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Russian Federation - Livestock and Products - Livestock Semi-Annual Report - 2009

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

Pork production is expected to increase 4 per cent in 2009, due in most part to large investments in swine production in 2007-08, higher reproductive yields and government measures to curb imports. The pig crop is expected to increase by 4.3 per cent in 2009 and will equal 43.6 million pigs. These are the forecasts in the latest GAIN report from the USDA Foreign Agricultural Service.

Executive Summary

Pork production is expected to increase 4 per cent in 2009, due in most part to large investments in swine production in 2007-08, higher reproductive yields and government measures to curb imports. This growth 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 pig crop is expected to increase by 4.3 per cent in 2009 and will equal 43.6 million pigs.

Red meat imports reached 1.6 million MT in CY 2008 – up 12.3 per cent by volume compared to 2007. The total value of these meat imports was $4.86 billion in 2008 compared to $3.4 billion a year earlier. Retail prices of meat and poultry increased in Russia by more than 23 percent in 2008 while the average growth of all food prices increased by nearly 18 per cent.

Russia and the United States have successfully negotiated health protocols for live cattle, live pigs, live horses and bovine embryos in 2008 and just recently completed negotiations for animal hides and skins and pet food. Veterinary certificates for beef and bovine semen have already been negotiated.

Overview

Private plots generate 45 per cent of cattle, 40 per cent of swine and 52 per cent of sheep and goats in Russia. The Russian government approved a new program that will succeed the National Priority Project in agriculture (NPP) entitled 'The State Program for Development of Agriculture and Regulation of Food and Agricultural Markets in 2008-2012' that encourages pork and beef production and attempts to address Russia's declining cattle numbers. This program includes import-substitution policies designed to stimulate domestic livestock production and to protect local producers.

In 2008, the economic environment for swine production was generally favourable. Grain prices dropped significantly thanks to a high grain harvest, which allowed farmers to increase their pig herds. Pork producers have been expressing concern for years about sales after implementation of the NPP as pork consumption is growing at a slower rate than pork production. As a result, the pork sector has been lobbying the Russian government to regulate imports in spite of the meat TRQ agreement.

In 2008, more than 1.6 million metric tons (MMT) of red meat was imported into Russia. A 13-year decline in beef production has resulted in limited beef availability in the Russian market leading to renewed spikes in prices. In response, the Russian government has been force to take steps to increase the availability of beef by decreasing duties on imported products and is looking to Latin America for higher volumes. Feed stocks decreased slightly in 2008 compared to the previous year but are expected to increase in 2009 thanks to a record grain harvest.

The Russian pig crop is expected to increase by 4.3 per cent in 2009, while cattle herds are predicted to decrease by 3.5 per cent. Some meat market analysts predict that by 2012, as new and modernized pig farming complexes reach planned capacity, pork production could reach 3.5 MMT – up 75 per cent from 2008 estimates.

According to the Russian Statistics Agency (Rosstat), approximately one-third of all Russian 'large farms' are unprofitable. Many of these are involved in livestock production. Small, inefficient producers are uncompetitive and have already begun disappearing from the market.

The Russian veterinary service continues to play a decisive role in meat import supply management. Since June 2008, the Russian veterinary service has delisted over a hundred US and EU pork and beef facilities, ostensibly for not meeting all Russian veterinary requirements.

Production

Pork production is expected to increase 4 per cent in 2009, due in most part to large investments in swine production in 2007-08, higher reproductive yields and government measures to curb imports. This growth is directly related to the distribution of credit subsidies as laid out by the National Priority Project in agriculture as well as government imposition of import restricting policies. Before the economic crisis, some meat market analysts predict that by 2012, as new and modernized pig farming complexes reach planned capacity, pork production in Russia would reach 3.5 MMT – up 75 per cent from 2008 estimates. Currently, many of these experts admit that under the current economic conditions, it will be difficult to maintain even the current 4 per cent forecast.

The pig crop is expected to increase by 4.3 per cent in 2009 and will equal 43.6 million pigs. Under the now expired NPP, 114 new pork production facilities were built and are expected to raise domestic pork production (live weight) by 950,000 tonnes in 2009 (in comparison to 2005 numbers). Many of these new pork facilities feature foreign equipment and greater demand for imported pedigree hogs. The 2008 pig crop forecast was increased slightly since the previous forecast due to slighter better than expected reproductive yields. The forecast for pork production was also revised and increased by 1.5 per cent. This represents a 6 per cent increase overall in 2008 from normal slaughter weights and higher reproductive yields.

The average farm-gate price for pork increased almost 20 per cent compared to the previous year while the average farm-ate price for cattle increased 8.5 per cent. The largest price growth in the last decade occurred from 1999-2002. The farm-gate price growth seen in 2006-2008 was not as dependent on world prices that fluctuated during that time span.

