Summary

Attaining self-sufficiency through import substitution is the goal of the Government of Russia (GOR). To this effect, on 30 January 2010, President Medvedev signed Russia's ‘Food Security Doctrine,’, which prescribes Russia to reach 85 per cent self-sufficiency in total meat and poultry by 2020. However, the Ministry of Agriculture has accelerated the goal for poultry to be reached within three to five years, while the Russian Poultry Union considers the feat accomplishable by 2011. Minister of Agriculture Skrynnik more broadly notes that innovation, developing the retail market for food, modernising materials and technology, and developing small business will help further the agriculture's sustainable development. The tariff-rate quota (TRQ) for meat and poultry was extended through 2012, albeit with tighter access restrictions.

Non-tariff barriers remain in place to continue an unpredictable and non-science-based trading atmosphere, including a chlorine ban that currently prevents the United States from shipping poultry to Russia. This is causing increased fragility to slowly rising prices each day the United States remains out of the market. At the same time, since 28 September and as recently as 10 March, GOR officials continue to signal their intentions to move to international standards.

Broiler

USDA-Moscow corrects broiler production from 2008 through 2010 to reflect the Federal Statistics Service (Rosstat) more representative growth estimates, which track total poultry production in slaughter weight rather than solely agricultural enterprises and live weight estimates. It also considered published bird inventories when projecting into the current year. We also take 2009 import totals and consider reduced quota access for 2010. Consumption figures are then adjusted accordingly and further demonstrate Russia?s shift to consider broiler meat an attractive alternative to beef and pork as prices continue to slowly rise for all products.

Turkey

USDA-Moscow revises 2008 turkey production to reflect the recently published industry total. However, it is pessimistic that 20 per cent annual growth is achievable since broiler production remains a more attractive investment alternative. Imports are revised to meet official statistics in 2008 and 2009. We expect 2010 will be a year for consumers to begin rebounding from a disastrous 2009.

Production

Broiler production is the most economically successful industry in Russia in regards to livestock and poultry operations. Almost 97 per cent of poultry produced in Russia are broilers; however, while turkey production is small, it is also growing rapidly. In addition, the Russian Poultry Union also has plans to stimulate the production of ducks and geese. This growth is largely supported by the GOR's activities to not only increase prices through restrictive TRQs but also continuing to subsidise investment for willing investors. These actions are all a part of the larger goal to reach self-sufficiency targets. In 2010, sufficient feed grain stocks and high poultry prices will keep profit margins high and mitigate most lingering financial pressures to stall investment.

Poultry policy

On 30 January 2010, President Medvedev signed Russia's ‘Food Security Doctrine’. The doctrine prescribes Russia to reach 85 per cent self-sufficiency in total meat and poultry by 2020. The Ministry of Agriculture has accelerated this goal to be reached within three to five years although not reflecting it in their balance sheets. However, the Russian Poultry Union even accelerated these estimates, claiming domestic poultry producers should be able to substitute imported poultry by 2011, since Russia has enough grain resources to support the growth.

Subsidies to support agricultural production and rural development will total 97.9 billion rubles (RUB; US$3.3 billion) in 2010, down slightly from RUB99.7 billion ($3.3 billion) in 2009. The State Program of Development of Agriculture and Market Regulation 2008-2012 consumes RUB85.5 billion ($2.9 billion) of this total, of which, RUB79.4 billion ($2.6 billion) is allocated for interest rate subsidies, a 30 per cent increase over 2009 as the GOR hopes to increase producers' access to commercial capital. In total from 2006-2009, Russia invested RUB80.0 billion ($2.6 billion) into the poultry industry.

Minister Skrynnik has indicated interest rate subsidies helped finance the construction of over 250 new dairy, meat and poultry facilities in 2009. On 12 March, the Minister expected the construction and renovation of 124 meat and poultry farms would 646,000 metric tons (MT; live weight) in 2010 production capacity. This is an upward revision from her earlier statements, which suggested plans for 92 farms and an additional 400-500,000 MT (live weight). This earlier figure is thought to have included 23 planned poultry farms totaling 320,000 MT (live weight) but the breakdown of the current plans remain unclear. Also, according to the Ministry's forecast, by 2012, farms built or renovated since 2006 would produce 62 per cent of Russia's poultry meat, 40 per cent of its pork, and 36 per cent of its beef.

GOR subsidised interest rates are not the only subsidy available to new and renovation projects. Just lately, a GOR investment commission considered a number of projects submitted from different regions and selected a large poultry farm to receive RUB435 million ($14.5 million) from the Russian investment fund for infrastructure renovation. In addition to this, the region government will invest RUB89 million ($3.0 million) into the project. In total, RUB4.3 billion ($143 million) will be invested for this renovation. Most of the funding will be sourced from the owners' funds.

