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Russian Federation – Meat sector review

Russian Federation Meat sector review

FAO Investment Centre

Russian Federation: Meat sector review Report No. 15 - July 2014

Report No. 15

Please address questions and comments to: Investment Centre Division Food and Agriculture Organization of the United Nations (FAO) Viale delle Terme di Caracalla – 00153 Rome, Italy [email protected] http://www.fao.org/investment/en

I3533E/1/11.13

COUNTRy HIGHLIGHTS

FAO INVESTMENT CENTRE

Russian Federation Meat sector review

Dmitry Prikhodko Economist, Investment Centre Division, FAO Albert Davleyev National Meat Consultant, Investment Centre Division, FAO

country highlights prepared under the FAO/EBRD Cooperation

Rome, 2014

The designations employed and the presentation of material in this information product do not imply the expression of any opinion whatsoever on the part of the Food and Agriculture Organization of the United Nations (FAO) or the European Bank for Reconstruction and Development (EBRD) concerning the legal or development status of any country, territory, city or area or of its authorities, or concerning the delimitation of its frontiers or boundaries. The mention of specific companies or products of manufacturers, whether or not these have been patented, does not imply that these have been endorsed or recommended by FAO or EBRD in preference to others of a similar nature that are not mentioned. The views expressed in this information product are those of the author(s) and do not necessarily reflect the views or policies of FAO or EBRD. © FAO 2014 FAO encourages the use, reproduction and dissemination of material in this information product. Except where otherwise indicated, material may be copied, downloaded and printed for private study, research and teaching purposes, or for use in non-commercial products or services, provided that appropriate acknowledgement of FAO as the source and copyright holder is given and that FAO’s endorsement of users’ views, products or services is not implied in any way. All requests for translation and adaptation rights, and for resale and other commercial use rights should be made via www.fao.org/contact-us/licencerequest or addressed to [email protected]. FAO information products are available on the FAO website (www.fao.org/ publications) and can be purchased through [email protected]. For further information on this publication, please contact: Director Investment Centre Division Food and Agriculture Organization of the United Nations (FAO) Viale delle Terme di Caracalla, 00153 Rome, Italy Cover photo: ©Dreamstime

TABLE OF CONTENTS

Foreword

v

Acknowledgements vi Acronyms and abbreviations Executive summary 1

 lobal medium-term meat market outlook G with focus on the Russian Federation

viii xi

1

2

The Russian Federation meat sector in brief

11

3

Detailed review of the meat sector

25

4

Meat processing

60

5

Meat market concentration

68

6

Meat trade

87

7

Meat prices

96

8

Policy 99

Annex 1

Distribution of poultry, swine and cattle inventories by region and type of farm in 2010 120

Annex 2

Main breeds and crosses

133

Annex 3

Meat production technologies

140

Annex 4

Applicable state standards in the Russian Federation 149

Annex 5 Profitability of poultry, pork, and beef production in various administrative subjects of the Russian Federation

153

Annex 6

Leading meat brands

156

Annex 7

Major agroholdings and meat producers in the Russian Federation 158

Annex 8

Recent investments in the poultry sector

168

iii

Annex 9

Broiler meat production (Far East Russian Federation): investment model assumptions, results and sensitivity

Annex 10 Recent investments in the pork sector

iv

171 174

Annex 11 Recent investments in the beef sector

178

Annex 12 Foreign meat trade

180

Foreword In recent years, the rise of agroholding farms, combined with strong consumer demand, higher incomes and substantial state support, have prompted an increase of meat production in the Russian Federation. Despite its improved self-sufficiency in the sector, the country will remain one of the principle global meat importers in the foreseeable future. The reduced import tariffs following Russia’s accession to the World Trade Organization (WTO) will put pressure on local meat producers to become more competitive. To do so, they will need to invest in the efficiency of primary production and higher food quality and safety standards. This review of the Russian meat sector, conducted by the Food and Agriculture Organization of the United Nations (FAO) and the European Bank for Reconstruction and Development (EBRD), aims to inform policy makers and investors and promote a more efficient and inclusive meat sector. It provides information on the role of the Russian Federation in global meat markets, on production and consumption of meat in the country, as well as relevant trade and policy measures. The review presents international comparisons on meat production efficiency, sector concentration and support measures. It also provides information on major players in the Russian meat market and identifies key sector constraints and opportunities. Readers interested in learning about mid-term prospects in the meat market are encouraged to read the latest version of the Agricultural Outlook jointly produced by the Organization for Economic Co-operation and Development (OECD) and FAO1.

1 http://www.oecd.org/site/oecd-faoagriculturaloutlook/.

v

Acknowledgements This sector review was prepared by the Investment Centre Division of FAO in the context of the cooperation between FAO and the EBRD. It was financed by FAO and EBRD’s Special Shareholder Fund. Dimitry Prikhodko, Economist, Investment Centre Division, FAO, and Albert Davleyev, President, Agrifood Strategies, a Moscowbased agribusiness consultancy company, are the main authors of this report. Mr Prikhodko also led the team of other co-authors that contributed to the study. Inna Punda, Agribusiness Officer, Investment Centre Division, FAO, reviewed the initial version of the report and carried out desk research on Russia’s meat trade with Ukraine and within the Customs Union of Belarus, Kazakhstan and the Russian Federation. Vasyl Hovhera, Economist, Investment Centre Division, FAO, provided inputs on meat consumption and on the profitability of broiler meat production. Arianna Carità, Economist, Investment Centre Division, FAO, assisted in reviewing the study and prepared the executive summary. On the EBRD side, Marta Bruska, Operational Leader for this project, provided leadership and coordination. The FAO/EBRD team would like to express its sincere gratitude to Natalya Zhukova, Senior Banker, Agribusiness, EBRD, Moscow, and Oona Schreiner, Banker, Agribusiness, EBRD, for their constructive comments on current issues and trends in the Russian meat sector. The authors would also like to thank Eugenia Serova, Director, Rural Infrastructure and Agro-industries Division, FAO, for her guidance and inputs at the initial stages of the review. The report benefited from useful comments by Pedro Marcelo Arias, Economist, Trade and Markets Division, FAO. Specials thanks are extended to Hsin Huang, Secretary General of the International Meat Secretariat (IMS), for his careful review and valuable suggestions. The authors would also like to thank Emmanuel Hidier, Senior Economist, Investment Centre Division, FAO, and Claudio Gregorio, Chief, Europe, Central Asia, Near East, North Africa, Latin American and Caribbean Service, FAO, for their support and guidance, and Genevieve Joy, Sarah Mercadante and Maria Ricci,

vi

Communications support, Investment Centre Division, FAO, for assisting with the finalization and publication of the report. Maaike Loogman, Joana Maison Aidoo, Eleonora De Feo and Monica Romanelli, Investment Centre Division, FAO, provided excellent administrative support throughout the course of this project.

vii

Acronyms and abbreviations

AI AMS ASF

avian influenza aggregate measurement of support African swine fever

EBITDA

earnings before interest, taxes depreciation and amortization

EBRD

European Bank for Reconstruction and Development

EU

European Union

FAO

Food and Agriculture Organization of the United Nations

FAPRI

Food and Agricultural Policy Research Institute

FIRA

First Independent Rating Agency

FMD

foot-and-mouth disease

FOB

free on board

FSSS

Federal Service of State Statistics

GDP

gross domestic product

GK

group of companies

GNI

gross national income

GOR

Government of Russian Federation

HACCP

hazard analysis and critical control points

HORECA retail, hotel, restaurant and catering services

viii

HS

harmonized system

IMS

International Meat Secretariat

IRR

internal rate of return

KMPP

Kornshtadt meat processing plant

LSE

London Stock Exchange

MPS

market price support

NPC

nominal protection coefficient

NPV

net present value

OECD

Organisation for Economic Co-operation and Development

OIE

World Organisation for Animal Health

OJSC

open joint-stock company

OKVED

Russian Classification of Economic Activities

PPP

purchasing price parity

PSE

producer support estimate

PSF

private subsidiary farming

RAAS

Russian Academy of Agricultural Sciences

RUR

Russian rouble

SANPIN

sanitary norms and rules

SCT

single commodity transfers

SPS

sanitary and phytosanitary (measures)

TCI Investment Centre Division of the Food and Agricultural Organization TRQ

tariff-rate quota

USDA

United States Department of Agriculture

VAT

value added tax

VNIIMP

All-Russia Scientific Research Institute of Meat Processing Industry

VNIIMS

All-Russia Scientific Research Institute Of Meat Cattle Breeding

VNIIZZH All-Russia Scientific Research Institute of Animal Protection VPSS

Veterinary and Phytosanitary Surveillance Service

WB

World Bank

WTO

World Trade Organization

ix

Russian Federation - Meat sector review

Executive summary

Market development and business considerations The Russian Federation in the global meat market World food demand has seen massive changes, including a shift from staple foods to animal proteins and vegetable oils. In the short to medium term, this trend in global food demand will continue. There will be an increased demand for vegetable oils, meat, sugar, dairy products and livestock feed made from coarse grains and oilseed meals. There are numerous mid-term forecasts for the Russian Federation’s meat sector. Most of them agree on the following trends: (i) the consumption of poultry and pork meat will increase; (ii) the consumption of beef will decrease or stabilize; and (iii) the Russian Federation will remain a net importer of meat on the world market. According to OECD and FAO projections, meat imports from the Russian Federation will decrease from 3 to 1.3 million tonnes, owing to an anticipated growth in domestic chicken meat and pork production. The country’s share in global meat imports is anticipated to decrease from 12 percent in 2006–2010, to 4 percent in 2021. While the Russian Federation will continue to play an important role in the international meat market, it will fall from its position as the largest meat importing country in 2006–2010 to the fourth largest global meat importer by 2021, behind Japan, sub-Saharan African countries, and Saudi Arabia. A growing and evolving domestic market Between 2005 and 2010, the value of the Russian meat market increased by 75 percent, reaching about RUR 930 billion in current prices (equivalent to USD 31 billion) due to growing meat consumption. As a result of higher consumers income, meat consumption in the Russian Federation has been on the rise since the late 1990s. From 2005–2010, the per capita consumption of all meats and meat products increased by 22 percent to reach 64 kg per person per year. Poultry meat consumption increased by 31 percent between 2005 and 2010 to reach 25 kg per person, while pork consumption increased by 38 percent to reach 21 kg per capita. On the other hand, the per capita consumption of beef

xi

and veal decreased by 0.5 percent, down to only 17 kg, during the same period. Despite a significant anticipated growth by 2021, the per capita consumption of meat in the Russian Federation will most likely remain below that in the United States of America (USA), Brazil, Argentina, Australia and the European Union EU-27, but will exceed the consumption of meat in Ukraine, Mexico, South Korea and China. In recent years, the Russian meat market has experienced some notable transformations, in particular (i) a shift from beef to poultry meat consumption; (ii) the progressive exit of household farms from the market and the expansion of larger commercial farms involved in meat production; and (iii) an increased supply of fresh, chilled meat at the expense of frozen products. The emergence of a large newly affluent urban population in Russian cities has also boosted the development of the retail sector in the country, which has influenced the way meat is sold and consumed. Chicken meat, especially in the form of chicken meat cuts, has replaced beef in everyday diets. However, pork consumption is likely to grow even faster, as it is consumed in many processed ways: sausages, smoked meat, meat delicacies and other value-added products. From 2005 to 2010, total meat production increased from 7.7 million tonnes to 10.6 million tonnes, with chicken meat production growing from 1.4 million tonnes to 2.8 million tonnes and pork production increasing from 1.6 million tonnes to 2.3 million tonnes, according to official statistics. On the other hand, beef production decreased by 5 percent from 1.8 to 1.7 million tonnes during the same period, reflecting ongoing adjustments in the closely related dairy sector. The production, processing and supply structure of the meat sector has shown a clear trend towards vertical integration, with inefficient producers going bankrupt and an increased share of commercial farms at the expense of smallholder producers. The share of larger commercial farms in poultry meat production increased from 79 percent in 2005 to 88 percent in 2010 and from 33 to 53 percent in the pork sector, with the remainder being produced by smallholder farms. As beef production is not generally considered profitable by commercial farms, their share in cattle meat production decreased from 36 percent in 2005 to 32 percent in 2010, while the remaining share of smallholders and individual farms increased.

