Executive Summary

Normalised feed prices and continued investment will continue to drive Russian poultry production increases and more than offset approved tariff-rate quota (TRQ) quantity reductions in 2012, supporting significant room for consumption growth. No significant adjustments are made to FAS/Moscow’s 2011 outlook.

Production

According to Russia’s State Statistical Service (Rosstat), farms of all types produced about 4.6 million metric tons (MMT) of poultry and livestock for slaughter (live weight) in the first half of 2011, 3.8 per cent more than January-June 2010. Agricultural enterprises increased production by 7.4 per cent at the same time. The Russian Ministry of Agriculture (the Ministry of Agriculture) reported in the middle of July 2011 that Russia will increase livestock production by 2.8 per cent, while total agricultural production will grow 10.0 per cent in 2011.

To accomplish overall production goals, the government of Russia (GOR) has taken several measures related to feed costs. At the end of July, the Ministry of Finance began signing agreements with local administrations to transfer an additional 9.0 billion rubles (RUB; US$353.6 million) to poultry and pork producers with the stated aim to combat feed cost related losses. Earlier in the year, the Russian government exercised commodity interventions, distributed grain without auctions and supported preferential railway tariffs on grain transportation. In June 2011, grain prices decreased 20 to 22 per cent, compared to RUB5.5-5.95 per metric ton (MT) in January 2011. According to the Ministry of Agriculture, grain stocks amounted to 24.8MMT at the end of May 2011, which they expected to be sufficient for feed supply through 2011. As a result, on 1 July 2011, Russia lifted the export ban on grain, which had been in place for more than 10 months. FAS/Moscow’s August forecast that grain and legumes supplies will be 45 per cent higher in 2011/12 than 2010/11 indicates feed supply should be available at appropriate prices for the Russian poultry industry over the next year.

To support future growth, the Ministry of Agriculture is currently developing a new state programme for agricultural development through 2020. The goals of the programme are to ensure the country’s food security (in accordance with the parameters set by the Food Doctrine – 85 per cent self-sufficiency), profitability, financial stability and competitiveness of agricultural producers in internal and foreign markets. The new programme will include new sections, including development of the food processing industry.

Broiler Production

FAS/Moscow forecasts Russian broiler production to remain relatively steady at 9.1 per cent growth in 2012, following a reaffirmed 9.0 per cent growth rate in 2011. [Note: In the first half of 2011, Rosstat reported broiler production increased 11.8 per cent at agricultural enterprises, up to about 1.85MMT (live weight). However, FAS/Moscow understands historically preliminary Rosstat data has a tendency to over-estimate current year production.] Continued expansion reflects improved feed supply and continued GOR efforts to support production. Further, as the Ministry of Agriculture admits, competition with imports is increasingly limited by the TRQ regime, which helps support high prices for domestic producers. Under these conditions, investment in the sector, specifically construction and renovation of facilities, will drive growth in the medium term.

Production growth remains driven by Russia’s largest producers. According to the Russian Union of Poultry Producers (Rosptitsesouz), in 2010, 32 enterprises produced more than 20,000MT annually, and represented 63 per cent of Russia’s total broiler production. The top three enterprises were ZAO Prioskoliye (267,000MT), OOO Belgrankorm (99,000MT) and ZAO Belaya Ptitsa (White Bird; 76,000MT), and all are located in Belgorod oblast.

According to various sources, announced development projects indicate as much as 600,000 to 700,000MT of new broiler production could come online within the next couple years. Of particular note, Russia’s leading pork producer – Miratorg – has plans to join the poultry industry and produce 105,000MT annually.

Turkey Production

FAS/Moscow forecasts sustained turkey production growth in Russia through 2012, based on continued investments into the industry which are scheduled to come on line in the near future. According to market research from Intesco Research Group, ‘Turkey Market Preliminary 2010 Results’, 2010 production surpassed Russia’s production target (published in December 2010) of 62,000MT to reach 78,000MT. State production targets in 2011 and 2012 were also earlier set at 81,000MT and 122,000MT, respectively. In response, FAS/Moscow adjusts our 2010 estimate slighter higher and reaffirms our 2011 estimate.

According to the Intesco Research Group, 20 turkey-producing companies currently operate in Russia; however, Evrodon is far and away the market leader and almost single-handedly driving Russia’s turkey production development.

In follow-up to FAS/Moscow’s March report, Evrodon confirmed increasing turkey production to 32,000MT (live weight) in 2010 from 12,000 MT in 2009, following the first stage of a planned 60,000MT expansion by 2012. Almost immediately following, Evorodon plans to start another 60,000-MT project in Saratov oblast, starting in 2012.

Duck Production

Evrodon is set to also become the largest duck meat producer in Russia. In Rostov oblast (south of Russia), it is investing RUB5.0 billion ($178.6 million) into the construction of a hatchery, parental flock, duck raising houses, feed production plant and meat processing facility, which will produce 20,000MT annually. The average farm-gate price of chilled duck meat is planned to be RUB150-170 per kilo ($5.40-6.10/kg).

