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Russian Federation: Poultry and Products Semi-Annual 2009

by 5m Editor
27 March 2009, at 12:00am

Domestic poultry production is forecast to increase 8.8 per cent in 2009 compared to a 15.5 per cent jump in 2008, according to the latest GAIN reports from the USDA Foreign Agricultural Service. Turkey production is expected to increase 12.5 per cent in 2009. Russia's Chief Medical Officer signed a resolution that prohibits the use of chlorinated anti-microbial washes in poultry production as of 1 January 2010, which would have a major impact on trade if it were to be implemented.

Report Highlights

Domestic poultry production is forecast to increase 8.8 per cent in 2009 compared to a 15.5 per cent jump in 2008. This growth is directly related to investment credit subsidies as laid out by the National Priority Project in agriculture as well as continued government imposition of import-restricting policies. Turkey production is expected to increase 12.5 per cent in 2009 as investors continue to commit resources to increase production capacity. Russia's Chief Medical Officer signed a resolution that prohibits the use of chlorinated antimicrobial washes in poultry production as of 1 January 2010. If implemented, the new chlorine maximum residue level will be 100 times more stringent than the current Russian requirement for poultry production and will have a major impact on trade. Poultry imports into Russia totaled 1.218 million MT (metric tons) in 2008 valued at $1.339 billion. The United States continues to be the largest poultry exporter to Russia with 63 per cent of total market share in 2008.

Executive Summary

Domestic poultry production is expected to increase 8.8 per cent in 2009 compared to a 15.5 per cent growth rate in 2008.1 The fact that the production forecast is still positive in the middle of a serious global financial crisis is directly related to investment credit subsidies as laid out by the National Priority Project in agriculture (NPP) as well as continued government imposition of import restricting policies.

The global financial crisis and devaluation of the Russian ruble have halted construction of dozens of new poultry facilities and frozen renovations of several existing poultry facilities. According to the Russian Statistics Agency (Rosstat), Russia harvested a record 112.5 million metric tons (MMT) of grain (bunker weight) by the beginning of November 2008. Feed stocks will be sufficient in 2009 as feed grain stocks increased by 17 per cent in late 2008 in comparison with 2007. A larger stock should help keep production costs lower, which is expected to keep farm-gate prices (and possibly retail praises) stable.

The Russian Union of Poultry Producers (RUPP), the Russian Poultry Union and other such organizations continue lobbying for more government support such as more subsidized credits and trade restriction on imported poultry. The average price for domestic frozen chicken leg quarters (CLQ) increased 10 per cent from June 2007 to June 2008 while prices for imported CLQ increased only 3 per cent.

Turkey production is forecast to increase 12.5 per cent in 2009 as investors continue to commit resources to increase production capacity. Producers are marketing turkey a healthier, more affordable alternative to red meat. Growing domestic production and rising levels of domestic and foreign investment in this area are expected to compensate for lower imports associated with the stronger dollar.

Russia's Chief Medical Officer, Gennadiy Onishchenko ,signed Resolution #33 in June 2008 that prohibits the use of chlorinated antimicrobial washes in poultry production scheduled to take effect on 1 January 2009. In late December 2008, Mr Onishchenko postponed implementation of the resolution until 1 January 2010. The new chlorine maximum residue level will be one hundred times more stringent than the current level set in Russian regulations for poultry production. In effect, the resolution will prohibit the common industry practice of using chlorine in antimicrobial washes to kill surface food-borne pathogens such as Salmonella and E. coli and will have a major impact on US exports to Russia.

Production

Broiler production increased 15.5 per cent in 2008 and is projected to grow another 8.8 per cent in 2009 even though many project using subsidized government credits have been frozen due to the global financial crisis and tight credit market in Russia. In response, the Russian Poultry Union lobbied the Russian government to reduce the total tariff rate quota (TRQ) for poultry in 2009 and to substantially increase the out-of-quota duty rate for imported poultry meat.

Poultry meat production is slated to increase to 2.3 MMT by 2012, including an increase of 140,000 MT in 2009 alone. Egg production remained flat in 2008 but is expected to grow at a much faster pace in 2009 due to expanding demand of domestic food processors.