xii

Russian Federation - Meat sector review

Decreasing role of imports Imports of meat and edible meat offal decreased by 27 percent from 3.3 million tonnes in 2007 to 2.4 million tonnes in 2012, mostly due to a drastic 64 percent decrease in poultry meat imports during that period. Prior to 2010, poultry meat was the main kind of meat imported into the Russian Federation. It is now the third most important type of imported meat after pork and beef. Imports of edible meat offal for further processing have been quite stable at about 300 000 tonnes per year and are an important source of raw material for meat processors. Significant room to improve production efficiency Although Russian meat producers have been effectively protected from import competition by high-tariff and non-tariff barriers, some improvements in meat production efficiency have taken place thanks to an increase in competition among domestic producers. For instance, broiler meat production indicators considerably improved from 2005–2010 thanks to better feeding and nutrition, as well as investment in the modernization of production facilities. As a result, the average daily weight gain of broilers increased from 32 grams in 2000 to 47 grams in 2010. The feed conversion improved from 2.7 kg to 1.85 kg of feed per 1 kg of broiler. However, only leading Russian producers such as Cherkizovo or Miratorg reach feed conversion rates of 1.68 – a level that compares to what Brazilian producers achieve to date. Despite certain improvements in livestock production performance, Russian pork producers lag behind major pork producers from countries such as the USA, Brazil, and the EU. Strong meat prices will result in sustained export earnings for major global exporters, which will encourage large meat exporting countries to further invest in improving and expanding production and exports despite the high prevailing incidence of food safety and sanitary import bans. These investments in exporting countries will likely put a greater pressure on Russian producers to improve their production efficiency. As consumers become increasingly aware of sanitary issues, meat producers and processors in the Russian Federation will need to pay more attention to ensuring food safety. Despite improvements in this area and the adoption of the national hazard analysis and critical control points (HACCP) standards, not all meat producers meet national food safety regulations. Producers need to pay particular attention to bacteriological contamination and maximum residue levels. Independent research on salmonella

xiii

prevalence revealed that salmonella was present for 32 percent of whole chickens sold in the Russian Federation, compared to 4 to 16 percent in the USA and the EU. Continuous improvements and investment in food safety will be a key factor for local producers to gain market shares. Recent investments, risks and profitability The Russian meat sector has recently experienced an investment boom due to high profits and growing demand sustained by market protection and state support programmes. According to available information on ongoing and planned investments for 2009–2014, the Russian meat sector has attracted a total of USD 7.2 billion in investment. Poultry production on its own has attracted about 44 percent of all meat sector investments, while pork and beef production have attracted 33 percent and 15 percent respectively. An additional USD 540 million in investment was also observed in the meat processing sector. It should be noted, however, that the recent global economic recession has forced some Russian companies to review their ambitious business expansion plans and put some meat production projects on hold. Similar to those in other countries, Russian meat producers face a number risks: (i) adverse production conditions and poor infrastructure (low production efficiency, poor feed quality, exposure to volatile feed grain prices, difficult access to transportation infrastructure, power outages, etc.); (ii)) animal and poultry disease outbreaks and food safety hazards (avian influenza, African swine fever, foot-and-mouth disease, etc.); (iii)) investment and financial risks (increase in interest rates, etc.); and (iv) policyrelated risks (changing government priorities, high level of market protection, etc.). These are described in Chapter 2 of this report. The analysis conducted in this review shows that, while investments in new broiler meat production can still be profitable in the Russian Federation under standard market assumptions on local input/output prices and the cost of capital, such investments have a rather long average payback period of nine years and are highly sensitive to feed price increases. An increase in feed costs of only 10 percent would make these investments unprofitable. At the same time, a reasonable improvement in feed conversion would increase the investments internal rate of return (IRR) from 15 to 18 percent and decrease the payback period to eight years.

xiv

Russian Federation - Meat sector review

Foreseen meat processing consolidation Russian meat processing, unlike poultry meat production, is characterized by rather low consolidation owing to the country’s vast national territory, consumers’ preferences for local regional producers and trademarks, and a general lack of the processors’ capacity to market brands at the national level. It is very likely that sector consolidation will occur in the near future. In order to meet its potential, the private sector needs to modernize and improve its basic production efficiency. These improvements would require substantial private investment in areas such food safety and biosecurity, environmental sustainability through the introduction of better livestock management practices, and improved breeding stock.

Policy considerations The fast growth experienced by the meat sector in the Russian Federation in recent years has been supported by policy measures, including import tariffs and domestic support. Although competitiveness features as one of Russia’s main agricultural policy goals, the country’s agricultural support system has been driven by a progressive policy orientation towards import substitution and higher self-sufficiency in meat and other food products. While livestock production may play an important role in economic growth and the need for adequate investment in that sector is clear, Russia’s food self-sufficiency approach may be questioned from an economic point of view. Meat market protection and support come at a high price Russia’s agricultural policy objectives have been pursued at a relatively high cost to Russian taxpayers and consumers. Most support is provided through market price support, supply of inputs and fixed capital (investment subsidies and interest rates), all of which are among the most market distorting policy measures. According to OECD’s monitoring of annual monetary transfers from consumers and taxpayers to farmers, measured as the Producer Support Estimate (PSE), Russian producers of grains and oilseeds – the main sources of feed protein in the country – appear to be “taxed”. At the same time, annual transfers to domestic producers of poultry and livestock averaged RUR 227 billion (USD 6,3 billion) throughout 2008–2010. More specifically, 20 percent of gross income received by beef and veal farmers, 45 percent of incomes from pork and 34 percent of incomes from poultry meat came from consumers and taxpayers. Russia’s main interventions in the sector consist of market-price support. Due to tariff and non-tariff

xv

measures, domestic prices for beef, pork and poultry end up being much higher that international reference prices. Improving competitiveness Russian meat producers have a favourable access to feed grains and meals as the country is a net exporter of wheat, barley, corn and sunflower meals and other compound feed ingredients. Therefore, improving the competitiveness of Russian meat producers primarily means bridging the gap between the domestic and import parity prices. The gap between domestic and international prices increased considerably from USD 470–900 per tonne of various kinds of meat in 2001 to USD 900–1 200 in 2010. Domestic pork prices were often twice as high as international pork prices at import parity levels. Domestic beef appeared to be more competitive with imports than poultry and pork. Protectionist policies will not help the domestic meat industry to become competitive in the long-term. While the level of domestic market protection and state support remain very high in the Russian Federation, other major meat producers, like the USA and Brazil, have limited price-distorting support measures or, as it is the case for the EU, tend to reduce their support measures to meat producers. WTO accession The Russian Government managed to defend a substantial domestic market protection level at World Trade Organization (WTO) accession, including Tariff-Rate Quotas (TRQs) for poultry meat and beef with high out-of-quota rates. For pork, the Russian Federation has agreed to a TRQ of 400 000 tonnes for fresh, chilled and frozen pork with a zero in-quota tariff. As of 1 January 2020, the Russian Federation will adopt a tariff-only regime for pork with a bound duty of 25 percent. Therefore, the domestic pork market will be more open to import competition. State support programmes State support programmes focus on extending long-term credit at low interest rates to livestock breeding and other regional programmes. They have attracted many entrepreneurs. For example, interest rate subsidies for livestock production from the federal budget – aimed at supporting the construction, reconstruction and modernization of livestock and poultry facilities – totaled RUR 2.36 billion (USD 66 million) and attracted RUR 155 billion (USD 4,3 billion) worth of credit to 492 projects

xvi

Russian Federation - Meat sector review

in 2010 alone. In 2011, overall state subsidies to the livestock and poultry industries, disbursed under various support programmes, amounted to RUR 22.8 billion (USD 636 million). As domestic meat markets appear to be highly distorted, the extent to which investment decisions have been driven by rational business considerations is unclear. Many companies also complain about the excessive documentation requirements and the lack of transparency in decision making by officials responsible for the distribution of state support. To ensure the long-term competitiveness of Russia’s meat sector, it would be highly desirable to refocus domestic budget support to food safety improvements, feed quality monitoring, research, education, training and other non-distorting support measures. Effective food safety vs. sanitary-based trade restrictions While ensuring food safety is a paramount task for all governments, it appears that the attention of Russia’s food safety authorities primarily focuses on imported meat products. Furthermore, some WTO member countries have pointed out that Russia’s sanitary regulations regarding maximum residue levels are often not scientifically based. It would be highly desirable for the Russian Federation to build a comprehensive national food safety monitoring system. This system would monitor microbiological, antibiotic and other residue levels on a continuous basis and keep track of improvements in food safety over time, thus building consumer confidence regardless of product origin. As knowledge becomes increasingly important in the livestock and poultry sectors, public investment in education and training will also be critically important. For the moment, the lack of professional skills at all levels – from nutritionists to farm managers – often forces private companies to invest in their own educational programmes. Public-private partnerships in the field of agricultural education could also address this critical gap.

xvii

Russian Federation - Meat sector review

Chapter 1 - Global medium-term meat market outlook with focus on the Russian Federation Production Global demand for meats will increase and mostly stem from large economies in Asia, crude oil exporting countries and Latin America according to the FAO-OECD Agricultural Outlook (2012)2. Poultry meat will lead this anticipated growth as the cheapest and most accessible source of meat protein overtaking pork as the largest meat sector by 2021 (see Figure 1). Figure 1: World beef, pork and poultry production and forecast, 1998-2021 140

Forecast

million tonnes

120 100 80 60 40 20

Beef and veal (cwe)

Pig meat (cwe)

2020

2018

2016

2014

2012

2010

2008

2006

2004

2002

2000

1998

0

Poultry meat (rtc)

Source: OECD-FAO Agricultural Outlook 2012.

High feed costs in 2010-2012, a slowdown in demand and weak economic conditions combined to reduce producer returns in the livestock sector, encouraging producers to reduce animal inventories, which slowed total meat production in the years prior

2 This chapter includes findings from the FAO-OECD Agricultural Outlook and its medium-term projections for the period 2012-2021. Because FAO and OECD Secretariats revise projections on an annual basis, the readers are encouraged to refer to the latest projections available. The outlook database, including historical data and projections, is available through the joint OECD-FAO internet site: www. agri-outlook.org.

1

to 2012. Higher producer prices, with feed costs easing in the short term, can be expected to improve meat margins and set the stage for some expansion in production of red meats and poultry in 2012-2013. It is anticipated that global production of beef, pork and poultry meat will increase from 262 million tonnes in 2005-2010 (average annual) to 330 million tonnes in 2021 (up 26 percent) in response to growing demand. During the same period, production of the same kinds of meat in the Russian Federation is anticipated to increase from 6 million tonnes to 9.4 million tonnes (up 56 percent). Because of anticipated increases in poultry meat, the Russian Federation will increase its share in global meat production from 2 percent in 2006-2010 (on average) to 3 percent by 2021 (see Figure 2). Figure 2: Global meat production, share of the Russian Federation’s production and forecast, 2001-2021 350

3

250 200

234

262

314 319 325 330 298 303 309 278 282 286 292

150

1

100 8.6 8.7

9.0

9.2

9.4

0 21

20

20

19

20

18

20

17

20

16

Russian production (left axis)

8.9 20

15

20

14

20

20

13

8.4

12

8.3

11

8.0

10

06

20

05

20

01

20

20

World production (left axis)

7.7

20

7,3 6.0 7.3

4.6

20

-

20

50

2

percent

million tonnes

300

Share of Russian Federation in production (right axis)

Source: OECD-FAO Agricultural Outlook 2012. Note: The meat total combines beef, pork and poultry meat only.

