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Market Preview: Re-entry into Russia a Breakthrough for Pork

by 5m Editor
23 March 2010, at 9:24am

US - Weekly US Market Preview provided by Steve R. Meyer, Ph.D., Paragon Economics, Inc.

With valuable, constructive input from all facets of the US pork industry, lengthy negotiations between the governments of the United States and Russia have resulted in a reopening of the market to US pork exports. This is an important breakthrough for pork producers and exporters, as the market had been effectively closed for several months due to numerous delistings of US processing plants and storage facilities.

The prospects for an agreement brightened in mid-February when US Meat Export Federation (USMEF) led a US industry delegation to Moscow for discussions with a team headed by Russia’s chief veterinary officer. The meeting laid the groundwork for a better working relationship with the Russian veterinary service and complemented the ongoing formal negotiations between the two governments. Later that month, the USDA Agricultural Marketing Service posted the new Export Verification (EV) programme for plants exporting pork to Russia. The principal components of this programme are:

  • Pork must be free of tetracycline group antibiotics. Companies must evaluate and select suppliers based on their ability to provide conforming product.

  • Slaughter facilities must implement a tetracycline group antibiotics testing programmeme.

  • Facilities approved for export to the Russian Federation must implement a microbiological testing programme for generic salmonella, Listeria monocytogenes and total plate count testing.

A few days later, US Agriculture Secretary Tom Vilsack announced that an agreement had been reached on a new pork export certificate – the culmination of a process that had actually been set into motion more than a year earlier. The next step was for US plants to apply for approval under the new EV programme. The first round of approvals was issued 11 March, allowing US pork products to finally reenter the pipeline.

Russia is an extremely important market for US producers, as evidenced by its No. 5 ranking last year in terms of export volume (307 million pounds) and value ($289.3 million). But 2008 provides a better picture of how well this market can perform when Russia’s economy is humming and the majority of our plants are approved for export. That year, US pork exports reached 480 million pounds valued at $476 million.

So what kind of performance can we expect in 2010? The good news is that Russia’s economy appears to be on the upswing, and the overall business climate is improving. The ruble has gained strength against the US dollar throughout the past year, though it is still about 20 per cent below the peak it reached in mid-2008.

Future Trade Prospects

So far this year, Brazil is the dominant player in Russia, grabbing more than 60 per cent of the imported pork market. This is nearly double Brazil’s typical market share and reminiscent of the position it held back in 2007. Brazilian pork is very attractively priced for Russia’s processing industry, and benefits from preferential import duties that are about 25 per cent lower – both in and out of quota – than those imposed on US pork.

Perhaps an even greater concern, however, is Russia’s well-documented determination to bolster its domestic pork production and reduce its reliance on imports. For example, the United States faces a much smaller tariff rate quota this year – only 57,500 metric tons (about 127 million pounds) compared to the 2009 quota of 100,000 metric tons (220 million pounds). The tariff rate quota doesn’t represent a hard cap on imports of US pork. We have managed to exceed the quota in the past, but the in-quota duty rate is 15 per cent compared to an out-of-quota rate of 75 per cent, so it can be a significant obstacle.

With Russia experiencing some herd health issues and facing many challenges in ramping up its own production, there is a possibility of a quota adjustment at some point during the year. But even under the most optimistic scenario, USMEF’s forecast for Russia in 2010 is that US exports will reach about 275 million pounds – about 10 per cent less than last year and far short of the 2008 record. This is obviously due in part to a late start, as nearly one-quarter of the year had passed before the first round of plants were reinstated. It is also a forecast that is tempered by the prospect of a smaller tariff rate quota, a large amount of low-priced competitors’ products going to the processing sector, and improved-but-always-fragile market access conditions.

Maintaining Diversity

The current situation serves as a strong reminder of why it is so important to maintain diversity in our pork export markets and to remain vigilant in our development of new destinations for US pork. Russia accounted for 10 per cent of our total pork exports in 2008 and about 7 per cent in 2009. These are important totals, and Russia is certainly a market that we will strive to maintain. But the tremendous gains made by US pork in key Asian and Latin American markets have provided the pork industry with far-reaching global momentum and have softened the impact of isolated trade impasses.

For example, US pork achieved impressive growth last year in Mexico – up more than 25 per cent in volume over 2008, despite a mid-year interruption in pork demand resulting from H1N1 influenza virus. US pork also set new records last year in the Caribbean, Central and South America, Taiwan, the Philippines, Australia and New Zealand.

Regional and bilateral trade agreements bolster the prospects for US pork in several of these markets. But in reality, market access will always be an ongoing challenge when it comes to global trade. The key is to continue developing as many profitable, reliable destinations as possible for the nearly one in four US hogs destined for the export market.

Philip Seng
US Meat Export (USMEF) Federation President and CEO