Domestic turkey production is forecast to increase 12.5 per cent in 2009. Several investors signed a $100 million agreement in late 2007 to build a turkey production facility in southern Russia, which is now operational. Currently, five major players dominate and they are steadily increasing turkey production. The total turkey meat consumption potential in Russia is approximately 150,000 MT, according to estimates of respected market analysts. Turkey is still a relatively new product in Russia and has been marketed over the last few years as a healthy, less expensive alternative to beef and pork. In retail trade, turkey prices are 30 to 50 per cent higher than broiler meat, and profits are up to 15 per cent higher.

Poultry production is the only agro-industrial sub-industry that has managed to triple output over the last ten years and break the record levels of 1992. Daily weight gain increased to 50 grams (21.9 grams before 1992), due to introduction of new crosses of imported and domestic origin, modern management, feeding technologies and diet.

Average carcass weight reached about 1.95 kg in 2008 (carcass weight was 1.4 kg before 1992), and better conversion rate – 1.85 kg of feed per kg of meat (3.44 kg before 1992). Concentration of poultry production in Russia is growing – the 30 largest poultry facilities produce more than 60 per cent total poultry meat. This has led to the introduction of new equipment and new technologies, which help reduce production costs. Domestic producers admit that significant improvements in the domestic poultry industry were reached thanks, in part, to stiff competition from foreign producers.

At the same time, however, market analysts agree that there is still room for improvement in the industry. Companies that produce approximately 40 per cent of total domestic poultry meat are far behind in terms of modern technology, equipment, genetics efficient management systems. The disparity between poultry prices and input costs for production are preventing speedy improvements at most of these facilities.

According to Russian Union of Poultry Producers (RUPP) representatives, per-capita consumption of poultry meat will reach 15 kg by 2010 (11 kg in 2008). As a result, they stated that the domestic poultry industry will have to increase production by improving management, utilizing better genetic stock, upgrade older poultry facilities with new technologies, and integrate western management practices if they are to compete with foreign producers for the growing consumption trend. According to RUPP, this goal can be achieved through the creation of vertically integrated structures and relatively closed circle 'production-processing trade' on their bases. The united financial and technological system should include hatching and processing facilities, poultry farms, grain production, feed meals, and producers of biologically active components as well as veterinary substances as structural divisions. Such vertically integrated complexes already exist in many regions and have substantial support from federal and regional governments.

Feed Stocks

The Ministry of Agriculture announced that grain production in 2008 topped 108 MMT, significantly higher than previous forecasts. The increase was due to good weather conditions in July and August, reported harvest progress, and excellent yields of winter grains – especially winter wheat – in European Russia. Prices of feed quality wheat and barley continue to fall rapidly.

Significant growth of the biofuel market globally caused an increase in grain and oilseed costs, according to market analysts, and the current market conditions for grains are expected to continue through 2009. Grain prices increased rapidly in Russia through July 2008 before stabilizing at high levels as harvest progress reports were released. Higher prices attract exports and domestic sales, and the current environment will stimulate investments in grain production in 2009.

Russia is developing protocols to register feed produced from genetically enhanced organisms (GEMs; or genetically modified organisms, GMO). A Russian government resolution transferred the testing and registration of feeds involving GEMs to the Ministry of Agriculture's Veterinary and Phytosanitary Surveillance Service (VPSS). VPSS has developed the draft administrative procedure for registration and has already received applications based on the procedures described in the draft.

On 31 January 2009, Russia announced a new duty of 5 per cent on soybean meal scheduled to take effect in mid-March 2009. The new duty will be in place for nine months. Soybean meal has become an important feeding ingredient in poultry (and milk production) in Russia.

