed prices and therefore higher slaughter rates in the second half of 2010 will increase pork production 8.8 per cent in 2010 but only 4.9 per cent in 2011. The larger slaughter numbers will slow the pace of herd expansion from 3.4 per cent in January 2010 to 2.4 per cent in January 2011.

Pork producers

The major producers of pork are large agricultural enterprises. They increased pork production 14 per cent in 2008 and 21 per cent in 2009. Agricultural enterprises produced 24.4 per cent more pork in the first half of 2010 compared to the first half of 2009. Club-100 swine enterprises increased from 18.9 per cent to 59 per cent at the same time.

According to Rosstat, the 11 largest pork producers (>100,000 head) produced 23.9 per cent of Russia's pork in 2006-2008. These enterprises featured the lowest production costs while average daily weight gain was highest at enterprises between 50,000 to 60,000 head. According to the Intesco Research Group study, Pork Market: the Results of 2009 and Forecast for 2010 – 2011, the three largest Russian pork producers are Prodo, Agro-Belogorie and Miratorg. They account for 15 per cent of the Russian pork production (live weight). Cherkizovo, Siberian Agrarian Meat Processing Group, SV-Volga and Agrifarm Ariant represent the second tier at 10 per cent of the market. Krasnodar region produces 9.3 per cent of the Russian meat, Belgorod region – 8.5 per cent, Rostov region – 6.5 per cent, Omsk region – 4.3 per cent, the Republic of Tatarstan – 3.8 per cent.

The Ministry of Agriculture subsidised the modernisation of 422 pig farms during the last three years. These farms produced 200,000MT (live weight) in 2009 and will add 160,000MT after they are fully operational. The average feed conversion rate was 3.6 on renovated farms and 3.0 on newly built pig farms in 2009.

In particular, the Belgorod region continues to invest in pork production. The agro-industrial holding Miratorg, one of the largest meat producers and suppliers of the Russian market, is investing RUB13.5 billion ($450 million) into the construction of nine hog complexes. The first of the facilities will be started in 2011. Each complex will have an annual capacity of 112,000 hogs. The herd will be slaughtered at an establishment that processes three million animals annually, producing 165,000MT of meat.

The Russian Union of Pork Producers reports producers are experiencing problems with marketing. The Union underlines the reason is that only five per cent of pigs are subject to initial processing at the enterprise, while the rest are traded live. The Union expects this number to grow to 50 per cent by 2012. At this time, the Union believes 90 per cent of pork will be produced by large agricultural enterprises.

Policy

Supply Control (Import Substitution)
Government support for domestic meat production in Russia has and continues to be primarily provided through methods of supply control. In addition to the introduction of the TRQ regime in 2003, trade outside the quota is subject to largely prohibitively high tariffs. Furthermore, trade within the quota is hindered by highly prescriptive, non-science-based Russian technical and veterinary-sanitary requirements that can at times result in country-specific allocations not being accessible.

Agricultural Development Programs
Federal development programs have served as an additional tool of planned support for Russian poultry production. On 21 December 2005, ‘Development of the Agro-industrial Complex’ was issued as one of four priorities for national development, with a focus on revitalizing Russian livestock and poultry production. To further stimulate domestic agricultural production, the federal law ‘On Development of Agriculture’ was approved in 2006 and came into force on 11 January 2007. Later, the GOR approved the ‘Program for Development of Agriculture, Regulation of Agricultural Commodity Markets, and Rural Development for the period 2008-2012’ which called for RUB1.1 trillion ($37 billion) to be spent over five years, with funding being split between federal and provincial budgets.
In line with these programmes, subsidising interest rates for investment projects has been Russia's primary tool of direct support to the producer. However, these benefits are not universal to all producers, as they service only the largest investors and must be in line with the Ministry of Agriculture's vision of the development programme.
In an effort to maintain a positive rate of development in 2009 in the wake of the global financial and economic crisis, the Ministry of Agriculture allocated RUB165.1 billion ($5.5 billion) for the implementation of the State Agricultural Development programme 2009-2012. The Ministry spent RUB45.0 billion ($1.5 billion) from this sum to increase the authorised capital of JSC Russian Agricultural Bank and RUB17.0 billion ($570 million) to subsidize interest payments. Additionally, Russia extended short-term loans for six months, investment loans for three years, and maximum-term eight-year investment loans to 11 years. The subsidy level for investment loans also increased from two-thirds of the central bank rate to 100 per cent for dairy and beef cattle (and to 80 per cent for poultry). The Ministry of Agriculture also noted the single agricultural tax as well as fixed prices for fuel and fertiliser amounted to RUB30 billion ($1 billion) in indirect subsidies to the producer in 2009. These programs continued in 2010, and they will continue for the foreseeable future.
The Ministry of Agriculture reported that 2010 investments will not meet the State programme due to lower-than-expected profits in the industry.