The Ministry of Agriculture declared in 2009 that a set of measures should be taken in order to provide meat import substitution:

• to increase profitability of poultry industry, which is lower than the EU regardless of lower resource costs
• to raise efficiency and reduce poultry production costs through modern production and processing technologies
• to increase efficient utilisation of resources allocated from the federal budget
• to support construction of full cycle establishments for meat and poultry production
• to subsidise new and existing investment projects for primary poultry processing establishments (Note: A list of poultry farms to receive government-subsidised loans was developed)
• to create poultry genetic centers, and
• to develop a Poultry Production Development Programme and submit it for approval to the Russian Government in the spring of 2010. (Note: The Ministry is currently preparing documents setting the terms of preparation and financing of the programme. State support will be carried out via subsidies from the federal budget to partially cover loan interest, as well as subsidies for pure-strain stock-breeding and customs and tariff regulation of imports.)

According to a Russian Poultry Union calculation, investment in the poultry industry is more efficient compared to other meats production. Currently, investments are paid back in seven years for new poultry facilities with 55,000-100,000 MT capacity or four to five years for renovated facilities.

Regional implementation

Since many regions did not meet their commitments under the State program for boosting meat production in past years, the Ministry of Agriculture has also indicated its intent to implement strategic planning and strengthen control of how regions meet their commitments on developing agriculture. In 2010, the regions are expected to develop programs that ensure all indicators contained in the State agriculture development programme are met.

In the framework of the Food Security Doctrine, on 18 March 2010, Minister Skrynnik signed an order to begin testing an information and analytical system to monitor federal and regional forecasts of food balances, starting April 2010. National balances will then be calculated on the basis of regional data from the system and compared against Ministry forecasts, and if necessary, adjustments will be made. The system will measure production, consumption per capita, self-sufficiency, price ratios, and actual and predicted production and consumption dynamics.

Broiler production

USDA-Moscow corrects broiler production from 2008 through 2010 to reflect the Federal Statistics Service (Rosstat) more representative growth estimates, which track total poultry production in slaughter weight rather than solely agricultural enterprises and live weight estimates. It also considered published bird inventories when projecting into the current year. As a result, 2008 growth is tempered, and it shows slightly stronger growth in 2009 and 2010, compared to the earlier September forecast. It is foreseen that poultry production growth in 2010 should be near 13.5 per cent, up from 12 per cent in 2009, but still below 15 per cent growth from 2007 to 2008. Vladimir Fisinin, President of the Russian Poultry Union (RPU), which represents Russian poultry producers and suppliers, said poultry production increased 315,000 MT in 2009 and 15 per cent of the growth came from newly built poultry facilities.

The modern poultry producer: agricultural enterprises

Poultry production and its growth is concentrated in large, modern agricultural enterprises. In 2008, these entities accounted for 86.1 per cent of poultry production, while private households and private farms accounted for 13.1 per cent and 6.7 per cent, respectively. That is a stark difference from the livestock sector split virtually 50:50 between private households and agricultural enterprises. That difference has also allowed the poultry industry to adapt quickly to government programmes and investment opportunities in recent years while dairy, beef and pork continue to struggle to duplicate poultry's success. Russia's agricultural institutions also annually publish a list of the 300 best agricultural facilities. As they report, the 100 best broiler establishments produced 79.8 per cent of total broiler production from 2006-2008 and accounted for 81.7 per cent of total revenues as they utilise marketing and thus receive higher prices. Modern poultry operators are also simply more productive. Average gain of the top-100 producers is 45.1 grams/day while others are only 18.1 grams/day.

Broilers crosses

The most popular broiler crosses in the broiler industry are Ross-308 (40.0 per cent market share), Hubbard (39.0 per cent), Smena (13.0 per cent) and Cobb (5.5 per cent). The Russian Poultry Breeding Union considers it necessary that the GOR create genetic breeding centres in order to save nucleus of different types of poultry.

Turkey production

Turkey production is forecast to increase 12.5 per cent in 2010 as investors continue to commit resources to increase production capacity. There are currently about 20 turkey farms in Russia which produced about 45,000 MT of meat in 2009. Turkey producers plan to increase production to 77,000 MT by 2012.

Trade

USDA-Moscow revises our 2010 poultry import forecast to 800,000 MT, including 750,000 MT allotted to broilers and 50,000 MT to turkey, mostly reflective of the reduced TRQ for poultry. Additionally, similar to slightly higher trade flows of quota-exempt and over-quota poultry are predicted, based on a higher price expectations. However, non-tariff barriers such as the chlorine ban will continue to impact the timing and cost of supply for poultry and total animal protein in 2010. Regardless of the GOR's latest statements to consider both science and international recommendations, it continues to defend the chlorine ban, albeit without having provided scientific justification. On the horizon for 2011, a fully implemented ban on frozen poultry for processing could once again threaten imports.