Imports of soybean meal reached 710,000 MT in 2008, substantially lower than in 2007 due mostly to increased domestic crushing of soybeans at the new plant in Kaliningrad, and increased domestic production of sunflower seeds and feed grains, which have become competitive alternatives (in prices) to imported soybean meal. Thus, a temporary 5 per cent import duty on soybean meal is not expected to have a major affect on domestic poultry production in 2009 but may do so in the long run. The devaluation of Russian ruble coupled with the 5 per cent duty will make imported soybean meal less competitive in price than domestic feeds, and protein feeds supply by the end of 2009 may shrink. Countries most affected by this increase will be Argentina and Brazil whose exports of soybean meal to Russia in the first 9 months of 2008 totaled $174.3 million and $83.5 million, respectively. The United States exported $14.4 million of soybean meal during this same period.

On 22 September 2008, the Russian Ministry of Agriculture issued legislation for feed subsidies to poultry producers. Ten billion rubles will be allocated to compensate for feed expenses from the fall 2008 through spring 2009 for both swine and poultry operations. Poultry producers will receive 5 rubles per kilo of live weight, according to the legislation.

Epizootic Situation

Poultry losses in 2008 is estimated to have reached 50 million head or 5 per cent of the total poultry flock. In order to improve the epizootic situation of domestic poultry, the Federal Veterinary and Phytosanitary Surveillance Service (VPSS) holds an annual 'International Veterinary Congress for Poultry'. The fourth such congress took place in Moscow in April 2008. Nearly 800 veterinary specialists from different regions in Russia as well as from several foreign countries participated in the event. The specialists at the conference agreed that significant growth of poultry production demands new approaches in order to provide appropriate poultry health care on farms. This means close co-operation between farm management and veterinary services. It was reported at the congress that the most widely spread infections in Russia are E. coli bacteria, Gumboro disease, bronchitis and Newcastle disease. Many poultry farms in Russia are unable to provide adequate veterinary care to poultry herds and cannot comply with federal veterinary and sanitary rules that require farm operators to immunize poultry against these infections.

Consumption

Consumption of poultry meat is expected to remain flat in 2009 compared to more rapid 8 per cent growth in domestic production. This is due, in most part, rising retail prices for both domestic and imported poultry as well as to government measures aimed at lowering import volumes of poultry in 2009.

Turkey meat consumption has increased in recent years in Russia but is expected to drop 17.5 per cent in 2009. This is due, in large part, to high retail prices and a decrease in imports caused by strong dollar and stricter government measures to assure declaration of full customs values.

Although domestic poultry production is forecast to rise 8 per cent in 2009, the poultry supply is expected to remain decrease slightly in 2009 due a significant drop in import volumes.

Trade

Poultry imports into Russia decreased from 1.287 million MT in 2007 to 1.218 million MT in 2008, while the value of imports significantly increased from $1.052 billion to $1.339 billion. The overall 2009 TRQ volume for poultry was lowered to 952,000 MT from 1.252 million MT.

The 2009 US quota allocation for poultry was cut from 931,500 MT to 750,000 MT for 2009. Duties were sharply increased on out-of-quota poultry imports as well to 95 per cent but not less than €0.80 per kg from of the previous rate of 40 per cent but not less than €0.32 per kg.

The current livestock environment in Russia makes imported broiler meat an attractive source of animal protein for consumers. Cattle production has not yet begun to significantly recover in Russia and pork production growth is still below Ministry of Agriculture expectations. Rising feed prices are slowing investments in the domestic broiler industry as well.

In 2008, broiler cuts in relation to total poultry imports reached 84 per cent; whole birds, 7 per cent; and turkey cuts, 8 per cent (compared to 82.5 per cent, 8.5 per cent and 8 per cent, respectively, in 2007). The US share of total poultry imports (HS 0207) was 62.4 per cent; Brazil, 22 per cent and Germany, 7 per cent (compared to 60.4 per cent, 23.4 per cent and 6.8 per cent, respectively, a year earlier).

Total turkey imports decreased 9.5 per cent in 2008 in comparison with previous year figures. France (34 per cent), Brazil (20 per cent) and Germany (15.8 per cent) were the largest exporters of turkey cuts to Russia while the United States and Belgium also exported significant quantities (15.4 per cent and 9 per cent, respectively).

Food Prices Are Skyrocketing

The Russian Statistics Agency (Rosstat) announced that the annual inflation rate hit 13.3 per cent in 2008 (11.9 per cent in 2007) with growth in food prices as a primary contributor.

