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Russian Federation: Poultry and Products Semi-Annual Report 2011

by 5m Editor
25 March 2011, at 12:00am

There is likely to be a net reduction in 2011 poultry consumption accompanied by higher retail prices for cuts and processed poultry, according to Morgan Haas and Mikhail Maksimenko in a GAIN report from the USDA Foreign Agriultural Service subtitled 'Consumption Falls as Production Unlikely to Compensate for Reduced TRQ in 2011'.

Summary

The 350,000-MT poultry TRQ for 2011 will decrease Russian broiler imports 40 per cent compared to 2010. High feed prices, constrained poultry processing capacity, and flat farm-gate poultry prices will slow investment and production growth in 2011. The result will likely be a net reduction in 2011 poultry consumption, accompanied by higher retail prices for cuts and processed poultry. Furthermore, USDA-Moscow adjusted its historical PS&D estimates since the beginning of the data series to reflect revised assumptions in estimation methodology.

Poultry Meat Production

According to the Russian Union of Poultry Producers (RUPP), 2010 poultry production totalled 2.9 million metric tons (MMT; slaughter weight), which exceeds the 2009 level by 275,000 metric tons (MT), and represents 40 per cent of all domestically produced animal protein.

Broiler production

Domestic broiler production is expected to increase nine per cent in 2011, compared to 12 per cent in 2010. Low grain yield and high grain prices are contributing to rising feed costs and hurting profits and new investment in the broiler industry. As a result, RUPP has demanded more government assistance in controlling grain prices in addition to more protection from imports.

In 2010, the poultry industry attracted 65.1 billion rubles (RUB; US$2.16 billion) in investment, including RUB48.8 billion ($1.63 billion) financed with credit. Respectively, these figures were 35 per cent and 26 per cent higher than 2009. The majority of this investment credit is subsidized from state and regional budgets.

Russia's Poultry and Poultry Products magazine reports slaughter and processing facilities have had difficulty absorbing the production growth in recent years. In order to allow further production growth, the Ministry of Agriculture put forward the Program 'Development of Poultry Breeding in 2010-2012 and until 2020', which envisions the renovation and new construction of slaughter and processing facilities in order to add an additional 7,800MT of poultry slaughter capacity per shift. Renovated facilities will contribute 4,100MT and new constructions will contribute 3,620MT.

Also according to RUPP, the five largest poultry producers are as follows: Prioskoliye (353,000MT, 15 per cent of Russian poultry production); Cherkizovo (173,000MT; 7 per cent); Belgrankorm (148,000MT; 6 per cent); Prodo-Trend (147,000: 6 per cent); Belaya Ptitsa (73,000; 3 per cent). Prioskoliye declared construction of poultry facility of 90,000MT production capacity (live weight) and RUB8.5 billion ($280 million) worth in Tambov oblast. Cherkizovo plans to build a poultry production facility in Lipetsk oblast. After the project is launched, Cherkizovo's poultry production will total 230,000MT in eight years. The new production facility will consist of a hatchery, 336 poultry raising houses, slaughter and processing facilities and a feed mill. The project value is about RUB18 billion ($600 million), 80 per cent of which will be subsidised bank loans. Rusagro plans to build a poultry production facility of 100,000MT poultry annual production (live weight) in Tambov oblast. The projected production capacity is about RUB18 billion ($600 million). Chelyabinsk oblast will support construction of four poultry establishments and will allocate RUB 5.5 billion ($180 million) into it. It will help the region to double poultry production to 340,000MT live weight annually after the project is launched.

Turkey production

Turkey production will grow 45 per cent in 2011, compared to 100 per cent growth in 2010. High feed prices will keep production growth at a slower pace in 2011. Russian turkey breeders plan to increase turkey production to 122,000MT by 2012 as heavy investments are coming into this industry.

At the beginning of 2010, Russia's Poultry and Poultry Products magazine reported the largest turkey producers were as follows: Eurodon, Krasnobor, Krasnobor_N, Sibirskaya Guberniya, M. Gaufuri, Zadonskaya, Egoriyevskaya, Poshekhonskaya and Mars. Eurodon has since started producing turkey hatching eggs in Rostov oblast on the scale of 6.2 million eggs annually. Eurodon also plans to build a facility with 60,000MT (live weight) production capacity in Rostov oblast by 2012, valued at RUB18 billion ($600 million).