Global bovine production, which has stagnated in recent years, is anticipated to start growing more rapidly as herds rebuild. However, poultry will likely remain the fastest growing sector (2.2 percent p.a.) and will produce the highest volume of all meats worldwide by 2021. Productivity growth throughout the global meat production chain has been significant in recent years. Herds have improved through better breeding and herd management practices, especially improved feeding practices. These improvements have enabled

2

Russian Federation - Meat sector review

growth in meat production efficiency. Despite rising input costs, meat production has grown about 300 percent in the past 50 years, and livestock inventories – the number of cattle, swine, chicken and ovine animals – have grown by 57 percent, 137 percent, 400 percent and 49 percent respectively. The change in offtake3, or the quantity of meat produced per animal, has therefore increased substantially over time. Historical growth in offtake ratios has been high for a number of emerging countries, particularly Brazil and China. In India and the Russian Federation, growth in offtake ratios has been for pork (see Table 1). The offtake ratios depend on many factors, such as the type of meat production system (intensive, pastoral, etc.), consumer preferences and other factors that vary greatly among countries. For instance, offtake ratios and their growth appear very low for some countries in Africa as animals may be kept for farm and work purposes. Apart from increased farm productivity, improvements in supply chain management, in particular cold chain management, have and will continue to have a very important impact on the growth of this sector. This is especially true in many developing countries where storage and transportation of meat have been limited.

3 Offtake ratios are computed as gross meat production divided by animal inventories.

3

4 0.3

0.5

0.5

-1.7

0 -0.2

4.9

0.3 0.7 1.5 0

percent/yr

2012-21

Projected

111

153

139

122

144 130

108

122 144 83 174

kg/head

2005-09

Offtake ratio

1.5

0.9

2.9

3.2

1 -0.2

3

4.2 1.2 5.3 2

percent/yr

1985-2011

Growth

1.2

0.5

1.5

2

0.7 -0.1

1.7

2.3 0.7 3.2 1.1

percent/yr

2012-21

Projected

Pork

4.6

8

7.7

5

8 13

3

14 9 9 7

kg/head

2005-09

Offtake ratio

1.2

1.4

0.1

8.4

0.5 1.8

3.2

4.6 1.4 4.4 0.7

percent/yr

1985-2011

Growth

0.8

0.8

0

1.1

0.3 1.1

1.8

2.5 0.8 2.7 0.4

percent/yr

2012-21

Projected

Poultry meat

Note: Growth estimates for the European Union (EU-27) and the world are limited to the period starting from 1996, the Russian Federation from 1992.

0.3

0.8

120

42

1.1

-2.7

57

80

Source: OECD and FAO Secretariats.

World

South Africa United States of America

Russian Federation

8.5

0.1 -0.3

55

91 133

China

EU-27 Japan

percent/yr

kg/head 0.5 1.3 2.5 0.1

1985-2011

2005-09

60 158 45 126

Argentina Australia Brazil Canada

Growth

Offtake ratio

Bovine meat

Table 1: Trends in meat offtake ratios in selected countries

Russian Federation - Meat sector review

Trade The latest available OECD-FAO projections at the time of preparing this report suggested that global imports of beef, pork and poultry meat will increase from 24 million tonnes per year (on average) in 2006-2010 to 31 million tonnes in 2021, an increase of 27 percent. The Russian Federation will decrease its meat imports from 3 to 1.3 million tonnes in the same period (down 57 percent) due to anticipated growth in domestic chicken meat and pork production. The share of the Russian Federation in global meat imports will also decrease from 12 percent in 2006-2010 to about 4 percent in 2021 (see Figure 3). From being the largest meat importers in the world in 2006-2010, by 2021 the Russian Federation is anticipated to move to the fourth position on the global import list after Japan, the sub-Saharan African countries and Saudi Arabia (see Figure 4). Figure 3: Global imports of meat, share of the Russian Federation’s imports and forecast, 2001-2021 35 12 24

25

27

29

28

28

28

27

31

30

30

30

29

12 10

9

20 19

8

7

7

15

6

6

6

6

5

10 5

2.4

3.0

2.3

0

2.0

11 0 20 201 06 20 g 05 av -20 01 20 g av

20

World trade (left axis)

12

1.9

20

13

1.7

20

14

1.7

20

15

1.6

20

Russian imports (left axis)

16

5

5

4

4

4

2

1.6

1.5

1.5

1.3

1.3

20

20

20

20

20

17

18

19

20

percent

million tonnes

30

14 13

0

21

Share of Russian Federation in production (right axis)

Source: OECD-FAO Agricultural Outlook 2012. Note: The meat total combines beef, pork and poultry meat.

5

Figure 4: Net meat trade balance in 2006-2010 and forecast for 2021 of major exporters and importers Brazil United States European Union-27 Canada Australia Thailand India Argentina New Zealand Uruguay

-3 000

-1 000

Ukraine Kazakhstan Turkey Malaysia Indonesia China Republic of South Africa Philippines Egypt Viet Nam Mexico Korea Russian Federation Saudi Arabia Sub Sharan Africa Japan 1 000 3 000 2006-2010 (average)

5 000

7 000

2021 (forecast)

Source: OECD-FAO Agricultural Outlook 2012. Note: The meat total combines beef, pork and poultry meat.

The growth in world meat imports is forecast despite strong anticipated meat prices through 2021. Population, income growth and high-income elasticity of demand will drive meat imports of developing countries. Led mostly by an expansion of poultry and beef shipments, world meat exports will increase to respond to the growing demand. The bulk of the growth is expected to originate largely from North and South America, which will account for nearly 70 percent of the total increase in all meat exported by 2021. The two largest contributors to export growth are the USA and Brazil, both of which will strengthen their dominance in world meat trade. By 2021, the USA and Brazil will generate nearly 80 percent of the expansion of world poultry trade.

6

Russian Federation - Meat sector review

Brazil, Australia, India, Canada, Argentina, New Zealand, Uruguay and Paraguay will be the main exporters of beef. Japan, the Russian Federation, the USA, Korea and Egypt will be its major importers. It is also expected that Iran and Viet Nam will continue increasing beef imports in the future. The EU, USA, Canada and Brazil will remain the main exporters of pork with Japan, the Koreas, Mexico, the Russian Federation and the sub-Saharan Africa countries being the main buyers by 2021. As for poultry meat, Brazil, the USA, Thailand, the EU and Argentina are expected to be the main exporters with the subSaharan Africa countries, Saudi Arabia, Viet Nam, Mexico and China being the main poultry meat importers by 2021.

Consumption World consumption of beef, pork and poultry meat will continue to grow at one of the highest rates among major agricultural commodities. Together with other factors such as changing consumer attitudes and preferences and relative prices, overall meat demand will be affected by two factors: population and income growth. In the past 30 years worldwide population growth contributed 60 percent to the overall growth in meat consumption with the remaining 40 percent being attributed to an increase of per capita income and per capita consumption growth. As shown on Figure 5, average global meat per capita consumption directly correlated4 with the per capita gross national income (GNI) measured at the purchasing price parity basis (PPP).

4 The correlation index between per capita meat consumption and gross national income (GNI) in 1980-2009 was 0.978 – pointing to a very strong correlation. Although the correlation was direct, it was less than proportionate. An average of 4.79 percent annual increase in per capita GNI generated an average 1.06 percent annual increase in per capita meat consumption, as consumers were also allocating income to other products and services.

7

12 000

43

10 000

38

8 000

33

6 000

kg

current international dollars

Figure 5: World per capita meat consumption and income, 1980-2009

28

4 000

23

2 000 0

2 2 2 2 2 1 1 1 1 1 1 1 1 1 80 982 984 986 988 990 992 994 996 998 000 002 004 006 008

19

PPP GNI per capita (left axis)

18

Consumption per capita (right axis)

Source: Authors’ calculations based on FAO Stat and World Bank Data.

It is expected that global per capita meat consumption will increase until 2021 with poultry accounting for 70 percent of anticipated growth (see Figure 6). Growth in developing countries is forecast to capture 82 percent of the additional global consumption by 2021. The per capita consumption of meat in the USA, the EU and Japan is not anticipated to change significantly from the levels observed in 2006-2010. However, it is anticipated to increase considerably in Uruguay, Brazil, Argentina, Chile, Malaysia, the Russian Federation, Ukraine and other countries, reflecting consumer income growth. In Eastern Europe, consumption of red meat still has a substantial growth potential and will also increase.

8

Russian Federation - Meat sector review

Figure 6: Annual per capita meat consumption in 2006-2010 and forecast until 2021 120 100

kg

80

97 97 93 90 87 83

60 40 75

70 64 61 60 97 87

20

34 34 25 23 50 50 38 44 46 41 42 41 38 35 33 31 18 19

Un

Ur u ite gua y d St at es Isr ae B l Eu Ar raz ro il g pe an enti na U Ru ni o ss ia Au n-2 n Fe stra 7 de lia ra tio n Ch M i l al e ay s Uk ia ra in Ko e Re re pu bl Ka Me a ic x of nza ico Sa kh ut sta h n Af ric a Sa ud Chi i A na ra W Vie bia or tN ld av am er ag Ja e pa Tu n rk Th ey ai la nd

0

71 78 78 61 65

54 53 53 52 49 49 47 46

2006 - 2010 (average)

2021 (average)

Source: OECD-FAO Agricultural Outlook 2012. Note: The meat total combines of beef, pork and poultry meat. Data may differ from official consumption estimates made by the Russian Government provided in this report.

Uncertainties The meat sector is highly sensitive to macroeconomic conditions policy conditions and animal health and food safety issues; this poses a significant risk to the validity of the projections provided in this chapter. Changes in oil prices and civil unrest have the potential to impact world meat trade. Animal diseases and changes in food safety regulations have the potential to affect domestic and regional meat production and consumers’ preferences. For instance, the Russian Federation imposed sanitary restrictions on meat imports from a number of Brazilian states in May 2011. The ban resulted in a substantial contraction of bilateral trade on beef and pork and the end of two years of almost uninterrupted monthly increases of world meat prices. Increasing consumer awareness of the livestock sector’s use of water resources, its contribution to greenhouse gas emissions and animal welfare issues will also likely affect demand for different kinds of meat, especially in developed countries. These factors affecting demand also need to be considered by potential investors.

9

It is currently expected that strong meat prices will result in sustained export earnings, which will encourage large meat exporting countries to further invest in production and exports despite the high incidence of food-safety and sanitary import bans. This investment in exporting countries will likely put increased competitive pressure on producers in the Russian Federation as the country is expected to liberalize meat imports in line with its WTO commitments.

10

Russian Federation - Meat sector review

Chapter 2 - The Russian Federation meat sector in brief Importance of the meat sector for the economy Agriculture accounted for about 6 percent of Russian Federation’s gross domestic product (GDP) in 2010. The livestock sector inclusive of all livestock, dairy and poultry – accounted for about 50-55 percent of agriculture output with the remaining output coming from crops and plant products (mostly grain, oilseeds, pulses, fruits, vegetables, etc.). Beef, veal, pork, poultry, sheep, goat and other kinds of meat accounted for about 38-43 percent of overall livestock sector production in 2005-2010 and 19-23 percent of the total agricultural production (see Table 2). Table 2: Role of livestock and meat in Russian agriculture and economy, billion RUR, 2005-2010 Indicator

2005

2006

2007

2008

2009

2010

21 610

26 917

33 248

41 277

38 809

45 166

1 381

1 571

1 932

2 461

2 516

2 619

6.4

5.8

5.8

6

6.5

5.8

711

806

929

1 155

1 277

1 439

295

328

367

442

556

591

1.4

1.2

1.1

1.1

1.4

1.3

Meat, % ag output

21.4

20.9

19

18

22.1

22.6

Meat, % livestock sector

41.5

40.7

39.5

38.3

43.6

41.1

GDP of which: Agricultural products Agricultural products, % GDP of which: Livestock sector of which: Meat from livestock and poultry Meat, % GDP

Source: Based on Federal Service of State Statistics (FSSS) of Russian Federation. Note: Found in “Russian Classification of Economic Activities (OKVED), # 01.02, under subsection DA 15.1 “Production of meat and meat products”.

