Report Highlights:

Though growing, pork output continues to fall behind Ministry of Agriculture projections due to high feed prices. Beef production continues to decrease as investors move their funds into other, more profitable, sectors of agriculture. Growing consumer demand for meat is thus met in part by expanding imports.

Executive Summary

Beef production declined again last year, and this decade-long trend is expected to continue as investments in other agricultural sectors prove more attractive. The pork sector grew more slowly in 2005 than previously forecast, but the pace may pick up in 2006 as the pig crop rebounds. Russian livestock producers faced higher feed input costs over the last year, cutting profitability. However, feed prices started to decline in the spring of 2005 and if the grain harvest is as strong as predicted, prices of this critical input should continue to decrease. U.S. pork exports to Russia have grown quickly due to growing incomes.

Prices Increase

In 2005 rising meat prices resulted from the combination of increasing demand that cannot be fulfilled by Russian production, the effect of tariff and non-tariff import barriers on imports, increasing input prices, and high prices in countries that export to Russia. Rising feed prices and meager cash flow for agriculture encouraged domestic producers to slaughter at lower-than-normal weights.

Trade Restrictions and Their Effects

To increase beef imports that were limited by the tariff rate quota and high import duties, the Government of Russia decreased import duties for out-of-quota beef imports from 60 percent to 40 percent. Importers increased imports of high-value beef cuts. High meat prices and the tariff rate quota have resulted in increased smuggling, and meat industry representatives claim that domestic meat prices are now declining as illegal supply is increased. In fact, both rising prices and higher rates of smuggling accurately describe the situation in the first half of 2005.

Production

U.S. pork exports to Russia have grown quickly, and at $35 million in the first six months of 2005 nearly equal the trade for the 12 months of 2004 which was $38 million. The increase in pork is driven by higher incomes in Russia and new demand in the retail sector. Russia is the fastest growing food retail market in the world, according to Euromonitor. Pork sales have increased to the level of beef liver sales in 2003 before they were banned due to the BSE incident. If the BSE ban were lifted and beef liver imports restored, U.S. red meat exports could jump to over $70 million annually.

Further Information

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Source: USDA, Foreign Agricultural Service - Annual Livestock and Products Report - September 2005