Trade

Leading up to congressional elections this fall and the Presidential election next spring, both President Dmitry Medvedev and Prime Minister Vladimir Putin have been very outspoken regarding Russia’s accession to the WTO and its potential impact on agriculture in recent months. Specifically, Prime Minister Putin has noted there are lines which Russia may not cross. These are volumes of meat production subsidies and tariff rate quotas. "And we want to assure you, we will consider these issues very carefully. We will not accept any solution that would put our manufacturers at a distinct disadvantage or would undermine their competitiveness."

Imports

Reflecting already GOR-approved TRQ access for 2012, FAS/Moscow forecasts poultry imports slightly lower in 2012 compared to 2011. Russia and Belarus have has not yet announced bilateral 2012 quotas levels, but a similar 15,000-MT duty-free import quota could be likely.

Prime Minister Putin indicated his GOR resolution on 2012 TRQ quantities could be changed, pending Russia’s accession to the WTO. However, as currently approved, the overall poultry quantity is lowered 20,000MT to 330,000MT. For the first time, the poultry TRQ is broken into two categories for mechanically-deboned meat (MDM) (80,000MT) and other parts (250,000MT). As in 2011, whole birds are excluded from the 2012 TRQ. The in-quota and over-quota tariff rates are 25 per cent but not <€0.20/kg and 80 per cent but not <€0.70/kg, respectively.

Poultry imports remain restricted not only by TRQs but also SPS barriers. With the exception of 2010, TRQ levels have filled annually while SPS barriers have typically only inserted volatility in market prices during the year. The only unsettled outstanding SPS barrier that could potentially prevent the TRQ from again filling in 2012 would be the set expiry of Russia’s agreed veterinary certificates with trading partners. However, FAS/Moscow does not presently expect such a scenario to transpire.

During the first six months of 2011, Russia broiler meat imports (excluding Belarus and Kazakhstan) totalled 163,933MT ($243.5 million), 40 per cent more compared to 2010 when Russia’s chlorine ban kept the United States out of the market. The major suppliers in 2011 are the United States (53.3 per cent), Brazil (25.2 per cent) and the European Union (18.5 per cent). Frozen halves and quarters represent 61.3 per cent of the import total, supplied by the United States (84.6 per cent) and Brazil (14.5 per cent). Frozen deboned meat represents 22.3 per cent of the total, with the European Union (42.7 per cent) and Brazil (47.8 per cent) competing against each other. Imported whole birds – historically supplied by Brazil – have almost completely disappeared from the marketplace as a result of Russia disqualifying them from the in-quota tariff rate. Such product was seen as in direct competition with local production. While chicken-leg quarters and MDM meat dominate the trade, processed/prepared poultry imports (specifically from the European Union) have increased notably and already match historical annual totals, now representing five per cent of total broiler imports. Processed poultry products are not subject to the TRQ and target primarily the fast food industry.

Exports

Russia remains actively seeking export markets for its poultry. To date, Russia’s poultry exports consist primarily of chicken paws destined for Hong Kong and Viet Nam, which are not considered poultry meat for PSD calculations. Otherwise, Russia’s only significant export market remains the break-away Georgian territory of Abkhazia. Russia also has plans to export poultry to its Customs Union neighbour, Kazakhstan, for which trade data is not available.

Russia’s pursuit of gaining access to the European Union remains ongoing. However, notably, Russia’s Federal Service for Veterinary and Phytosanitary Surveillance (VPSS) has announced that after years of negotiations, the EU has agreed in principle to open its market for Russian poultry products. During the last inspection of enterprises in the Belgorod region (South of Russia bordering Ukraine), Europeans were reportedly satisfied with the level of production technology and compliance with EU veterinary requirements. EU inspectors will next inspect Russian poultry establishments and those which pass will be issued a certificate to allow them to export to the European Union.

Consumption

Strong consumption growth is forecast as production gains outpace cuts to imports in 2012. Broiler consumption, in particular, is forecast to rebound 7.2 per cent from an artificially low estimate in 2011. Simultaneously, turkey consumption is forecast again to grow by double-digits.

Poultry consumption remains relatively restricted in growth and prone to volatility, subject to Russia’s ability to achieve annual production performance targets from year-to-year. Thus, in 2012, a recovery of Russia’s poultry production will directly result in increased consumption, which has otherwise been relative stagnant in recent years. However, since the United States was forced to export the majority of its 2010 quota in the final months of the year, larger than usual carry-over stocks have led FAS/Moscow PSD estimates to likely over-estimate 2010 consumption at the expense of 2011 consumption. This was evidenced by slow sales and low prices for US poultry at the beginning of 2011.

Turkey meat remains a novelty in Russia as prices remain significantly higher than broiler meat. Local production primarily caters to the retail market for direct human consumption while imported product caters to the processing industry. Turkey consumption has grown as consumers become more affluent and as buying power improves. The small niche that turkey meat occupies on the Russian market has allowed imported supply, mostly MDM, to continue mostly unaffected as import market access on poultry has been reduced. Recent production investments have and will continue to promote strong growth in turkey consumption as Russian consumers become more accustomed to western cuisine.

Aside from supply gains for both broiler and turkey meat, prices in 2011 and 2012 will continue to rise as relatively more affordable imports continue to represent a smaller portion of the market for both commodities. After reporting increasing retail prices in the beginning of 2011, the Ministry of Agriculture has since stopped publishing this time series.

Further Reading

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