Table 1. Russia: broiler production, supply & demand ('000 MT; ready-to-cook)
Poultry, Meat, Broiler - Russia 2009 2010 2011
MY Begin: Jan 2009 MY Begin: Jan 2010 MY Begin: Jan 2011
USDA Official New Post USDA Official New Post USDA Official New Post
Beginning Stocks 54 54 32 32 31 31
Production 1,790 2,058 2,000 2,312 2,125 2,520
Whole, Imports 41 41 15 22 15 8
Parts, Imports 872 872 460 596 585 367
Total Imports 913 913 475 618 600 375
Total Supply 2,757 3,025 2,507 2,962 2,756 2,926
Whole, Exports 1 1 0 1 0 2
Parts, Exports 6 3 10 4 2 6
Total Exports 7 4 10 5 2 8
Human Consumption 2,718 2,989 2,466 2,926 2,720 2,886
Other Use, Losses 0 0 0 0 0 0
Total Dom. Consumption 2,718 2,989 2,466 2,926 2,720 2,886
Total Use 2,725 2,993 2,476 2,931 2,722 2,894
Ending Stocks 32 32 31 31 34 32
Total Distribution 2,757 3,025 2,507 2,962 2,756 2,926
Note: New Post estimates incorporate a new methodology of calculation in this report; use caution when comparing to USDA Official figures.


Table 2. Russia: Turkey production, supply & demand ('000 MT; ready-to-cook)
Poultry, Meat, Turkey - Russia 2009 2010 2011
MY Begin: Jan 2009 MY Begin: Jan 2010 MY Begin: Jan 20
USDA Official New Post USDA Official New Post USDA Official New Post
Beginning Stocks 3 0 0 0 0 0
Production 40 31 45 62 55 90
Whole, Imports 0 0 0 2 0 0
Parts, Imports 41 41 25 33 10 10
Total Imports 41 41 25 35 10 10
Total Supply 84 72 70 97 65 100
Human Consumption 84 72 70 97 65 100
Total Dom. Consumption 84 72 70 97 65 100
Total Use 84 72 70 97 65 100
Ending Stocks 0 0 0 0 0 0
Total Distribution 84 72 70 97 65 100
Note: New Post estimates incorporate a new methodology of calculation in this report; use caution when comparing to USDA Official figures.

Feed Supply

Some domestic poultry producers are having difficulties coping with feed prices, which have increased 200 to 300 per cent since January 2010. Producers indicate this translated into production costs growing about RUB10 per kilo of meat.

In December 2010, RUPP appealed to the Russian government (GOR) requesting subsidies for domestic poultry producers be included in the 2011 budget. The funds would be used to reimburse the poultry industry for feed costs in the first half of the year at the amount of about RUB5 per kilo of poultry meat (live weight). The industry feels that without direct subsidies the prices for poultry meat will increase, customers will decrease poultry consumption, poultry farms will reduce production, and some of them may go bankrupt by the summer of 2011. The GOR has not yet responded to this request.

To combat feed prices, the GOR has moved forward with plans to sell and distribute grain from the state intervention fund. The plan calls for the sale of 2.5MMT of grain from the intervention fund on the grain stock exchange. Sales started on 4 February 2011, and caused prices to decrease to approximately RUB6,150 per MT for barley from RUB8,800.. By the end of June 2011, the GOR plans to distribute 900,000MT of grain at reduced prices for meat and poultry producers. As an additional measure of support, the GOR has also lowered the freight rates for the transportation of grain and soybeans.

Trade

Imports Russia continues to increase protection of its domestic poultry industry from imports with stricter tariff and non-tariff barriers that come into effect each and every year.

The overall decline in 2010 poultry imports was caused not only by the reduced quota but also by the chlorine restrictions Russia implemented on 1 January 2010 that shut out the United States for three-quarters of the year. As a result, Russia imported only 79 per cent of the 780,000MT TRQ. Imports were further restricted for 2011 when the GOR lowered the 2011 TRQ volume to 350,000MT from the earlier announced MDM from Europe to Russia at over-quota duty rates (80 per cent, but not less than €0.70 per kilo). Restricted quota access and high prices will continue to support this activity throughout the year and into the future. An additional 15,000MT quota Russia has provided for Belarus will likely replace a large portion of the imported whole birds previously sourced from Brazil.

