Report Highlights:

USDA Moscow forecasts imports to fall shy of filling the import quota in 2010 as the United States was not allowed to ship for the majority of the year. As a result, imports should rebound higher in 2011 despite a reduced quota. Demand for inexpensive chicken-leg quarters will remain high, as evidenced by retail and producer prices. In total, domestic production growth will continue to slow through the remainder of 2010 and 2011, reflecting diminishing returns to the producer, resulting from increased feed prices and steady producer and retail prices of whole birds.

Summary

USDA Moscow forecasts imports to fall shy of filling the import quota in 2010 as the United States was not allowed to ship for the majority of the year. As a result, imports should rebound higher in 2011 despite a reduced quota. Demand for inexpensive chicken-leg quarters will remain high, as evidenced by retail and producer prices. In total, domestic production growth will continue to slow through the remainder of 2010 and 2011, reflecting diminishing returns to the producer, resulting from increased feed prices and steady producer and retail prices of whole birds.

Poultry Production

Russia increased poultry production 15.9 percent to 1.657.5 MMT (live weight) in the first half of 2010; however, the rate of growth is decreasing in the second half of 2010 due to increasing feed prices and summer heat conditions that adversely impacted average daily gains. Of Russia‟s poultry production, 87.5 percent is broiler, 3.8 percent is turkey, and 2.0 percent is geese and ducks. The remaining 8.5 percent are culled egg layers and broilers.

A large reason Russian poultry production has set itself a part in growth is that the poultry market is dominated by large agricultural enterprises, where as private households continue to account for roughly half of pork and beef production. There were about 600 poultry producing facilities in Russia in 2009, and they accounted for 88 percent of Russia‟s production. Five major companies produce about 35 percent of the Russian poultry meat. They are JSC Prioscoliye (12 %), JSC Cherkizovo (8%), Prodo-Trade Ltd. (7%), and Agroholding Belgrankorm LTD. (5%). The fastest growing oblasts were Belgorod, Voronezh, Novgorod, Volgograd, Rostov, and Chelyabinsk oblasts, Republic of Tatarstan, Stavropol Krai and Altay Krai. Their share in total growth accounted for 63.9 percent in the country.

As the next phase of state promotion in this industry, Russia is currently considering a program “Development of Poultry to 2012 and to 2018-2020”. Totally, Russia plans to spend RUR174.7 billion ($5.8 billion) during 2010-2012 in this program.

Broiler

Sixty-one new broiler farms started production in 2009, (85 in 2008) including 17 new farms (22 in 2008), and 44 renovated and modernized farms (63 in 2008). Average daily weight gain of broilers was 45 grams in 2009. Higher productivity and reduced slaughter age increased broiler turnover from 4.0 (in 1990) to 6.5 (in 2009) and increased broiler output per egg layer, from 78 kg (slaughter weight) in 1990 to 230 kg in 2009.

Marketing Year 2010
USDA-Moscow corrects 2010 Russian broiler production to grow 12 percent in 2010, in line with Ministry of Agriculture projections and considering official production results at large agricultural enterprises through June. However, increased feed prices are slowing the outlook for the second half of the year.

Marketing Year 2011
USDA-Moscow forecasts slightly higher growth than the Ministry of Agriculture – 8 percent versus 7 percent – in 2011, but it will not be enough to cover continued demand for inexpensive chicken-leg quarters. While the Ministry has reported 2010 investments into the sector will fall below their expectations, Post feels more optimistic that the climate for private investment into the sector remains high and substantially better than in 2008. The Ministry cites lower profits, as producer prices have fallen 5 percent from 2009, although they remain 13 percent above 2008. As a result, producer prices for whole birds will likely again be steady, but sustained increased feed prices will impinge profitability.

Turkey Production

The largest limiting factor for the successful development of turkey production in Russia is the continued established success and poultry policy actions that favor broiler production. As Russia has implemented separate policies for red meat, it continues to take broad policy action on poultry. As a result, the relatively younger and less developed turkey segment is often an afterthought.

Marketing Year 2010 and 2011
USDA-Moscow holds its 2010 estimate and believes the preference of foreign suppliers to ship broiler meat rather than turkey meat within a reduced quota in 2011, along with investments in 2010, will continue to provide incentives for production to grow in 2011.