This was the highest annual inflation growth rate since 2002 when consumer prices increased 15.1 per cent. Retail prices of meat and poultry increased in Russia by more than 23 per cent in 2008 while the average growth of all food prices increased by nearly 18 per cent. In January 2009 alone, food prices jumped 2 per cent, leading many Russian government officials to admit publicly that rising food prices could threaten stability in the country.

According to some recent forecasts by Rosstat officials, prices for imported food products and components from which food products are produced in Russia could grow by up to 20 per cent in 2009. Prominent Russian government officials have called for steps to be taken that would 'destroy the monopoly that exists in Russian retail and food processing sectors; stimulate domestic food production; and find alternatives trading partners that could supply cheaper foods as quickly as possible'.

Representatives of grocery store chains stated in an industry meeting held in early February 2009 that retail food prices could grow as much as 25 to 45 per cent by the end of 2009. According the retail sector members, the causes for price growth include the devaluation of the ruble, the large number of intermediaries in the production chain and measures taken by numerous regions within Russia that prevent product from other regions to enter their markets. Another significant cause of higher meat prices is linked to the Russian Customs Service's new list of minimum declaration prices for custom clearance. The list was prepared last summer when actual prices were high. Since then, prices have significantly decreased in exporting countries but importers are not permitted to declare actual lower prices through Customs.

Rosstat figures demonstrate that disposable income grew just 2.7 per cent in 2008, after jumping 12.1 per cent in 2007. Poultry and meat price growth in 2008 were the most significant when compared to 2007 figures.

Ministry of Agriculture officials believes that high prices will improve compatibility and profitability of domestic meat and poultry producers. It previously accused imported meat of driving down farm-gate pork prices, and expressed the need for serious measures to limit meat imports. A major cause of concern was the potential for weakening pork and poultry prices to harm the ability of new producers financed under the National Priority Project for agriculture to repay their loans.

Policy

Russia's chief negotiator for World Trade Organization accession, Maksim Medvedkov, remains optimistic that Russia may complete talks on joining the World Trade Organization (WTO) by the end of 2009. Mr Medvedkov also stated in a recent press conference that he believes that progress is being made in talks on Russia's accession. To date, Russia has signed WTO protocols with all WTO members that wished to hold bilateral talks excluding Georgia. In addition to bilateral talks, Russia has yet to complete multilateral WTO negotiations although much progress has been made during the last year. The next round of multilateral discussions took place in Geneva in March 2009.

Tariff-rate quotas (TRQ) on beef, pork and poultry meat imports for 2009 were modified after Russian officials held consultations with major trading partners in late 2008. The Russian government issued Resolution #918 in December 2008 on temporary import duties for certain varieties of beef and pork. Duties were sharply increased on imports of pork and poultry meat that exceed the tariff rate quotas in 2009, but lowered the duty on over quota beef imports. The over quota duty on chilled and frozen beef was lowered on 1 January to 30 per cent but not less than €0.30 per kg, pork imports exceeding the quota increased from 40 per cent but not less than €0.55 per kg to 75 per cent but no less than €1.50 per kilogram. The duty on poultry imports exceeding the quota increased to 95 per cent but not less than €0.80 per kg from the previous rate of 40 per cent but not less than €0.32 per kilogram. Meat market analysts are worried that the new measures may result in higher domestic prices for pork and poultry products.

Pork and poultry import TRQ volumes were also changed. The quota amount for poultry imports decreased to 531,900 MT from 502,200 MT by including trimmings (29,700 MT) in the quota which were listed in a different category in 2008. The share of US pork quota allocation for 2009 increased to 100,000 MT from 50,700 tons. Negotiations will be conducted with major trading partners to decide what mechanism will be established for meat imports after 2009. Russian officials have not ruled out extending the current tariff rate quota system but its future after 2009 still remains uncertain. Representatives of the Ministry of Economic Development (MED) have stated in the past that Russia may change its policy on meat imports after it joins the WTO. In 2010, Russia has the option of switching from quotas to tariffs, which would effectively increase the level of protection in the domestic meat market. Commenting on proposals to eliminate the country allocation principle for distributing meat quotas, an MED representative said that this mechanism fully complies with WTO rules. He also added that this may be source of friction at future negotiations.

