Report Highlights:

Russian poultry production is forecast to increase even faster than previously expected in 2005, growing by 12 percent. The poultry quota and high prices on other meats in 2005 will continue to support high producer investment and increasing production over the medium term. Trouble in administering the poultry quota in the first quarter will again lead to less than complete quota fill in 2005.

Executive Summary

Russian poultry production is forecast to grow even faster than expected in 2005 as the quota and high prices on other meats support significant producer investment. Moreover, trouble in administering the poultry quota in the first quarter will again lead to less than full quota fill in 2005. However, the high domestic prices on meat will likely also benefit imported poultry and keep demand for imports strong.

Production

Russia’s poultry production forecast for 2005 was raised by three percent, to 725,000 MT, compared to the previous report. Poultry production grew thanks to steady investment in production and processing facilitates, the rising price of competing meats, and continued introduction of new, processed poultry products. The production forecast for turkey remains same as in the previous report, 17,000 MT.

Growing Strength of State Unitary Enterprises

Russian poultry producers are mostly represented by facilities of two types of ownership – privately owned and “the State Unitary Enterprises” (SUEs). Being partially or wholly financed by local/regional governments, SUEs promote even stronger state support of domestic producers, including direct subsidization, lowering prices on fuel and electricity, and further restricting imports. They receive preferences from the local governments including lower taxes, limiting competing products from other regions, low-interest loans, and direct investment. Generally these establishments are less efficient than privately owned companies, but represent a growing voice in the industry.

Feed supplies

Total feed supplies were lower in 2004 in comparison with 2003, but decreasing cattle numbers kept this situation from becoming a crisis. The feed efficiency and purchasing power of Russian poultry producers continues to confer it short-term allocation advantages over other domestic meat sectors.

National/religious types of poultry products

Russia’s poultry producers are beginning to diversify poultry production in order to attract more customers. Recently, producers introduced both halal and kosher poultry production methods. positively influenced consumption of poultry products. Unless there are significant changes in the industry structure or import regime, we expect that poultry production will continue to enjoy the top position as the area for new domestic production growth and investment.

Trade

The problems administering the 2004 quota and disease outbreaks dominated the trade of poultry products in 2004 and may be a factor again in 2005. As of January 27, the Russian Federation had not published all the official resolutions for the 2005 quota to start. Thus, for the second year in a row, the Russian poultry quota will be significantly less than the full 12 months. However, the 2005 import forecast was increased slightly because the high prices for other meats should be beneficial to both domestic and imported poultry. For additional information on trade issues, see GAIN reports RS4057, RS4068, and RS5002.

Policy

On January 11, the Russian Government published the resolutions that renew the poultry quota and beef and pork tariff rate quotas (TRQs) for 2005. The poultry quota remains in place for 2005 and its volume will be 1.05 million metric tons (MMT), of which the United States is allotted 771,900 MT. The poultry quota was unchanged in terms of overall volume, country allocation, and administration. Please see GAIN report RS5002 for a full translation of the resolution.

Russian trade policy in general had a significant impact on the poultry and meat markets during 2004. For complete details, reference GAIN report RS4068.

Future of Market Protection

The future of protection for the poultry industry is going to be the largest area of debate in 2005. The current quota ends in April 2006 and the industry is already devising ways to try to influence the government’s future actions in prolonging some form of protection. Unlike the beef and pork tariff rate quotas, the poultry quota is a quota based on a safeguard investigation. As such, Russian law provides for only a limited extension if the industry can successfully claim injury from imports. As additional injury from imports seems an unlikely case for such a prospering business, many industry leaders are looking at the two-tier TRQ structure used for beef and pork as a way to continue protection. These TRQs were merely legislated and not based on more formal protective measures resulting from safeguard or antidumping cases. Based on news reports and industry discussions, the poultry industry is likely to push the Russian Government to convert the quota into a TRQ after its three-year mandated period of protection expires. At this point, the government has discussed this issue publicly.

However, at an annual press conference in the Kremlin on December 23, President Vladimir Putin said that care needs to be taken in approaching import quotas. He noted the increase in consumer prices in the second half of 2004, especially for meat and gasoline. “This is a worry,” he said. He acknowledged that introducing quotas for poultry imports has led to modern poultry farms and while, “this is a pro, the people (consumers) have paid for it.” He stated that the government will continue to support and protect domestic producers from the expansion of imports, but will do so in a way that the “consumer does not suffer.” Support will be provided with market methods, including cheap loans and aid in resolving administrative issues, such as taxation.

Consumption

Poultry meat consumption by the Russian customers is increasing, though remains depressed due to the import quota. Stable poultry imports in the second half of 2004, growth of domestic production, and the increased gap between poultry and red meat prices has Russia To Introduce New Voluntary Labeling on July 1 The Russian Federation Committee on Standards and Metrology recently published voluntary standards to be used for food labeling in Russia. These standards will go into effect officially on July 1, 2005, but many food processing companies have stated that they will begin using them as of January 1, 2005. Though voluntary, these labeling standards can apply to either domestically produced or imported food products. For more details, see GAIN Report RS4065.

VAT

The Russian Government plans to submit an amendment to the value added tax (VAT) section of the tax code in February 2005. It proposes to reduce the VAT from 18 percent to 15-16 percent and at the same time to exclude all exemptions, including those for meat and poultry products, for imported and domestically produced foods. Meat and poultry currently have a lower VAT (10 percent) because on an exemption for “socially important foods.”

Marketing

Russia’s sophisticated and comp etitive retail sector is booming thanks to six straight years of strong economic expansion. According to official sources, total retail turnover in 2003 was $146 billion (including $68 billion for food retail turnover), although unofficial estimates place total sales at least 50 percent above this level. It is clear that the expanding market has caught the attention of retailers – both local and foreign chains. Experts forecast growth will peak by 2012, so for U.S. exporters of food products for retail sale, the clock is ticking down. As chains expand, quality becomes more important, an advantage for U.S. products. The growing retail sector in Russia must become a factor in U.S. exporter strategy as the traditional markets, where most U.S. poultry is currently sold, slowly give way to large retailers. This will require re-evaluating what products and packaging will satisfy consumers' demand for quality goods.

According to market experts, per capita monthly income in Russia will keep growing and reach $600 in Russia and $1,500 in Moscow by 2012. Per capita income in large Russian cities will increase twofold over the same period of time. This represents a large future growth in consumption of food because of Russia’s large population and suppressed demand. For more information about trends in retailing and the new marketing challenges, please reference GAIN reports RS4317 and RS4318.

Further Information

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