Policy

Supply Control (Import Substitution)
Government support for domestic poultry production in Russia has and continues to be primarily provided through methods of supply control. Since the introduction of the TRQ regime in 2003, poultry production has grown from 980,000 MT (slaughter weight) in 2002 to 2.540 MMT in 2009. Trade outside the quota (at otherwise prohibitive tariffs) occurs only to the extent that importers can afford to lose money in the current year in order to earn larger shares of the import quota for the following year. Furthermore, trade within the quota is hindered by highly prescriptive, non-science-based Russian technical and veterinary-sanitary requirements that can at times result in country-specific allocations not being accessible.

Agricultural Development Programs
Federal development programs have served as an additional tool of planned support for Russian poultry production. On December 21, 2005, “Development of the Agro-industrial Complex” was issued as one of four priorities for national development, with a focus on revitalizing Russian livestock and poultry production. To further stimulate domestic agricultural production, the federal law “On Development of Agriculture” was approved in 2006 and came into force on January 11, 2007. Later, the GOR approved the “Program for Development of Agriculture, Regulation of Agricultural Commodity Markets, and Rural Development for the period 2008-2012,” which called for RUR1.1 trillion ($37 billion) to be spent over five years, with funding being split between federal and provincial budgets.

In line with these programs, subsidizing interest rates for poultry investment projects has been Russia‟s primary tool of direct support to the producer. However, these benefits are not universal to all producers, as they service only the largest investors and must be in line with the Ministry of Agriculture‟s vision of the development program.

In an effort to maintain a positive rate of development in 2009 in the wake of the global financial and economic crisis, the Ministry of Agriculture allocated RUR165.1 billion ($5.5 billion) for the implementation of the State Agricultural Development program 2009-2012. The Ministry spent RUR45.0 billion ($1.5 billion) from this sum to increase the authorized capital of JSC Russian Agricultural Bank and RUR17.0 billion ($570 million) to subsidize interest payments. Additionally Russia extended short-term loans for six months, investment loans for three years, and maximum-term eight-year investment loans to 11 years. The subsidy level for investment loans also increased from two-thirds of the central bank rate to 80 percent for poultry (and to 100 percent for dairy and beef cattle). The Ministry of Agriculture also noted the single agricultural tax as well as fixed prices for fuel and fertilizer amounted to RUR30 billion ($1 billion) in indirect subsidies to the producer in 2009. These programs continued in 2010, and they will continue for the foreseeable future.

The Ministry of Agriculture reported that 2010 investments will not meet the State program due to lower-than-expected profits in the industry.

Development of Poultry to 2012 and to 2018-2020
Currently under consideration is the program “Development of Poultry to 2012 and to 2018-2020.” The program is split into two stages with the main objectives of providing the Russian population with sufficient volumes of domestic poultry products, of ensuring efficiency and competitiveness of the poultry industry, and of developing the Russian poultry industry‟s export potential of the Russian poultry industry. During the first phase of 2010-2012, RUR174.7 billion ($5.8 billion) will be invested into the program, including 14.1 percent from federal and regional government budgets. During the second phase of 2013-2020, RUR472 billion ($15.7 billion), will be invested in into the program, including 25.9 percent from the federal and regional budgets. The program forecasts 2012 poultry production will increase by 715,000 MT (slaughter weight) over 2009 and another 1.245 MMT by 2020. In order to achieve these goals, the Program plans to increase average daily weight gain of broilers by 28 percent, to improve feed conversion by 17 percent, to modernize and build new poultry farms using the state subsidies, as well as increase production of turkey, geese, and duck meat. Also among targets of the program is the development of pedigree parental breeding stock in order to cut imports of hatching eggs from 27 percent in 2009 to 15 percent by 2012 and seven percent by 2020.

Government Purchases
President Medvedev has tasked Minister Elena Skrynnik to investigate the state purchases of beef in Rosrezerv, as well as to clarify the feasibility of increasing the production of canned white chicken meat. As noted by the President of Cherkizovo, there is a need consider changes of the state reserve purchases since domestic beef supplies are shrinking while poultry is “oversupplied”.

Development of the Feed Industry
Also in the planning is a draft development project to improve this component of the supply chain through the construction and modernization of feed mills, with the aim of increasing the production of plant-origin protein feeds. Most recently, the GOR has taken action to support producers impacted by the short feed supplies.

Feed Supply

Russia will experience problems with feed supplies for the remaining part of 2010 and in 2011 due to the 2010 drought in the Central, Volga, and Ural districts of Russia. In total, 27 regions were declared emergency drought situations in 2010. The grain harvest in 2010 will be lowest since 2003 when 67 MMT of grain was harvested. The drought adversely impacts not only the 2010 feed supply but also the seeding of winter crops for next year‟s feed supply, as well as presents a new threat to Russia‟s expanding poultry industry.