11

The percentage of the population employed in agriculture (including both crop and livestock production) declined from 10 percent in 2005 to 8 percent in 2011 according to official statistics (FSSS) as trade, finance, construction and other sectors attract more employees. According to official statistics, 606 000 people were employed in meat production in 20105. As their productivity increases, the number of employees involved in meat production and processing declines and incomes increase (see Table 3). Table 3: Employees and incomes in meat and meat product production, 2005-2010 2005

2006

2007

2008

2009

2010

Change 2011 vs. 2005

50

54

63

72

77

82

65%

Average number of all employees, thousand persons

1 167

1 003

888

695

639

606

- 48%

Average annual gross income per employee, RUR/month

3 544

4 515

5 948

8 583

10 056

11 294

219%

Payroll fund for all employees, RUR billion/year

Source: FSSS. Note: Income in current prices.

The meat processing industry alone accounts for about 7 percent of the 2.5 million people employed in the country’s food processing industry. The number of employees in the meat processing sector increased from 165 000 people in 2005 to 189 000 people in 2010, reflecting an overall expansion. This expansion underlines the importance of the industry as a source of local job creation. In addition to formal employment, raising livestock and poultry play a significant role in informal or self-employment in the Russian Federation as smallholder producers still account for a sizable share in total livestock production. Despite the decreasing share of smallholder farms in total livestock production – from 54 percent (2.7 million tonnes of livestock in slaughter height) in 2003 to 34

5 Found in “Russian Classification of Economic Activities (OKVED), # 01.02, under subsection DA 15.1 “Production of meat and meat products”.

12

Russian Federation - Meat sector review

percent (2.5 million tonnes) in 2011,compared with commercial farms that increased livestock production from 2.2 to 4.8 million tonnes – small livestock producers are still an important source of rural employment and incomes in the Russian Federation. Poultry, pork and beef account for 91 percent of all meat products in the Russian Federation (2010, FAO Stat) namely: poultry meat for 38 percent of all meat output, pork for 32 percent and beef and veal for 21 percent. According to national statistics, mutton and lamb are important meats especially in the Southern and North Caucasian Federal Districts. The latter types of meat were not included in this review because sheep meat accounts for only 2 percent, horse meat for 1 percent and other types of meat for 4 percent of the nation-wide total meat output.

Meat market development and outlook until 2021 The Russian meat sector has been undergoing a major transition, which is largely unprecedented in modern history and has followed the breakup of the Soviet Union in 1991. The downward trend in cattle inventories began in 1990. Cattle numbers declined from 59 million heads to 28 million heads in 2000 and then below 21 million heads in 2010, thus registering a tremendous 65 percent decrease in livestock numbers since 1990. This downward trend has slowed in recent years, but it is still ongoing. Amongst all transition economies in the EBRD regions of operation, only Ukraine witnessed such a drastic decrease in the number of cattle herds: from 25 million heads in 1990 to 5 million in 2010, or an 80 percent decrease. The decrease in livestock inventories can partially be attributed to the adjustments in the closely related dairy sector. As farmers increased productivity of the milk heard, they continued slaughtering dairy and dual-purpose cows. Specialized beef production is almost non-existent in the Russian Federation, so dairy and dual-purpose cows slaughter has been reflected in lower cattle inventories and decrease of domestic beef production potential. This downward trend in cattle inventories inevitably resulted in decreased domestic beef production and increased imports. Swine inventories also decreased dramatically from 40 million heads in 1990 to 18 million in 2000. But the downward trend was reversed in 2005 owing to generous state support and trade measures. Nevertheless, the Russian Federation still witnessed a 57 percent decrease in swine numbers from 1990 to 2010. Poultry production has witnessed the fastest recovery during the

13

same period, because it is a sector that allows for a shorter payback period on investments as compared with pork and beef production. In 2006, poultry meat became the most important meat type produced in the Russian Federation, and by 2010 farmers produced 180 percent more chicken meat than in the early 1990s. There are number of outlooks on the short- and medium-term perspectives of the Russian meat sector. These outlooks are prepared at national and international levels and use different approaches. Box 1 below briefly discusses the main sector development forecasts available.

14

Russian Federation - Meat sector review

Box 1: Mid-term meat production forecasts for the Russian Federation and their various sources According to official statistics, production of all kinds of meat in Russia has been growing fast while meat imports have decreased since 2009 (see Table 4). The Russian Government, in its Strategy of Livestock Production Development in the Russian Federation untill 20201, forecasts that the total production of all types of meat will reach 9.6 million tonnes, imports will decrease to 0.6 million and domestic consumption will increase to 9.9 million tonnes by 2020. The same strategy envisages that Russia will export 0.6 million tonnes of meat, including 400 000 tonnes of poultry and 200 000 tonnes of pork (Table 4). The latest available forecast by OECD-FAO at the time of report finalization2 suggested that the Russian meat production (beef, pork and poultry) might increase to 9.4 million tonnes by 2020 – an estimate very similar to the Russian Ministry of Agriculture’s. The latest results of meat trade simulations conducted by FAO in February 2013 suggest that meat imports may decrease from earlier forecasted levels; however, it is doubtful that the Russian Federation would be able to export 0.6 million tonnes of all kinds of meat considering its strong domestic demand. In this review, forecasts from both the government of the Russian Federation and the OECD-FAO Mid-term Agricultural Outlook are mostly used. Similar to OECD-FAO Agricultural Outlook, there are other sources of mid-term market outlook that are based on global partial-equilibrium econometric models. For instance, the USDA’s international baseline projections3, suggest that Russian meat production will increase to 12.5 million tonnes by 2020 (including 6.7 million tonnes of beef, 2.4 million tonnes of pork and 3.4 million tonnes of poultry meat) while imports will remain high at about 2 million tonnes (e.g. will not show signs of drastic decrease and will reflect more rapidly increasing domestic consumption). Interested readers can also refer to the outlook by the Food and Agricultural Policy Research Institute (FAPRI), which covers beef, pork and poultry sectors in the Russian Federation and Ukraine among other countries. 1  Approved by the Order No. 267 by the Russian Federation Ministry of Agriculture, dated 10 August 2011; published by the Ministry of Agriculture of the Russian Federation in August 2011, http://mcx.ru/documents/document/show/16974.77.htm, Russian version only). May 2012, http://www.oecd.org/site/oecd-faoagriculturaloutlook). 2  (January 2013), available at http://www.ers.usda.gov/data-products/international-baseline-data 3  aspx.

15

Figure 7 shows a historical perspective of beef and veal, pork and poultry meat production in the Russian Federation starting in 1998. It also provides a medium-term OECD-FAO meat production outlook until 2021 based on the 2012 projections. Figure 7: Russian Federation’s production of beef, pork and poultry in 1998-2011 and mid-term outlook until 2021 4 500

4 113 10 9

3 179

3 500 3 000

3 1191

7

2 461

2 500

2 068

2 000

8

1 710

6 5

1 500

4

1 000

3

500

2

0

19

98

20

20

00

02

20

04

20

06

20

08

20

10

20

12

20

14

20

16

20

18

percent

thousand tonnes

4 000

1

20

20

Beef and veal (cwe) (left axis)

Pigmeat (cwe) (left axis)

Share of Russian Federation in world beef and veal production (right axis)

Poultry meat (rtc) (left axis)

Share of Russian Federation in world pigmeat meat (right axis)

Share of Russian Federation in world poultry meat (right axis)

Source: OECD-FAO 2012.

Production of meat in the Russian Federation has been growing fast while meat imports have decreased since 2009, according to official statistics. This trend is expected to continue in the future (see Table 4 and for more details Box 1). Table 4: All meats supply and demand, thousand tonnes, 2005-2020 2005

2006

2007

2008

2009

2010

2015*

2020*

Production

4 920

5 209

5 722

6 202

6 648

7 090

8 688

9 636

Consumption

7 505

7 894

8 505

9 134

9 072

9 139

9 678

9 876

Import

2 585

2 685

2 784

2 935

2 423

1 930

1 050

640

Export

0

0

1

3

6

19

100

600

Source: FSSS of Russian Federation, Meat Union of Russia and Meatinfo. * Forecast from Strategy on Livestock Production Development in the Russian Federation until 2020.

16

Russian Federation - Meat sector review

Overall, the Russian Federation’s consumption of all types of meat increased by 21.8 percent – from 7.5 million tonnes in 2005 to 9.1 million tonnes in 2010 – which reflected higher consumer incomes. According to official Russian statistics, the average monthly nominal incomes rose 2.4 times, from RUR 8 176 in 2005 to RUR 19 960 per month in 2010. In 2005-2010, meat imports decreased by 47.9 percent, from 2.6 to 1.9 million tonnes (see Figure 8). This decrease was mainly because of increased domestic production, shrunken poultry meat imports in 2010 (see Table 5) and sanitary import restrictions imposed by the Russian veterinary authorities.

10

80

9

76

8

74

7

72

6 5

70 68

4 3

66 64

2

62

1 -

60 2005

2006 Production (left axis)

2007

2008

Import (left axis)

2009

2010

percent

million tonnes

Figure 8: Russian Federation’s meat production imports and levels of self-sufficiency, 2005-2010

58

Self-sufficiency (right axis)

Source: FSSS of Russian Federation.

Table 5 and the analysis that follows provide a snapshot of poultry, pork and beef and veal market development and trends and official sector development forecasts. As seen in Figure 9 below, poultry meat production increased from 1.5 to almost 3 million tonnes between 2005 and 2010, growing 15 percent per year on average. Poultry imports during the same period almost halved as a result of increasing domestic production, import measures and changing consumer preferences.

17

Table 5: Supply and demand for different types of meat and its forecast, thousand tonnes, 2005-2020

Poultry

Pork

Beef

Indicator

2005

2006

2007

2008

2009

2010 2015* 2020*

Production

1 388

1 632

1 925

2 217

2 555

2 847

3 850

4 251

Consumption**

2 706

2 906

3 219

3 438

3 541

3 512

4 030

3 941

Import

1 318

1 274

1 295

1 224

986

661

Export

0

0

1

3

6

Production

1 569

1 699

1 930

2 042

Consumption

2 154

2 361

2 615

Import

585

662

Export

0

Production

240

90

***

60

400

2 170

2 331

2 925

3 389

2 864

2 836

2 970

3 165

3 439

685

822

667

639

240

50

0

0

0

0

0

40

200

1 809

1 722

1 699

1 769

1 741

1 727

1 715

1 786

Consumption

2 484

2 456

2 488

2 643

2 502

2 463

2 285

2 286

Import

674

734

789

874

760

621

570

500

Export

0

0

0

0

0

0

0

0

19

Source: FSSS, Meat Union of Russia and Meatinfo. * Forecast from Strategy on Livestock Production Development in the Russian Federation until 2020. ** Consumption of meat and meat products calculated as raw meat equivalent. Data exclude pork fat and edible by-products. *** Other sources state 15 000 tonnes.

18

Russian Federation - Meat sector review

4.0

80

3.5

70

3.0

60

2.5

50

2.0

40

1.5

30

1.0

20

0.5

10

-

2005

2006

2007

Production (left axis)

Import (left axis)

2008

2009

2010

percent

million tonnes

Figure 9: Russian Federation’s production, imports and self-sufficiency in poultry meat, 2005-2010

0

Self-sufficiency (right axis)

Source: FSSS of Russian Federation

Poultry inventories, slaughter and live weight (yield6) directly influenced meat production, and Table 6 illustrates these relations in the Russian Federation using chicken inventories and slaughter. It is clear that the growth in chicken inventories and slaughter was the main reason behind increased meat production. It should be noted that the information provided in Table 6 includes all chickens, those raised by private households for meat and eggs as well as the meat received from spent hens at the commercial egg production farms. In six years, from 2005 to 2011, chicken slaughter increased by 91 percent, while meat yield increased by only 13 percent, from 1.4 kg per head in 2005 to 1.58 kg per head in 2011. Broiler yields are believed to have increased even more rapidly.