Conference held to discuss meat imports after 2009

A conference titled, 'Regime of Meat Imports Regulation for 2010 and Following Years', took place in late January 2009 and was headed by former Minister of Agriculture, Aleksey Gordeyev. Participants included representatives of the Russian Meat Union, the Union of Meat Suppliers, the Russian Poultry Union, the National Meat Association, the Russian Union of Pork Producers, the Russian Union of Industrialists and Entrepreneurs and the Association of the Russian Poultry Market Operators joined the discussion on developing a new policy on meat and poultry imports after 2009.

Mr Gordeyev noted the necessity of 'maintaining the current quota regime', which helps investors and market players better forecast the situation with more precision. At the same time, Mr Gordeyev believed that planning a TRQ distribution system should include all meat varieties and their volumes and should not be longer than a three-year period (2010-2012).

"We need to establish such proportion of domestic and imported meat products that would enable us to resolve the issues of Russia's food security with consideration of changing global economic situations and influences of the world financial crisis," Mr Gordeyev stated.

According to the Minister, the 'first fiddle' in ensuring such balance exists in Russia's meat market 'should be played by the business community, which should share not only the high level of professionalism but also responsibility for proposed measures with us'.

Hygienic requirements for food additives amended and changed

Russia approved amendments and changes to hygienic requirements for food additives. The new requirements are stipulated in SanPiN 2.3.2.2364-08 Amendments and Changes #1 to the Sanitary and Epidemiological Regulations SanPin 2.3.2.1293-03 Hygienic Requirements for Use of Food Additives. The original requirements were registered at the Ministry of Justice of Russia in 2003. The new hygienic requirements for food additives became effective on 1 August 2008.

Chlorine ban postponed

On 2 June 2008, Russia's Chief Medical Officer, Gennadiy Onishchenko, signed Resolution #33, 'On Production and Circulation of Poultry Meat'. The resolution prohibits water-based solutions used to handle poultry carcasses that contain chlorine in amounts exceeding the hygienic requirements for drinking water, scheduled to take effect on 1 January 2009.

However, on 4 December 2008, Mr Onishchenko issued Resolution #66 that postponed the enforcement of clause 1.1 of the Resolution No. 33, which prohibits the common industry practice of using chlorine in antimicrobial washes to kill surface food borne pathogens such as Salmonella and E. coli, until 1 January 2010. If implemented, the new chlorine maximum residue level will be one hundred times more stringent that the current level set in Russian regulation for poultry production.

Under Russia's current requirements, the free chlorine content in water used for chilling poultry may not exceed 50 milligrams per cubic decimeter (50 parts per million). For more details on current Russian requirements, click here.

Mr Onishchenko publicly stated that he was forced to sign this resolution due to 'scientific data that current permissible chlorine level is poisonous to human health'. No scientific data showing that the current set level of 50 milligrams per cubic decimeter was harmful to human health was provided to the press or to interested parties that requested this information. Mr Onishchenko contends that chilling poultry meat with water containing chlorine creates on the surface and in deep muscle tissue by-products from the oxidation of free chlorine that are hazardous to human health. In addition, the resolution also limits the liquid of thawed poultry meat to 4 per cent of the product weight.

The Russian Poultry Union expressed its desire to restrict the chlorine treatment and liquid content of poultry carcasses in April 2008 as it would effectively block all US exports of poultry to Russia. To this end, it published technical regulations entitled 'On Requirements for Poultry Meat: Derivatives, Production, and Distribution'. These regulations seek to prohibit the use of chlorine for antimicrobial treatment and limit the presence of liquid in thawed poultry meat. Approving new technical regulations, however, is a slow process as it must go up the bureaucratic ladder to the top. Apparently Mr Onishchenko pushed Resolution #33 in an effort to expedite the adoption of these measures through normal channels. Resolution #33 in Russian text can be found at the Federal Service for the Protection of Consumer Rights and Human Well-Being web site (click here).

Further Reading

- You can view the full report by clicking here.


March 2009