Poultry tariff-rate quota

The GOR established meat and poultry quota quantities for 2010-2012 with Resolution 1021. US country-specific access for poultry decreased from 750,000 MT in 2009 to 600,000 MT in 2010, while total quota access fell from 952,000 MT to 750,000 MT. Duties were decreased on out-of-quota poultry imports to 80 per cent but not less than €0.7/kg from of the previous rate of 95 per cent but not less than €0.8/kg.

Broiler meat imports

Broiler meat is taking a larger slice of the poultry TRQ over the past three years, and FAS sees no reason for this trend to discontinue as broiler meat has the greatest profit margins of poultry shipped to Russia. Imports in 2009 were revised higher on end-of-the-year data and a strong second half, but total imports still fell 20 per cent on the year as the Russian broiler market shrunk, but still totals over $1.0 billion. The EU fared the best of all broiler suppliers, increasing imports 7.8 per cent by volume. Brazilian and Canadian supplies each shrunk by over half, in accordance with the 2009 quota cuts.

Turkey meat imports

USDA-Moscow tempers its previous forecast for turkey imports in 2010, following a poor showing in 2009. Turkey has been crowded out by chicken in the quota, and while improving, consumers' purchasing power remains weak to stimulate substantial growth potential in 2010. In total, turkey imports fell 40 per cent in 2009 but unlike chicken, average unit values actually fell for turkey trade, most likely reflecting consumer?s inability to spend significant sums of income on the more expensive poultry product.

Exports

Russia's plants to export poultry will be easier to accomplish when production costs go down and sanitary constraints are addressed. Regardless, GOR officials and poultry producers continue their plans to start exporting poultry products abroad, and Russia realises it will need to find a consumer for the poultry parts it does not traditionally consume. Two poultry establishments near St Petersburg are currently negotiating with European companies on the possibility of shipping their products to Europe. However, passing European or any other developed-country sanitary norms is likely to be difficult as the Russian food safety system was flagged for several inconsistencies during an earlier 2009 EU observation.

Russia's most reliable export markets have been the republics of the Former Soviet Union but in 2009, exports shot up to Abkhazia and South Ossetia, as well as Vietnam and Hong Kong. In 2009, poultry offal (likely including paws) represented half of Russia?s poultry exports.

Sanitary/Phytosanitary and Technical Barriers to Trade

Resolution 30

On 7 June 2008, Russia's Chief Sanitary Officer, Dr Gennadiy Onishchenko, signed Resolution 30 to prohibit the use of frozen poultry meat for manufacturing baby food, dietetic nutrition and specialised food products for pregnant and nursing women, effective 1 January 2010. It further prohibits the use of frozen poultry meat for manufacturing into any type of food product, effective 1 January 2011.

Resolution 33

On 2 June 2008, Dr Onishchenko signed Resolution 33, which prohibits water-based solutions used to handle poultry carcasses that contain chlorine in amounts exceeding the hygienic requirements for drinking water, and also restricts the water content permitted in frozen poultry to four per cent at thawing. Both measures became effective 1 January 2010.

Resolution 761

On 28 September 2009, Prime Minister Putin signed Resolution 761 ‘On ensuring the harmonisation of Russian sanitary-epidemiological requirements, veterinary-sanitary and phytosanitary measures with international standards’. Specifically, the Resolution charges the Ministry of Agriculture and Ministry of Health and Social Development to target a review of Russian requirements in reference to the recommendations of the World Health Organisation, World Organisation for Animal Health (OIE), Codex Alimentarius and National Plant Protection Convention. Where the Russian norms are found to be without a scientific basis, they are subject to be brought in compliance with the international standards.

In February, Minister Skrynnik pledged to remove excessive veterinary barriers that impede the import of agricultural products to Russia by 1 January 2011. The Minister added she decided to reconsider about 50 veterinary and phytosanitary certificates in order to bring them in compliance with international norms.

On 10 March 2010, Dr Onishchenko signed Resolution 86 ‘On establishing an inter-agency working group for harmonising hygienic norms’. This group is to conduct the review and submit the developed norms for consideration by 20 May 2010. The harmonisation should be done on the basis of a human risk assessment.

Law on Technical Regulation

On 30 December 2010, President Medvedev signed Federal Law 385-FZ, amending the Russian Federal Law on Technical Regulation. These amendments potentially allow business to choose either Russian technical regulations or technical rules and standards based on ‘approved’ foreign standards and norms. The amendments also give the Russian government the authority to introduce, on a temporary basis, the technical regulations of the Custom Union, and norms and rules of the European Union, in the spheres where Russian technical regulations have not been adopted yet. Russian Technical Regulations regarding poultry production and handling remain in draft form but are expected to have highly negative implications for both domestic production and trade if passed in their current state.