6 Meat yields indicate the carcass weight equivalent after animal slaughter (for cattle or swine) or ready-to-cook equivalent for poultry meat.

19

Table 6: Chicken inventories, slaughter, yields and meat production in the Russian Federation, 2005-2011 2005

2006

2007

2008

2009

2010

2011

Change 2011 vs. 2005

Chicken inventories as of Jan. 1, mln head

329

343

358

351

366

391

406

24%

Chicken slaughter, mln head

96

108

125

132

151

166

184

91%

Chicken meat production, mln tonnes

1.35

1.58

1.87

2.00

2.31

2.56

2.91

116%

Yield, kg/head

1.40

1.47

1.50

1.52

1.53

1.55

1.58

13%

Source: FAO Stat based on official Russian statistics. Note: Includes only chicken inventories and production.

The Russian Federation’s pork production expanded by 49 percent from 2005 to 2010 and was accompanied by a 38 percent increase in consumption. Imports continued to grow over the same period, however, even if at the low pace of 9 percent. In 2010 imported pork, which mostly goes for further processing, held 22 percent of the domestic market share, compared with 27 percent in 2005.

3.5

80

3.0

78

2.5

76

2.0

74

1.5

72

1.0

70

0.5

68

-

2005

2006

2007

Production (left axis) Source: FSSS of Russian Federation.

20

2008

Import (left axis)

2009 Self-sufficiency (right axis)

2010

66

percent

million tonnes

Figure 10: Russian Federation’s production, imports and selfsufficiency in pork, 2005-2010

Russian Federation - Meat sector review

Similar to the poultry sector, the main sources of increasing pork production in 2005-2011 were the rise of pig inventories and slaughter. Pig inventories in the Russian Federation increased from 13.4 million heads in 2005 to 17.2 million heads in 2011, or by 28 percent. The increase in slaughter during the same period was even more impressive at 59 percent (see Table 7). Although slaughter yields have remained almost unchanged at 84 kilograms per head, it should be noted that pork production efficiency has improved. In 2005, the number of slaughtered animals exceeded beginning pig inventories by 36 percent. In 2011, pig slaughter exceeded beginning inventories by 69 percent, pointing to intensified pork production, shorter growing cycles and faster animal turnover in swine production facilities. Table 7: Pig inventories, slaughter, yields and meat production in the Russian Federation, 2005-2011

2005

2006

2007

2008

2009

2010

2011

Change 2011 vs. 2005

Pig inventories as of Jan 1, mln head

13.4

13.5

15.9

16.3

16.2

17.2

17.2

28%

Pig slaughter, mln head

18.3

19.4

22.3

24.1

26.0

28.0

29.1

59%

Pig slaughter, percent of inventories

136

145

140

147

161

162

169

24%

Yield, kg/head

83

84

84

85

83

83

84

1%

1.52

1.64

1.87

2.04

2.17

2.33

2.43

60%

Pork production, mln tonnes

Source: FAO Stat based on official Russian statistics.

Unlike the increase of domestic production of poultry and pork, beef production has continued to decline. As can be seen in Figure 11, imports of beef experienced a peak in 2008 and then started declining, which resulted in a decreasing beef supply.

21

3 000

74

2 500

72

2 000

70

1 500

68

1 000

66

500

64

0

2005

2006

2007

Production (left axis)

2008

Import (left axis)

2009

2010

percent

million tonnes

Figure 11: Russian Federation’s production, imports and level of self-sufficiency in beef, 2005-2010

0

Self-sufficiency (right axis)

Source: FSSS of Russian Federation.

The beef and veal production decline has reflected decreasing cattle inventories and slaughter as indicated in Table 8. During the period of 2005-2011, Russian farmers continued cattle slaughter at a faster pace than the cattle heard was rebuilt owing to low profitability of raising animals. From 2005 to 2011, there was a decrease of three million cattle heads: a drop of 13 percent. Another reason behind decreasing cattle inventories is ongoing adjustments in the dairy sector. As cow yields increase and feed conversion rates improve, farmers continue to decrease the number of dairy cows. Since Soviet Union times (and, to a considerable extent, now) beef has been a by-product of the milk production. Despite some success of the federal programme “Development of meat cattle breeding in Russia for 2009-2012” and the launch of several big projects, the pure-bred beef cattle inventories remain very low: between 450 and 500 thousand heads, according to different estimates. The Russian beef sector has shown some signs of recovery in recent years. Farmers tend to feed their cattle better and slaughter them at higher slaughter weights. The average yield of cattle in the Russian Federation increased from 168 kilograms per head in 2005 to 190 kilograms in 2011: a 13 percent increase as indicated in Table  8.

22

Russian Federation - Meat sector review

Table 8: Cattle inventories, slaughter, yields and beef and veal production in the Russian Federation, 2005-2011 2005

2006

2007

2008

2009

2010

2011

Change 2011 vs. 2005

Cattle inventories as of 1 Jan, mln head

23.0

21.5

21.5

21.5

21.0

20.7

20.0

-13%

Cattle slaughter, mln head

10.7

9.6

9.5

9.6

9.4

9.3

8.6

-20%

Yield, kg/head

168

177

178

184

185

185

190

13%

1.8

1.7

1.7

1.8

1.7

1.7

1.6

-9%

Beef and veal production, mln tonnes

Source: FAO Stat based on official Russian statistics.

Summary of main risks and opportunities in the meat industry Table 9 summarizes the industry’s main risks, opportunities and risk mitigation options. The types of risks are divided into the following broad categories: production and infrastructure, animal disease and epizootic situation, investment-related and policy. Table 9: Main risks, opportunities and risk mitigation options in the Russian meat sector

Production/Infrastructure

Type of risk

Risk description

Possible consequences

Mitigation and opportunities

• high volatility in feed prices

• additional costs for project’s startup development

• vertical integration with feed production

• poor quality of purchased feeds

• decreasing margin and lack of working capital

• feed price risk hedging for outsourced grain/feed

• lack of experience and knowledge of key staff and (nutrition, vet services, management, etc.)

• low quality/food safety of the final product

• investment in staff training and education, outsourcing of key services to result in better production indicators

• poor infrastructure (electricity outages, road transportation blocked in winter, etc.)

• low competitiveness and loss of market share

• lack of effective food safety control/monitoring system

• inability to improve feed conversion and other efficiency indicators

• location in areas with welldeveloped infrastructure

23

Risk description

Possible consequences

Mitigation and opportunities

• African swine fever

• risk of flocks/heard depopulation

• investment in veterinary services and biosecurity measures

• avian influenza

• loss of investment

• work with local communities to create buffer zones around production facilities

Epizootic

Type of risk

• trade disruptions and bans • other diseases

• significantly delayed payback period

• disease

Policy

Investment and financial

• significant additional expenditures on eradication leading to bankruptcy • long payback periods, especially in cattle/beef production

• limited expansion capacity

• cancellation or reduction of current interest rate subsidies due to policy changes

• reduced profitability, increased costs

• increase of credit interest • reduced or negative margins and higher risks of loan rates defaults

• legally binding commitments from government/local authorities and banking sector

• lack of operating capital due to financial sector crisis.

• inability to purchase inputs and feed in a timely manner (reduces production volumes and cash flow income to critical levels)

• reduced availability of public funding due to lower budget revenues or public focus shifting to other priorities

• higher interest rates and lack of state co-financing

• investment planning assuming stiffer import competition and minimum tariff protection

• the Russian Federation’s accession to the WTO and decreased import tariff protection

• lack of operating and investment capital as financial institutions shift focus away from agriculture/ meat sector

• investment planning without price support payments

• the need to restrict overall domestic support in line with WTO commitments

• reduced sales and incomes

• changes in standards and regulations (environmental, waste treatment, food safety, animal welfare)

• slow growth, extended payback or bankruptcy

Source: Author/LMC International, based on calculations and estimates.

24

• investment planning at market rather than subsidized interest rates

• plan investment considering the latest environmental, animal production and advanced food safety systems

Russian Federation - Meat sector review

Chapter 3 - Detailed review of the meat sector Meat production structure: increasing the role of commercial farms There are three main types of farms that raise livestock and poultry in the Russian Federation: agricultural enterprises (commercial farms), individual (peasant) farms and rural households (smallholders that produce food for own consumption and often have extra non-farm income). The recent growth in livestock and poultry inventories has been accompanied by the changing roles of different farm types. The role of commercial meat producers has increased considerably owing to their better access to state financing, economy of scale, growing industry consolidation, the decreasing role of traditional meat markets and the increasing role of modern retail chains. The latter demands steady meat supplies, high quantities, uniform quality and food safety standards. Most of the support programmes described later in this report require that farms be registered as official businesses to receive state support or qualify for an interest rate subsidy on credit. Rural households decreased their inventories of all kinds of poultry (chickens, turkey, ducks, geese, etc.) from 113 million head in 2005 to 97 million head in 2010 (down 15 percent), and agricultural enterprises increased their poultry numbers from 241 million head in 2005 to 348 million during the same period (up 44 percent). Correspondingly, the share of agricultural enterprises in poultry inventories increased from 68 percent in 2005 to 77 percent in 2010 while the share of rural households decreased from 32 percent in 2005 to 21 percent in 2010 (see Figure 12). Alongside economic reasons, social and demographic factors – such as an ageing rural population and migration of young people to urban areas – cause this decrease of livestock and poultry production by rural households. Gender does not play a significant role in the development of the meat sector in the Russian Federation and was not reviewed in this report. The individual (peasant) farms have maintained 1 percent of poultry inventories in 2005-2010 (see Figure 12). The outgrowing farming schemes involving individual farmers contracted by meat processors

25

to raise chickens are not popular in the Russian Federation because individual farmers are not considered to be reliable suppliers. This may explain their low share in total poultry inventories. Figure 12: Structure of poultry inventories by type of farm, 2005-2010 100 32%

31%

28%

1%

1%

1%

68%

68%

71%

percent

80

25%

23%

21%

1%

1%

1%

74%

76%

77%

60 40 20

0

2005

2006

Agricultural enterprise

2007

2008

Individual (peasant) farm

2009

2010

Rural households (smallholder)

Source: FSSS of Russian Federation.

While poultry production structure varies considerably by region, each subsector has its peculiarities. Raising chickens in rural households is popular in all rural territories of the Russian Federation as hens are mostly used to supply eggs for in-house consumption. However, in southern regions (Rostov, Krasnodar and Stavropol and North Caucasian Republics) backyard commercial broiler farms supply a considerable volume of broilers, turkeys, ducks and geese to the local meat markets. This is explained by availability of feed wheat, corn, sunflower and other feeds at affordable prices, favorable climate and a tradition of raising backyard poultry. Similar backyard production is registered in the Republics of Tatarstan and Bashkortostan. The regional production structure is described later in this report. Similar trends were observed in the structure of pig inventories in 2005-2010: agricultural enterprises increased pig inventories from 7 million to 11 million heads (up 48 percent) while rural households decreased, from 6 million to 5.6 million heads (down 5.5 percent). Therefore, rural households’ share of total pig inventories decreased by 9 percent from 2005 until 2010 (see Figure 13). Individual farms also played a more important role in

26

Russian Federation - Meat sector review

pork production than in poultry as they accounted for 4 percent of all pig inventories. Figure 13: Structure of pig inventories by type of farm, 2005-2010 100

percent

80

43%

43%

60

38%

41%

4%

5%

5%

5%

53%

52%

53%

57%

40 20 0

2005

2006

Agricultural enterprise

2007

2008

Individual (peasant) farm

34%

33%

4%

5%

62%

63%

2009

2010

Rural households (smallholder)

Source: FSSS of Russian Federation.