Government Purchases
President Medvedev has tasked Minister Elena Skrynnik to investigate the state purchases of beef in Rosrezerv, as well as to clarify the feasibility of increasing the production of canned white chicken meat. As noted by the President of Cherkizovo, there is a need consider changes of the state reserve purchases since domestic beef supplies are shrinking while poultry is ‘oversupplied’.

Development of the Feed Industry
Also in the planning is a draft development project to improve this component of the supply chain through the construction and modernization of feed mills, with the aim of increasing the production of plant-origin protein feeds. Most recently, the GOR has taken action to support producers impacted by the short feed supplies.

Trade

Russia maintains a TRQ regime for raw pork (HS-0203) and beef (HS-0201, 0202) products with country specific allocation to the United States, European Union, and “other countries”. The pork and beef quotas for 2011 remain unchanged from 2010.

Pork

Russia imported 315,537 MT of pork during January – June 2010, 15 per cent above 2009. The major exporters of pork to Russia are the European Union, Brazil, United States, and Canada. The European Union is the dominant supplier of fresh/chilled and processed pork. The US share of the frozen pork market has fallen steeply for three main reasons: competitive prices in other markets, the virtual ban on US pork through the first five months of 2010, and a reduced quota (from 100,000 MT in 2009 to 57,000 MT in 2010). Russia's recent closure of several US pork facilities on the grounds of tetracycline-group antibiotics will continue to threaten the US's ability to fulfill its quota allocation for the remainder of the year.

There are mixed opinions on decreasing the pork TRQ quantity further before the end of 2012, but focus will remain on preventing growth of out-of-quota pork and live hog imports as well as using sanitary and technical barriers to further regulate in-quota and quota-exempt pork products.

Customs Union

Kazakhstan and Belarus, as well as other CIS countries, have duty-free, quota-free access to Russia for domestically produced meat.

Customs Union members recognise equivalency of each other's veterinary service. Kazakhstan?s Ministry of Agriculture has expressed its intent to utilise this advantage to export 4,000MT of meat (specifically, beef) to Russia in 2010, compared to 400MT in 2009.

Belarus increased meat and poultry exports to Russia by one-third to 72,000MT during January-June 2010. The Government of St Petersburg earlier reached an agreement with Belarus to import 41,100MT of beef, 11,100MT of pork and 8,200MT of poultry meat in 2010.

Consumption

Development of livestock primary processing for 2010-2012

The Ministry of Agriculture has developed a programme for livestock primary processing to support the modernisation of the Russian meat processing industry. The programme envisages the allocation of state subsidies for meat processors from the federal budget. Subsidies will be spent to compensate interest rates from loans taken for construction and modernisation of processing facilities and cold storages as well as for purchasing meat for primary and industrial processing. Planned implementation of the program will allow Russia to increase the collection and processing of the animal to 90 per cent of its live weight.

The Ministry believes that fulfillment of the programme will also increase per-capita consumption of meat and meat products to from 65.9kg in 2008 to 66.1kg in 2012.

Further Reading

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October 2010