Regardless, at their annual meeting in December 2009, Russian poultry producers requested the GOR approve the draft Federal Law ‘On Technical Regulations On Requirements for Poultry, Poultry Meat, Processed Poultry Products, Their Production Process and Handling’. The draft currently remains under GOR consideration and includes similar provisions as laid out in Resolutions 30 and 33.

Lowering administrative and veterinary barriers

On 9 February 2010, the Russian veterinary service (VPSS) issued an order to optimise the inspection and surveillance activities directed at the reduction of administrative barriers. This includes issuance of veterinary documents within one day of request if no laboratory testing is necessary and same day decisions on the sample's necessity. The order also noted veterinary and sanitary inspections of establishments should be conducted within 30 days of request and in accordance with VPSS rules governing import, processing, storage, and transportation.

Developing a uniform veterinary control of the customs union

On 26 February 2010, the Commission of the newly established Russia-Belarus-Kazakhstan Customs Union approved draft documents to unify veterinary and sanitary measures, including:

• a unified list of commodities subject to veterinary control
• unified forms of veterinary certificates
• a unified order of joint audits of commodities and sampling goods, subject to veterinary control in the territory of Custom Union as well as in third countries
• a unified order of caring out veterinary control at the border of the Custom Union, and
• unified veterinary requirements for commodities subject to veterinary control.

In May 2010, the working group on Veterinary and Sanitary Measures will amend the documents and submit them for consideration at the meeting of the Eurasian Economic Community?s Interstate Council (as the supreme authority of the Customs Union).

Consumption

If production targets are met and the chlorine ban is resolved, domestic production growth should keep up with cuts to forecast imports to stabilise consumption and help curb potentially drastic price increases in 2010. Regardless of price hikes, consumer safety is high on the minds of Russians. Consumption is expected to remain relatively flat for broiler and turkey meat in 2010 with some upside potential as consumers start to regain their footing in the economy. While turkey remains the more expensive of the two poultry options, as well a relatively newer product in Russia, it has been marketed over the last few years as a healthy, less expensive alternative to beef, pork, and chicken

Inflation and prices

Inflation totalled 8.8 per cent in 2009, a record low in the post-Soviet era, while the average real income rose only 0.3 per cent. However, average 2009 prices significantly climbed over those of 2008 for beef (16.5-17.2 per cent), pork (12.9-14.7 per cent) and poultry (12.3-18.9 per cent).

Inflation estimates in 2010 generally range from the GOR's 6.5 per cent to analysts' estimates of 8.4 per cent. Prices for most food products grew 4.8 per cent in February 2010, compared to February 2009, while meat and poultry prices grew 2.5 per cent. Analysts fear that the continued absence of the United States in the Russian market could result in significant price volatility, especially since stocks are already near depleted. This will be most noticeable in the second half of the year when consumer demand is the highest.

Changing consumer preferences

While poultry continues to take a larger share of animal protein consumption, the population recovery in Russia also favours increased demand for poultry. For the first time since 1995, Russia added 15-25,000 people in 2009 to steady its population decline at 141.9 million. Regardless of total numbers, Russia demographics should also continue to influence consumption choices as the population shifts to larger representation from Central Asian cultures that consume less pork for religious reasons. This extra demand will put additional price pressure on poultry as it become less of a substitute product.

‘Quality’ premium

Regardless of price hikes, customers remain willing to pay higher prices for poultry perceived to be raised on modern farms that appear to be taking sanitary measures in order to provide safe products. This characteristic was most evident when avian influenza was prevalent in Russia and large, well-known producers could not satisfy customer demand while smaller, less well-known producers had difficulties selling product. According to current industry figures, the top-100 poultry producers receive a 20 per cent higher price for their poultry.

‘Made-in-Russia’ premium

A leading meat processor noted pricing trends in the meat market will remain positive as a result of reduced imports and rising demand for domestic product. Also, since local production costs are more expensive than imported poultry, prices are naturally expected to continue increasing as domestic production takes a larger share of supply.

Meat processing industry

Meat processors produced more inexpensive meat for consumers in 2009. According to Rosstat, processed chicken output in 2009 increased 17.5 per cent while other poultry increased 13.3 per cent. Total meat, poultry and offal output grew 16.0 per cent, and value-added products like semi-processed meat and canned meat increased only 8.6 per cent and 2.0 per cent, respectively. Output of the most expensive consumer product – sausage – fell 6.5 per cent.

Development in the meat processing industry

At the 17th annual ProdExpo, an international exhibition of food, beverages and raw materials for their production, in February, Minister of Agriculture Elena Skrynnik said such events are an important component of the domestic production and processing development strategy. She noted more than 2,000 companies presented their products at the expo, and more than half were vertically integrated Russian agricultural enterprises. Stressing the importance of such firms, the Minister called for faster development of the meat processing industry.

Further Reading

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April 2010