The cattle inventories held by both major types of farms continued to decline. Agricultural enterprises decreased cattle numbers from 11 million in 2005 to 9.3 million heads in 2010 (down 16 percent). Rural households also continued cattle slaughter although at a slower pace: from 9.6 million heads in 2005 to 9.2 million in 2010 (down 4 percent). An emerging growth of individual farmers as producers is the main difference in cattle inventories and their structure as compared with poultry and swine. The cattle inventories held by the individual farmers increased from 0.9 million heads in 2005 to 1.5 million in 2010 according to official Russian statistics (up 58 percent). Correspondingly, the share of individual farmers in total cattle production increased from 4 percent in 2005 to 7 percent in 2010 (see Figure 14).

27

Figure 14: Structure of cattle inventories by type of farm, 2005-2010 100

percent

80

51%

49%

48%

48%

46%

46%

4%

5%

6%

6%

7%

7%

51%

49%

48%

47%

46%

46%

60 40 20

0 2005

2006

Agricultural enterprise

2007

2008

Individual (peasant) farm

2009

2010

Rural household (smallholder)

Source: FSSS of Russian Federation.

As already mentioned, raising and slaughtering cattle is closely linked with dairy herd replacements (Box 2). Cattle inventories diminished as milk yields and production increased and farmers reduced cow numbers. In 2010, an average milk yield per cow in the Russian Federation was about 3 800 kg per year, or 18 percent more than in 2005. The increase in cow milk productivity occurred despite the decrease of cattle inventories from 9.6 million cows in 2005 to 8.3 million in 2010 (down 13 percent). Box 2: Beef cattle production perspectives According to the state scientific institution All-Russia Scientific Research Institute Of Meat Cattle Breeding, only about 5 percent of local beef comes from beef cattle or cross-breeds (more information on cattle breeds in the Russian Federation is provided in the Annex 2 of this report). The Ministry of Agriculture of the Russian Federation identified two areas of improvement in its "Development of Beef Cattle in Russia 2009-2012" programme: (i) intensification of the use of cattle feedlots to increase daily weight gains and slaughter weights and decrease cattle age at slaughter to below 24 months; and (ii) increase in cattle inventories. With regards to the beef market, high quality beef has become available only recently when the country started importing beef from the USA, Brazil, Australia, the EU and Argentina. Beef production will likely continue to develop as a niche market limited to the demand of high-income consumers in big cities.

28

Russian Federation - Meat sector review

Meat supply In 2010, the Russian meat market (calculated in raw meat equivalent as domestic production, added to by meat imports and subtracted from by exports) increased by 22 percent as compared with 2005 (see Table 10). Table 10: Meat market, thousand tonnes Meat type

2005

2006

2007

2008

2009

2010

Change 2010 vs. 2005

Poultry

2 706

2 906

3 219

3 438

3 541

3 512

+30%

Pork

2 154

2 361

2 615

2 864

2 836

2 970

+38%

Beef

2 484

2 456

2 488

2 643

2 502

2 463

-0.8%

161

171

183

189

193

194

+20.5%

7 505

7 894

8 505

9 134

9 072

9 139

+22%

Other kinds of meat** Total

Source: FSSS of Russian Federation, Meat Union of Russia and Meatinfo. * Calculated as production + imports - exports = consumption. ** Lamb and goat meat.

Within this trend, the poultry meat and pork subsectors experienced the highest growth rate of 30 and 38 percent respectively. Changes in the beef supply were insignificant (down 0.8 percent). The major changes in the structure of the Russian meat market occurred because of the expansion of poultry production and reduction of beef supply (see Figure 15).

29

Figure 15: Recent developments in the meat market structure, 2005-2010 2%

2%

2%

2%

2%

2%

36%

37%

38%

38%

39%

38%

29%

30%

31%

31%

31%

33%

33%

31%

29%

29% 29%

28%

27%

2005

2006

2009

2010

100 90 80

percent

70 60 50 40 30 20 10 0

Veal & beef

2007 Pork

2008 Poultry

Other types of meat

Source: FSSS of Russian Federation, Meat Union of Russia and Meatinfo.

In 2010, the meat market value in the Russian Federation increased by 75 percent as compared with 2005, reaching about RUR 930 billion (in current prices). The pork market was a growth leader expanding at a 94 percent by value because of demand and price increases. Poultry and beef market turnovers grew at an equal pace of about 65 percent (see Table 11). Table 11: Meat market value, million RUR, excl. value added tax (VAT), 2005-2010 Change 2010 2010 vs. 2005

Meat type

2005

2006

2007

2008

2009

Poultry

150.7

148.9

181.8

216.7

252.7

248.9

+65%

Pork

177.4

197.8

206.4

294.3

324.8

343.6

+94%

Beef

191.3

216.6

221.9

272.6

287.6

314.0

+64%

11.1

15.3

16.4

20.1

24.6

22.1

+99%

530.4

578.5

626.6

803.8

889.8

928.6

+75%

Other kinds of meat Total

Source: FSSS of Russian Federation, Meat Union of Russia and Meatinfo. Note: Calculations based on slaughter weight and producers’ prices.

30

Russian Federation - Meat sector review

While poultry is an absolute leader on the Russian meat market for volume, it held 27 percent share by value in 2010. Pork held 38 percent of the total meat market in 2010 and was followed by beef at 33.8 percent (see Figure 16 and Figure 17). Figure 16: Meat market structure, 2010, in value 2.1%

Poultry 27.0%

Pork Beef 38% Other types of meat

33%

Source: FSSS of Russian Federation, Meat Union of Russia and Meatinfo.

Figure 17: Meat market structure, 2010, in volume 2.1%

27.0%

26%

Poultry Pork Beef Other types of meat

38%

Source: FSSS of Russian Federation, Meat Union of Russia and Meatinfo.

31

Meat consumption According to FAO Stat, per capita meat consumption in the Russian Federation started declining in the 1990s. It bottomed out in 2000 when about 40 kg of all kinds of meat were consumed per person as compared with more than 60 kg consumed in the early 1990s. Since 2000, meat consumption has increasingly reflected higher consumer incomes and overall economic growth driven by high oil and gas prices (see Figure 18). In 2005, the Russian Federation became a high-income country according to the World Bank. Meat consumption and sales increased at a pace of 12 percent p.a. on average during 2005-2010. Figure 18: Per capita meat consumption and GNI in the Russian Federation, 1992-2009

20 000

60

kg

10 000 20

0

5 000

1992

1994

1996

1998

2000

Meat consumption per capita (left axis)

2002

2004

2006

2008

0

PPP GNI per capita (right axis)

Source: FAO Stat and World Bank Data.

In 2010, Russian consumers ate about 9.1 million tonnes of meat each year. This figure corresponds to about 64 kilograms per capita as compared with 52 kg per capita in 2005. Figure 19 describes the estimated per capita consumption of the main types of meat.

32

current international dollars

15 000 40

Russian Federation - Meat sector review

Figure 19: Per capita meat and meat products consumption in the Russian Federation, calculated in fresh meat equivalent, 2005-2010 70.0

1.1

kg/year

50.0 40.0

1.3

1.4

1.4

18.6

17.6

17.3

20.2

20.0

20.9

24.2

25.0

24.7

2008

2009

2010

1.3

60.0

17.4

30.0 15.1

1.2 17.2

16.6

17.5

18.4

20.0 10.0 0.0

18.9

2005

20.4

2006 Poultry

22.7

2007 Pork

Beef

Other types of meat

Source: FSSS of Russian Federation, Meat Union of Russia and Meatinfo.

According to official statistics, the share of other kinds of meat – such as lamb, mutton and rabbit – in overall meat consumption was not important. Although meat consumption has increased considerably, it still has not reached the so-called “rational norm of consumption” (in Russian, рациональная норма потребления) of 75 kg per capita per year7 established by the Ministry of Health of the Russian Federation. Compared with other countries (see Figure 6), the growth potential for meat consumption in the Russian Federation is significant. The growing urban population in the Russian Federation’s cities provided a big boost to the development of the retail market in the country; the growth of meat sales was one of the results of this change. Consumer preferences have also revealed the following main trends:

7 Order No. 593-n of 2 August 2010. “On approval of recommendations on rational norms of food products consumption corresponding to existing requirements of health nutrition.”

33

• consumers look for value-added cuts rather than whole birds; • consumers tend to prefer chilled meat rather than frozen; • b eef is no longer a meat for everyday consumption, unlike in Soviet times; • chicken meat has taken the place of beef in everyday diets; • a s the poultry meat market becomes saturated, pork consumption grows (including pork that is further processed into sausages, smoked meat, meat delicacies, etc. with a longer shelf-life); • c onsumers’ increasing awareness of food safety issues (see Box 5 on food safety). Seasonality of consumption Each type of meat has its own seasonality of consumption, and the demand for meat derives from the final meat products consumption. Table 12 provides a summary of the main seasonal consumption patterns in the Russian Federation. Table 12: Seasonal meat consumption patterns Type of meat

Product

Season

Poultry

Whole chickens

Year-round + holidays

Poultry

Chicken cuts

Year-round + summer

Poultry

Turkey

Year-round, New Year’s Eve

Pork

Bone-in

Autumn-winter-spring (except during Lent)

Pork

Half-carcass

Year-round

Pork

Boneless

Year-round + holidays

Pork

Neck (collar)

Summer

Beef

Year-round (less in summer)

Further processed

Sausages, franks, hams

Year-round

Further processed

Delicacies

Weekends and holidays

Source: Piter Consult, ROMIR and GFK research companies.

The seasonality of consumption also affects imports. The peak of meat demand falls in October, November and December. It coincides with the slaughter season for cattle and pigs in rural households and the upcoming New Year and Christmas festivities. Purchasing volumes consequently decline in January. The lowest consumption levels for all types of meat is registered during Great Lent, which

34

Russian Federation - Meat sector review

usually takes place in late February – early April, and late summer – early autumn (August and September) when the domestic market is abundant with less expensive fruits and vegetables. Household disposable income and consumption patterns The share of expenses on meat and meat products in the overall purchase basket decreased from 10.7 percent in 2006 to 9.6 percent in 2010 according to official statistics. However, compared to overall food consumption, which saw a decrease in expenditures from 43 percent in 2006 to 38 percent in 2010, meat share in consumer expenditures declined at a slower pace (see Table 13). Table 13: Consumer expenditures in the Russian Federation, 2006-2010, percent (current prices) Name of groups

2006

2007

2008

2009

2010

100.00

100.00

100.00

100.00

100.00

Food products

42.71

40.21

39.11

37.70

37.97

- incl. meat products

10.71

10.28

9.81

9.59

9.64

Non-food products

33.74

35.13

35.99

37.37

36.25

Services

23.55

24.66

24.90

24.93

25.78

All goods and services

Source: FSSS of Russian Federation.

On average, Russians spend about 8.1 percent of their total income on meat and meat products (see Table 14). Table 14: Share of expenses on meat and meat products in household incomes, 2010 Units

All households

Incl. in urban areas

Incl. in rural areas

Aggregate income per member of the household

RUR/ month

12 688

14 357

10 129

Expenses for meat and meat products

RUR/ month

1 034

1 094

869

percent

8.1

7.6

8.6

Index

Share of expenses for meat and meat products in aggregate income

Source: Author/LMC International, based on calculations and estimates.

35

A significant share of food products consumed by households (vegetables, fruits, preserved and canned products, meat, dairy, eggs, etc.) often comes from their own production, especially in the case of households located in rural areas. According to the official strategy of meat sector development, the consumption of meat and meat products is expected to reach 71.2 kg per capita by 2015 and 75.28 kg by 2020. Poultry is expected to lead the market with 38 percent on volumes, followed by pork (36 percent) and beef (23 percent), while other meat types will hold a marginal 3 percent. It should be noted, that this official forecast is based on recent domestic consumption trends, anticipated production growth and import substitution goals set by the Russian Federation. Its ultimate goal is to reach the “rational meat consumption norm” of 72 kg of meat per person per year. It is natural that these official forecasts exceed the midterm forecasts presented earlier in this report as the latter also consider global macroeconomic development indicators that affect production, consumption and prices in the major producing and consuming countries.