Consumption

Per capita pork consumption is expected to decrease in 2009 due to new government measures aimed at limiting the amount of imported pork shipped to Russia. In late 2008, Russia announced an increase to out-of-quota pork imports that is expected to drastically cut imports outside of the country allocated TRQ. If prices continue to grow at current rates, pork consumption is expected to fall even further as consumers will switch to cheaper sources of protein such as poultry meat and eggs. Moscow city government officials recently announced that the 'corrective actions' will be taken to combat rising meat prices and keep consumption levels from decreasing any lower. Details have not been released.

Stocks

Stocks of meat are sufficient for retail trade but are beginning to get low for processing.

Development of livestock production in Russia has increased demand for protein feeds. Russia's imports of soybeans and soybean meal subsequently skyrocketed, thereby suggesting that demand for biotech feed products is also growing. Russia imported 215,259 tonnes of soybeans from July 2007 through March 2008, compared with only 2,333 tonnes in the same period of the preceding year.

There are no specific bans on importing biotech products. The Federal Veterinary and Phytosanitary Surveillance Service (VPSS) of the Ministry of Agriculture registers biotech feed-use crops. VPSS developed and adopted new registration procedures reportedly similar to an earlier protocol used in 2004. Registration for feed use still expires after five years.

Prices of feed and feed ingredients increased rapidly in the autumn of 2007 and through spring 2008. As a result, the Ministry of Agriculture issued Order #437 entitled 'Concerning Feed Subsidies for the State Support of the Major Agricultural Industries' on 6 October 2008. Swine breeders will receive a compensation subsidy of 10 rubles per kilo live weight for pigs produced and shipped for slaughter from January–June 2009.

Trade

Russian statistics indicate that red meat imports totaled more than 1.6 MMT in calendar year 2008. This figure increased 12.3 per cent by volume compared to 2007, according to the Russian Customs Service. The total value of these meat imports reached $4.86 billion in 2008 compared to $3.40 billion a year earlier.

Russian pork imports increased 18 per cent in 2008 in relation to the previous year. In calendar year 2008, fresh and frozen pork imports totaled 790,955 tonnes – roughly 31 per cent of which came from Brazil. Other major suppliers of pork to Russia include the United States (20 per cent), Canada (13 per cent) and Denmark (8.7 per cent). Approximately 70 per cent of total pork imports were boneless pork, 15 per cent carcasses, 9 per cent bone-in cuts, 4 percent fresh cuts boneless and 2 per cent fresh carcasses.

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 publicly admit 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 25-45 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.

Increasing beef and pork prices will likely lead many Russian consumers to substitute these items for other forms of protein such as poultry and eggs assuming prices do not increase much higher than current prices. Demand for pork meat has been dropping steadily over the last few months and is significantly lower than for poultry meat. Some importers have switched from purchasing expensive pork cuts to lower-priced pork meat/offals, which are growing more and more popular these days with Russian consumers. With rising demand for poultry in 2009, prices are expected to increase for this commodity both domestic and imported. At the same time, real income grew only by 2.7 per cent in 2008, which is expected to lower overall consumption of meat and poultry in 2009.

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 will take 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 January 1 to 30 percent but not less than €0.30 per kilo, pork imports exceeding the quota increased from 40 per cent but not less than €0.55 per kilo to 75 per cent but no less than €1.50 per kilo. The duty on poultry imports exceeding the quota increased to 95 per cent but not less than €0.80 per kilo from the previous rate of 40 per cent but not less than €0.32 per kilo. 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 pork imports increased to 531,900 tons from 502,200 tons by including trimmings (29,700 tonnes) 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 tons 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.

State subsidies for agricultural production totaled 79.6 billion rubles ($2.22 billion) in 2008. Eighty-two new hog operations received subsidized credit in 2008 while 80 existing hog facilities used credits to renovate their operations. This increased production by 244,000 tonnes of hogs. First Deputy Prime Minister, Viktor Zubkov, recently announced that hundreds of meat and livestock projects that started in 2008 would be completed as planned and that projects calling for construction of new livestock farms are currently under consideration. Growth in domestic meat production in the last three years outpaced growth in imports two to one, he added.

Mr Zubkov stated in January 2009 that implementation of livestock programs should be closely monitored by Russian government officials given the situation of the financial markets.

"Progress in implementing new and existing investment projects to build poultry and hog plants must be kept under permanent control by the Russian government. Special attention should be paid to beef cattle breeding: its genetics should be improved, share of cattle in total beef production should be increased, and appropriate feeding should be organized," he said.

Detailed discussions of the effectiveness of State support and subsidized credit as well as issues regarding meat processing, retail trade and customs will be considered at an expanded meeting of regional leaders, sector associations and meat producers and processors in March 2009.

Conference on Meat Imports Held to Discuss Meat Imports After 2009

A conference entitled 'Regime of Meat Imports Regulation for 2010 and Following Years' took place in late January 2009 and was headed by 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 for "maintaining the current quota regime", which helps investors and market players better forecast the situation with more precision. At the same time, Mr Gordeyev believes 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 underlined.

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.

Further Reading

- You can view the full report by clicking here.


March 2009