In 2010, broiler imports decreased 22 per cent by volume and 20 per cent by value at the same time to 618,000MT and $822 million respectively. Broiler cuts accounted for 95 per cent of the broiler meat shipped to Russia. The United States, Brazil, Germany and France were the largest broiler exporters to Russia. They shipped, respectively, 294,920MT, 137,468MT, 90,586MT and 24,984MT of broiler meat in 2010.

Turkey meat imports decreased 12 per cent by volume and two per cent by value in 2010 compared to 2009. quantity of 600,000MT. While RUPP generally favours the elimination of the poultry quota, not all poultry producers/processors or GOR officials believe Russia can do without imports. Due to consumption patterns, Russia will remain an attractive market for poultry imports for the next several years, particularly for affordable and frozen poultry cuts that do not compete against domestically produced chilled whole birds.

In 2011, a smaller and redefined poultry TRQ will focus imports more than they have in the past on chicken leg quarters and mechanically deboned meat (MDM). While large shipments of chicken leg quarters imported at the end of 2010 continue to work their way though inventory in the first quarter of 2011, imports are expected to pick up again in the summer. A new trend witnessed so far in 2011 is the profitability of exporting.

Exports

Broiler meat exports will increase to 6,000MT in 2011 from 4,000MT in 2010. Total Russian poultry exports increased to 19,167MT in 2010, three-fold compared to 2009. Most exports are represented by chicken paws to Hong Kong and Viet Nam.

Yelena Skrynnik, Russian Minister of Agriculture, noted that agricultural export development is a strategic area of growth for Russia's agro-food sector. Given the pace of the poultry production growth the GOR and producers are looking to increase poultry exports. At a session of the GOR in November 2010, participants considered measures that should be taken in order to increase state support for exporters and the promotion of Russian poultry products in international markets. Federal executive agencies are looking at potential exports of this product to outside markets, including CIS countries, China, the Middle East, North Africa and South-East Asia.

The Russian and Kazakh poultry producers’ associations met at the end of January 2011 and signed a Memorandum of Cooperation on the possibility of Russian poultry exports to Kazakhstan in 2011, according to the Russian Ministry of Agriculture.

The Russian Ministry of Agriculture continues exploring opportunities to export poultry to Europe and, in its efforts, plans to continue the harmonization of its veterinary and sanitary requirements with the rules and norms of the European Union. Russia is also looking at poultry exports to Canada. In connection, Canadian veterinary authorities will inspect Russian poultry facilities.

Consumption

Poultry consumption will fall in 2011 as production fails to make up for cuts to the TRQ and domestic processors fail to attract consumers at current retail prices. While whole birds continue to saturate the market, consumer demand for processed poultry products is growing rapidly. To satisfy this demand,poultry producers are being encouraged to install processing lines to allow further processing of poultry carcasses.

In order to stimulate consumption, producers believe that the GOR should support poultry demand. It can be in the shape of social food cards, as well as direct payments for low income population.

Stocks

Russian experts believe it is necessary to change the proportion of meat products purchased for Russia's reserve fund in order to support the poultry industry. Supporters led by Meat Union Russia have called for substituting canned white (domestic) chicken meat for the beef products which have been traditionally purchased by the GOR. The Russian Government is currently considering such a measure.

Prices

Inflation for meat and poultry products in Russia has been relatively low compared to past years. Due to high feed costs, the retail market received short-term price relief from accelerated slaughter rates from red meat producers in 2010, and the rush of imports at the end of 2010 will steady the market with inventory through the first quarter of 2011. However, price growth is expected to return in the second quarter of 2011 as a consequence of earlier herd culling and as supplies imported under the 2010 quota are consumed.

Average farm-gate prices decreased 2.5 per cent by the end of 2010 year on year, while processers and retail prices increased 2.0 per cent at the same time. However, the real market participant that was pinched in 2010 was the processor that does not raise poultry. As witnessed in 2009 when credit problems squeezed purchase orders, the GOR's restrictions against US poultry severely handicapped the market of necessary supply and drove up raw material prices until product began arriving in large volume in October. Even then, many individuals were forced to import product at losses just to retain historical quota share for future years. In the end, only large, fully integrated domestic producer/processors benefited from the GOR measures on chlorine.

Reduced supply of chicken leg quarters, most of which come from the United States, brought about significant volatility in 2010. Prices rose from RUB90 per kilo ($3.00) in the spring to RUB130 ($4.30) by the end of the summer. Following the resumption of US poultry exports at that time, prices remained volatile and importers generally lost money in an attempt to retain quota share for future years.

Further Reading

- You can view the full report by clicking here.

March 2011