Geography of poultry and livestock inventories Meat production in the Russian Federation is mostly concentrated in the southwest and, to a certain extent, central parts of the country. Readers interested in more information on production structure, processing, investment and issues of the meat value chain in this important meat-producing region may also refer to the chapter on the meat food chain in southern Russian Federation in the FAO-EBRD Analysis of the Agribusiness Sector in southern Russian Federation9. The highest concentrations of poultry inventories are in Central (29 percent), Volga (20.2 percent) and Southern (13.1 percent) Federal Districts (see Figure 20). The specific regions with the highest poultry stocks are Belgorod (10.1 percent), Rostov (5.4 percent) and Leningrad (5.1 percent).

8 78.6 kg according to the Russian Meat Union. 9 http://www.fao.org/investment/tci-publications/publications-detail/en/c/165747/.

36

Russian Federation - Meat sector review

Figure 20: Share of Federal Districts in poultry inventories Far Eastern Siberian

Central

2% 21%

Ural

Volga

29%

9%

9%

20%

6%

N. Western

13%

N. Caucasian

Southern

Source: FSSS of Russian Federation.

As pork production is mostly dependent on the availability of feed grains and protein meals, raising pigs is popular in the southwestern part of the Russian Federation (see Figure 21). Figure 21: Geographical distribution of pig inventories in the Russian Federation, 2011

thd Heads 0-4 40.1-90

90.1-160 160.1-300

300.1-500 over-500.1

Source: FSSS of Russian Federation.

The highest concentrations of pork inventories are in the Central (34.6 percent), Volga (21.4 percent) and Siberian (17.6 percent)

37

Federal Districts (see Figure 22). The regions with the highest pork stocks are Belgorod, Krasnodar and Tatarstan. Figure 22: Share of Federal Districts in pig inventories Far Eastern 2%

Siberian

Central

18 %

Ural

35 %

7%

4%

21 %

N. Western

Volga 2%

11 % Southern

N. Caucasian

Source: FSSS of Russian Federation.

For many years, Belgorod Region has been the Russian Federation’s leader in development of industrial pork and poultry production. This is mostly owing to a favourable investment climate established in the region, which has attracted big projects and large agricultural holdings, in addition to the fertile soil and favourable climate. Livestock farming is mostly concentrated in the southwestern part of the country. The largest cattle inventories are in the Volga (30 percent), Siberian (21 percent) and Central (14 percent) Federal Districts. Cattle farming is less popular in the Far Eastern (2 percent), Northwestern (4 percent) and Ural (6 percent) Federal Districts (see Figure 23 and Figure 24).

38

Russian Federation - Meat sector review

Figure 23: Geographical distribution of cattle inventories, 2011

thd heads 0-100 100.1-200

200.1-300 300.1-500

500.1-900 over 900

Source: FSSS of Russian Federation.

Figure 24: Share of Federal Districts in cattle inventories N. Western Central 4% Siberian

14% 21% 2%

Ural

11%

6%

12%

Far Eastern N. Caucasian Southern

30% Volga

Source: FSSS of Russian Federation.

Within the Russian federal districts, the leading regions in terms of cattle numbers are Bashkortostan (6.3 percent), Tatarstan (5.4 percent), Dagestan (4.5 percent) and Altai Territory (4.5 percent). Bashkortostan and Tatarstan primarily raise dairy cattle, while Dagestan raises cattle for beef. The majority of Dagestan’s cattle is concentrated in rural households; only 11.6 percent of cattle in

39

the region is in agricultural enterprises. The majority of cattle in specialized beef farms is concentrated in the Southern (42 percent), Siberian (18 percent) and Ural Federal Districts (12 percent)10. Detailed information on poultry, swine and cattle inventories by each region and type of farm is provided in Annex 1.

Primary production efficiency Poultry production performance indicators considerably increased in 2005-2010 thanks to improved feeding and technical modernization. In 2000, the average daily gain of broilers was 32 g. In 2010, it increased to 47 g. The feed conversion also improved from 2.70 kg to 1.85 kg of feed to produce 1 kilogram of broiler. The leading companies can achieve a feed conversation ratio of 1.78-1.76 kg, and the best farms manage to decrease it to 1.68 kg. Despite certain improvements in live production performance, Russian poultry production is still far from being competitive with the major poultry producers, such as the USA, Brazil, Argentina and Thailand, without import measures (see Table 15). Table 15: Broiler feed, live costs and processing wages compared to other countries Broiler feed USD/tonne

Cost live broiler USD/kg

Processing wage (cost of labour) USD/kg

USA

240

0.77

2 500

Brazil

260

0.71

400

Argentina

240

0.69

440

EU

390

0.92

3 000

Russian Federation

380

0.91

440

China

410

0.96

220

Thailand

340

0.86

250

India

300

0.85

100

Source: Rabobank, 2009.

10 Report of Ministry of Agriculture “On implementation of the program of meat cattle breeding,” 2010 data.

40

Russian Federation - Meat sector review

Further improvements made by the Russian Federation – especially in the areas of reducing costs of hatching eggs, improving yields and feed conversion efficiency – are evident in a detailed cost analysis provided in Table 16. Table 16: Broiler production cost comparison in the Russian Federation and two other countries Russian Federation Cost of item (in RUR)

Hatching egg

USA

Bulgaria Company A

Company B

5.0

5.8

8.34

7.8

Hatch, percent

84.1

80

82.5

79.4

Cost of hatching egg per final chick

5.95

7.25

10.11

9.82

Cost of day-old chick (DOC) and delivery

1.65

2.2

2.34

1.72

TOTAL cost of DOC

7.60

9.45

12.45

11.54

Livability, percent

95.6

94

93

93.1

Cost of final chicken, per head

7.94

10.05

13.39

11.96

Feed cost, per 1 kg

7.92

10.20

10.56

9.92

Chicken weight to slaughter, kg

2.68

2.03

2.00

1.92

Feed conversion

1.98

1.82

1.94

1.99

TOTAL cost of feed and rearing

42.03

37.68

40.97

37.90

Cost of rearing DOC into broiler

13.30

15.20

11.60

8.07

TOTAL cost of live chicken (per head)

63.27

62.94

65.96

58.37

Cost of chicken (per 1 kg slaughter weight)

23.61

31.00

32.98

30.40

Slaughter/processing/packaging (per 1 kg)

27.90

17.40

22.35

17.30

TOTAL cost of processed chicken

91.17

80.34

88.31

75.67

Yield, percent

78.7

75

80

73.3

Meat per head

2.11

1.52

1.60

1.41

43.20

52.77

55.19

53.77

Cost of 1 kilogram of meat

Source: Data from two leading Russian broiler producers, 2010.

41

The performance indicators of the Russian poultry industry leaders are close to the national industry average because they have a considerable share of big industrial broiler producers in overall poultry production. The share of inefficient farms is low and does not have much influence on the average (see Table 17). Table 17: Key broiler production performance indicators in the Russian poultry industry, 2010 Indicator

Company 1

Company 2

Russian Federation average

7.4

7.8

7.2

Chicks hatch, percent

75.9

81.5

80.2

Livability, percent

92.8

93.4

93.1

Average grow-out period, days

37.5

39.5

41

74.4

80.7

73.3

1.85

1.86

1.87

53.3

54.2

47

Cycles (turnovers), per year

Meat yield, percent of live weight Feed conversion adjusted to 2 000 g of live weight Average daily gain, g

Source: Confidential data from two companies and state programme “Development of poultry farming in the Russian Federation for 2010-2012 and till 2018-2020”.

It is anticipated by Russian industry players that by 2020 a broiler will gain more than 56 grams per day, feed conversion will stabilize at 1.82 kg and mortality will decrease to no more than 5 percent of chicks entering production. The grow-out period will greatly depend on the specific marketing strategies of individual companies. Along with genetics, there is significant potential for improvement in feeding and nutrition. Almost all Russian chicken farms lack expertise, but those who understand the value of a properly balanced feed diet have outsourced this service to the specialized experts/consultants. It is also expected that the Russian poultry industry will continue to consolidate and experience a series of mergers and acquisitions

42

Russian Federation - Meat sector review

that will increase its vertical integration and improve its capacity to acquire modern cost-saving production technologies through new investment and management. Please refer to a separate section in this report on industry concentration issues (Chapter 5) and comparisons with other countries. In 2005-2010 the growth of key pork performance indicators of agricultural enterprises was considerable (see Table 18). Inefficient producers went bankrupt or were acquired by more successful competitors. A recent massive investment in new pork production facilities has improved basic production indicators because of improved genetics, feeding, vaccination and herd management technologies. Table 18: Key pork performance indicators of agricultural enterprises, 2005-2010 Indicator

2005

2006

2007

2008

2009

2010

Average live weight of pigs, kg per head

107

121

121

139

160

159

Average daily weight gain of pigs, g

310

328

335

385

414

439

Source: FSSS of Russian Federation.

Considering the geographical vastness of the Russian Federation and the various types of pig farms and their sizes, it is natural that performance indicators vary depending on the type of farm (see Table 19).

43

Table 19: Comparison of performance indicators of domestic and foreign pig growing enterprises Rusagro Europe, North (Belgorodsky Bacon) America

Indicator

Units

Least efficient farms

Most efficient farms

Cherkizovo

Miratorg

Piglets per sow per year

heads

18

25

19

22.36

25.9

27

kg

1 400

2 100

2 090

n/a

n/a

2 190

Feed conversion

kg/kg gain

5.6

3

2.95

2.94

2.78

2.76

Total length of growout period

days

200

168

177

n/a

n/a

160

percent

69

75

n/a

72

n/a

79

Meat produced per sow per year

Yield

Source: National Union of Swine Breeders and data from companies in table (average).

Even the most advanced domestic producers in the Russian Federation do not reach the typical production indicators achieved by European and American producers. This will probably change with time as companies invest in staff education, professional training, veterinary services, top genetics and quality of feed. In recent years, cattle production also featured certain increases in key performance indicators, such as daily live weight gain; however, these increases were lower than those of raising pigs.

44

Russian Federation - Meat sector review

Table 20: Key performance indicators of cattle meat production in agricultural enterprises, 2005-2010 Indicator

2005

2006

2007

2008

2009

2010

Meat production per one head of cattle, kg

93

100

102

109

114

112

Average daily gain on feed, g

414

437

445

478

503

501

Source: FSSS of Russian Federation.

Within agricultural enterprises, live weight of cattle at the time of slaughter grew by 20.4 percent, and the average daily gain on feed increased by 21 percent as well. Indicators of weight gain may considerably vary from one region to another. However, considering that there are no leading beef producers, it was not possible to compare the leading and less efficient farms in the cattle sector. The significant regional differences in production efficiency indicators in raising cattle are listed in Table 21. Table 21: Average, daily gain of calves of beef breeds in selected regions, grams Under 8 months

Older than 8 months

Total

Orenburg Region

555

327

419

Chelyabinsk Region

705

519

575

Republic of Kalmykia

611

207

375

Region

Source: All-Russia Research Institute for Beef Cattle Breeding of the Russian Academy of Agricultural Sciences.

It is expected that with increased government support to the meat sector and the introduction of new genetics and production technologies, productivity indicators will improve. However, it is not certain to what extent the public support in this sector will improve its competitiveness with imports.

45

Profitability of meat production: costs and margins Information on private companies’ profitability is usually difficult to obtain. However, some companies disclose their financial statements and economic performance data in corporate annual reports. Table 22 provides a summary of available information on profitability of meat production by leading Russian companies in 2010. Table 22: Meat sector profitability Company

Broiler production

Swine production

Cattle production

EBITDA* margin in 2010, percent -

45.16

-

Cherkizovo Group

Miratorg

21.2

40.6

-

Rusagro

18**

42

-

Eurodon

-

-

-

15

25***

-17****

Average sector

Source: Companies’ data and the Report of the Minister of Agriculture to the Presidium of the State Council on discussion and adoption of the Strategy of meat livestock till 2020, given on 13.07.2010.