Poultry production growth only adds to the currently stressed feed supply. According to the draft program “On Development of Feed Production,” poultry‟s share of compound feed consumption is set to grow from 31 to 34 percent between 2009 and 2012. Poultry establishments currently produce/manufacture 70 percent of their own feed demands.

The GOR has taken several measures to soften the drought‟s impact. The GOR postponed state grain purchases, instituted a grain export ban, and decided instead to release 3 MMT of grain from the state reserves for drought-stricken regions. Grain is being distributed on the basis of a quota system to enterprises in the processing and milling industry. The shares for each region are based on meat and milk production volume. The regions themselves will be responsible for distributing the grain internally. Furthermore, Prime Minister Vladimir Putin said the GOR will provide RUR35 billion ($1.2 billion) in financial aid to drought-stricken farmers, including RUR10 ($300 million) billion in direct payments and RUR25 billion ($830 million) for 3-year discounted federal loans. The money is being disbursed in two stages, the first in August and the second in October-November.

Trade

Russia maintains a TRQ regime for raw poultry products (HS-0207) with country-specific allocations to the United States, European Union, and “other countries”. In 2010, the total TRQ quantity was 780,000 MT, which is reduced to 600,000 MT in 2011. In 2010, Russia reallocated one-quarter (150,000 MT) of the U.S. allocation to be eligible for any country.

The draft program “Development of Poultry 2010-2012 and through 2018-2020” envisages application of tariff regulation through the application of customs tariffs, quotas, and non-tariff regulation as well as reduction of customs duties on raw materials, feed proteins, and on poultry equipment.

Imports: Broiler

Broiler imports through June 2010 were 117,575 MT ($175 million), a decline of 66 percent (55 percent). The historic suppliers are the United States, European Union, Brazil, Argentina, Canada, and Paraguay. Russia banned the United States from the market on January 1, 2010, and only recently regained eligibility to ship product produced on or after July 14. Meanwhile, the European Union, Brazil, and Canada greatly increased market share in an effort to replace a portion of the absent Russian supply. Imports from Paraguay have fallen to zero after its country-specific allocation was eliminated at the start of the year.

Marketing Year 2010
Imports in 2010 faced serious disruption as Russia banned U.S. poultry on January 1, and the market is likely to face a rapid price correction in the closing months as imports are again permitted entry. As a result of the U.S. closure, the reduction of chicken-leg quarter supply increased retail prices 12 percent over July 2009 (and 38 percent over 2008). Meanwhile, official retail prices for other chicken (primarily whole birds) remained flat, with only a -0.2 percent change in July 2010. These events have led to historic suppliers of whole birds (Brazil and European Union) to replace a significant amount of those supplies with chicken-leg quarters. However, these trade partners were largely limited in providing substantial quantities as supplies were scarce and access to quota was largely unavailable, except for a 150,000 MT of U.S. quota reallocated to “any country”.

Marketing Year 2011
A lower import quota in 2011 will continue to offset domestic producer prices to a lesser extent as imported whole birds have already been largely crowded out of the market. However, the reduced quota quantity will still provide some relief of price inflation at the retail level as consumers should have better access to inexpensive poultry than in 2010.

Imports: Turkey

Turkey imports through June 2010 were 12,441 MT ($22 million), a decline of 28 percent (21 percent). The historic suppliers are the European Union, Brazil, United States, and Canada. Quantity traded by all historic suppliers is down in 2010, as a result of a reduced TRQ and further market pressure to utilize the scarce quota quantities to supply chicken-leg quarters rather than turkey meat.

Marketing Year 2010
Overall supply has been constricted as historical foreign suppliers (European Union, Brazil, and Canada) have preferred to ship broiler meat with the absence of the United States from the Russian market.

Marketing Year 2011
USDA-Moscow believes the preference of foreign suppliers to ship broiler meat rather than turkey meat within a reduced quota in 2011, along with investments in 2010, will continue to provide incentives for production to grow in 2012.

Exports

At the end of August 2010, the Ministry of Agriculture stated that by 2012, Russia will reach its targeted level of self-sufficiency (85 percent) and be able to start exporting poultry. Uncompetitive costs of production as well as veterinary-sanitary issues are likely to challenge Russia‟s ability to export outside CIS countries. In the meantime, chicken paws will remain the top export derivative of local poultry production.

Further Reading

-

You can view the full report by clicking here.

October 2010