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Market Problems could be resolved if Producers Focused on Meat Quality

by 5m Editor
30 April 2007, at 10:45am

Russia - National Meat Association Head Sergey Yushin has identified several problems due to the Russian National Priority Project for accelerated development of the livestock sector. A key issue is the immense difficulty marketing low-quality pork and as a result the complications for producers and investors in repaying loans taken out to expand pork production, Pork prices are falling.

Yushin says that after briefly enjoying windfall profits due to imposition of tariff rate quotas on meat imports, the Russian market has dropped considerably and pork producers now face lower prices and reduced demand. Since the middle of last year in most regions the price of pork has fallen by an average 30%.

Profitability has dropped sharply and because typical small-scale Russian enterprises are not producing pigs of the quality demanded by meat packers, the market development is being stifled. As a result farmers are having immense difficulty repaying loans. He says that the current price level can be managed by large producers with established production – some are even making a profit.

However, for tens of thousands of rural dwellers, who took out loans in the framework of the national project, the situation is depressing. They cannot sell animals they’ve produced even for 35 rubles/kilogram live weight.

Yushin suggests that the only way to reverse the economic downturn is to educate producers about market demands and consumer preferences. Many producers have a limited understanding of market requirements and some even think it unnecessary to produce in accordance to consumer preferences. There attitude is, whatever I produce, you can buy and they are very reluctant to talk to meat packers to find out what specifications are best.

Research by the Gorbatov Meat Industry Institute showed that the share of muscle mass in commodity pigs in different regions of Russia averaged 35-38%. By comparison, the Danes achieve 62-64% meat percentage – much more favourable and economic, says Yushin. Russian pig producers must learn to improve the quality of their animals and the technology is there to help them. If they can do this then there will be significant opportunities for pork production, without creating an oversupply situation.

High prices encourages growth

The first half of 2006 experienced unprecedentedly high prices for slaughter pigs. Prices in Belgorod oblast for a high-quality carcase sold for up to $2.30/kg, whereas European producers could expect no more than $1.60/kg live weight. Also, Russian producers were achieving profits up to six times higher than American pig farmers and this buoyant market encouraged investment and the instigation of a national project to increase pig production.

National Meat Association analysts at that time warned that a price correction was unavoidable in areas where pork production continued to grow rapidly. It said that any expansion needed to be approached cautiously in response to market demands otherwise the market could collapse.

To help manage the situation, mid way through 2006, NMA analysts created a database of planned investments, projected potential growth in production capacity and analyzed the status of primary processing and logistics for the Russian pig sector. The final report produced a three-year forecast of for the Russian pork sector and current market trends have confirmed its relevance.

A national project was set up to embrace the NMA findings and outline some industry targets. However, as prices hit a premium, most pork producers ignored the proposals and jumped ahead of targets. They are now paying the price says Yushin.

There is currently a massive oversupply of live pigs in Russia, but packers are reluctant to buy them. However, there is significant evidence to show that high-quality pork cuts, ready for processing and retail sales are in very short supply. If producers re-focussed production and started to produce higher quality pigs, then they could access better prices and so improve their margins considerably.

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5m Editor