* EBITDA is an indication of earnings before interest expense, taxes, depreciation and amortization. EBITDA margin is EBITDA divided by total revenue. ** Turkey operation.

*** According to the Russian Pork Producers Union, the average pig production profitability in 2011 was 17 percent with more effective producers receiving 25 percent returns. **** Including state subsidies. The negative profitability would have been 23 percent per year without state support.

Profitability of meat production varies considerably depending on the region. According to the 2010 national report “On the progress and results of the implementation of the State programme of agricultural development and regulation of markets for agricultural products, raw materials and food for 2008-2012”, the profitability of poultry production exceeded 20 percent in the Republic of Komi, Tatarstan, Amur, Kurgan, Kursk, Lipetsk, Moscow, Omsk, Penza, Tver and Tomsk Regions. Pork production was the most profitable (over 30 percent margin per year) in Belgorod, Volgograd, Irkutsk, Kaliningrad, Leningrad, Lipetsk, Orel, Omsk, Penza, Tambov, Tomsk and Chelyabinsk

46

Russian Federation - Meat sector review

Regions and the Republics of Mari El and Tuva. The only two regions with profitable cattle production were Kalmykia and Karachaevo-Cherkessia. Beef production in all the other regions of the Russian Federation was unprofitable. Annex 5 provides more information on meat production profitability in various regions of the Russian Federation. The compound feed prices directly affect meat production profitability. Figures 25 to 30 compare average prices for meat products with the prices of animal feeds in poultry, pork and beef production.According to available data, the ratio of feed-to-poultrymeat price increased from 13 percent in 2005 to almost 18 percent in 2010 with a peak (21.7 percent) registered during price increases in 2008 (see Figure 25). These percentages indicate a decreasing operating profitability of poultry meat production with time. Figure 25: Comparison of average poultry meat prices (live weight) with poultry feed prices, 2005-2010 60 000

50 54 230

40 000

40

43 350

35

45 075 40 813

39 822

30

30 000

25 21.7

20 000 10 000

0

45

12.9

14.2

5 276

5 639

2005

2006

17.1

17.7

20

percent

RUR/tonne (excl. VAT)

50 000

52 966

15

16.1

10

6 960 2007

9 770

9 257

9 362

2008

2009

2010

5 0

Poultry (left axis) Combined feed for poultry (left axis) Comparison of feed price to product price (right axis) Source: FSSS of Russian Federation.

However, when comparing monthly averages of meat and feed prices (with January 2005 fixed at 100 percent), it becomes apparent that feed prices tend to be more volatile and outpace increases in poultry meat prices. Feed prices registered a nearly 200 percent increase from January 2005 to January 2011 while poultry meat prices increased by about 150 percent (see Figure 26).

47

Figure 26: Monthly indices of average prices for poultry (live weight) and feed for poultry, 2005-2010 250 225

percent

200 175 150 125 100 75

Poultry meat

Sep 2010

Jan 2010

May 2010

Sep 2009

May 2009

Jan 2009

Sep 2008

Jan 2008

May 2008

Sep 2007

Jan 2007

May 2007

Sep 2006

May 2006

Jan 2006

Sep 2005

May 2005

Jan 2005

50

Combined feed for poultry

Source: FSSS of Russian Federation. Note: January 2005 =100 percent.

Similarly to decreased poultry producers’ margins, the ratio of feed-to-pork price increased from 9 percent in 2005 to 14 percent in 2010 with a peak registered in 2008 (see Figure 27). Figure 27: Comparison of average pork prices (live weight) with pig feed prices, 2005-2010 50

80 000 69 263 60 988

60 000 50 000

50 420

51 821

40 35

49 051

30 25

40 000 30 000 20 000 10 000 0

16.4 11.6

20 14.1

14.3

9.1

9.6

4 574

4 825

5 850

8 248

7 094

7 231

2005

2006

2007

2008

2009

2010

15 10 5 0

Pigs (left axis) Comparison of feed price to product price (right axis) Combined feed for pigs (left axis) Source: FSSS of Russian Federation.

48

45

percent

RUR/tonne (excl. VAT)

70 000

69 748

Russian Federation - Meat sector review

Comparisons of the changes in monthly price indices (with January 2005 prices fixed at 100 percent) show trends very similar to the decreasing poultry margins: feed prices registered a nearly 200 percent increase from January 2005 to January 2011, while pork prices increased by about 150 percent (see Figure 28). Figure 28: Monthly indices of average prices for pork (live weight) and feed for pigs, 2005-2010 250

RUR/tonne (excl. VAT)

225 200 175 150 125 100 75 Sep 2010

Jan 2010

May 2010

Sep 2009

Jan 2009

May 2009

Sep 2008

Jan 2008

May 2008

Sep 2007

Jan 2007

Pig meat

May 2007

Sep 2006

Jan 2006

May 2006

Sep 2005

Jan 2005

May 2005

50

Combined feed for pigs

Source: FSSS of Russian Federation.

49

Table 23: Cost of producing 1 tonne of pork in live weight, thousand RUR (excl. VAT) Index

Value

Percent of total

Production cost, including

61.6

90

Cost of piglets

31.7

46

Feed

22.5

33

Electricity, water

0.4

1

Gas

0.8

1

Veterinary/medicine

0.2

0

Fuel

0.6

1

Labour (salaries and taxes)

5.4

8

7

10

Total cost

68.6

100

Revenues from sales

76.3

Other costs (maintenance, overhead)

Margin, 1 000 RUR/tonne

7.7

10

Source: Data from a pig farm in the Northwestern Federal District, 2010.

The ratio of cattle feed to beef prices increased from 11 percent in 2005 to 19 percent in 2010 as indicated in Figure 29. The cost of feed may be higher or lower depending on feed price, producer location, access to transportation infrastructure and the market. Considering other costs, a pig farmer in the Northwestern Federal District of Russian Federation could expect the following costs and returns per 1 tonne of pork. Pig producers may actually operate on a fairly thin margin (see Table 23) and, therefore, be very sensitive to changes in feed and other costs.

50

Russian Federation - Meat sector review

Figure 29: Comparison of average prices for beef (live weight) and cattle feed, 2005-2010 60 000

54 371

40 000

41 762

39 235

55 951

40 35

45 641

34 003

30

30 000

25

20.8 10.8

3 606

3 669

4 963

2005

2006

2007

10 7 074

5 912

6 366

2008

2009

2010

Combined feed for cattle (left axis)

Cattle (left axis)

20 15

10.6 10 000

18.7

17.4

14.6

20 000

0

45

percent

RUR/tonne (excl. VAT)

50 000

50

5 0

Comparison of feed price to product price (right axis)

Source: FSSS of Russian Federation.

Monthly indices of beef and feed prices (as compared with January 2005) indicate that the increase in beef price outpaced that of the feed price in January 2005-May 2007 and then again in December 2008-September 2010. However, this did not result in farmers rebuilding their cattle herd because of the overall low profitability of raising cattle. Figure 30: Average beef price indices in live weight and feed for beef, 2005-2010 250 225

percent

200 175 150 125 100

Sep 2010

Jan 2010

May 2010

Sep 2009

Jan 2009

May 2009

Sep 2008

Jan 2008

May 2008

Sep 2007

Jan 2007

Beef

May 2007

Sep 2006

Jan 2006

May 2006

Sep 2005

Jan 2005

50

May 2005

75

Conbined feed for cattle

Source: FSSS of Russian Federation.

51

Table 24 illustrates some production costs in beef cattle. It is difficult to assess overall profitability of beef cattle as there is not much evidence yet in the country. The table below does not reflect the significant costs in acquiring the start-up Hereford cattle and the long payback period on such an investment. Table 24: Illustrative cost of producing one tonne of Hereford cattle in live weight, thousand RUR (excl. VAT) Item 1

Index

Value

Production cost, including

56

1.1

Labour (salaries and taxes)

17.4

1.3

Compound feed

30.1

1.4

Hay

4.6

1.5 1.6

Haylage Corn silage Other costs (maintenance, fuel, etc.)

1.9 1.2 13.5

2

Total cost (excluding beef calves)

69.5

3

Revenues from sales

90.9

Source: Farm data from Ural Federal District, 2010.

Common production technologies Russian meat producers have been able to improve their production efficiency and quality of products and reduce production costs in recent years. However, most of them still need substantial capital investment and skilled professional labour and management. Meat production in the Russian Federation is still largely based on the Soviet-style concept of production formerly known as kolkhoz (or a collective farm) and sovkhoz (or a state farm). In many cases, especially in poultry and pork production, production facilities are concentrated in one company, with very little specialization between farms, which outsources feed production and services. Dairy farms are the main producers of beef. A number of farms have small feedlots that are used both for dairy cattle feeding and combined meat-and-milk calf breeding. A detailed description of most typical production technologies and their main considerations, such as housing or grazing technology,

52

Russian Federation - Meat sector review

feeding, manure utilization, slaughter, processing, chilling and other production technology aspects is available in Annex 3.

Feed availability and production Because feed costs may reach 40-50 percent of the total livestock and poultry production costs, availability of a reliable and reasonably priced feed supply is an important business consideration. Barley, feed wheat, sunflower seed meal, maize and soybean meal are the main sources of plant proteins used in compound feed production for poultry and pigs. The role of fishmeal and bone meal is less important in Russian feed production. Feed supply has largely depended on the weather and grain and oilseed production conditions in the main agricultural regions. According to feed consumption, estimated in Figure 31, there has been a clear upward trend in feed protein consumption. Figure 31: Estimated consumption of feed protein from main cereals and oilseed meals, 2001-2012 5 000

thousand tonnes

4 000 3 500 3 000 2 500 2 000

288

405

4 500 86 293 272

108 194 350 322 290 306

270 391 442

252 423 524

279 452

315 429

663

718

1 150 1 084 1 177 1 507 1 287 1 199 1 298

351

464 252

439

862

757

481 1003

1 353 1 337

510 1 088

605 1078

1 500 1000 500

1 560 1 800

1 840 1 944 2016 1 920 1 860 1 788 1 692 1 500 1 632

Barley

Maize

1/ 12 20 1

0/ 11 20 1

9/ 10 20 0

08 /0

9

8

Meal, sunflower seed

20

07

07 /0 20

06

20 06 /

05

Wheat

20 05 /

/0 4

20 04 /

20 03

20 02

/0 3

0

Meal, soybean

Source: Authors’ calculations based on USDA PSD online (www.fas.usda.gov/ psdonline/psdQuery.aspx). Note: The following protein content was assumed for conversion purposes: 11 percent for barley; 9 percent for maize; 12 percent for wheat 46 percent for soybean meal and 33 percent for sunflower seed meal.

53

There is also a clear upward trend in compound feeds production for livestock and poultry feeding. According to the First Independent Rating Agency (FIRA), the volume of Russian compound feed production in 2010 totaled 16 million tonnes, which is 64 percent more than in 2005. Starting in 2005, compound feed production has been increasing by about 10 percent p.a. on average (see Figure 32). Figure 32: Production of compound feed in the Russian Federation, 2005-2010 18 000

16 155

16 000

14 712 31 750

thousand tonnes

14 000

12 464 11 390

12 000 10 011 10 000 8 000 6 000 4 000 2 000 0

2005

2006

2007

2008

2009

2010

Source: Information-analytical system FIRA PRO.

The Russian Federation’s Ministry of Agriculture believes that the actual feed production could have been higher if the feeds produced within the integrated meat production companies (e.g. compound feeds that are produced and consumed within one company) were taken into consideration. They accounted for 40 percent of total registered production. Therefore, total feed production in the Russian Federation was believed to actually total approximately 28 million tonnes in 2010. The increase in the compound feed production was first of all driven by higher demand from the poultry and pork production sectors. Compound feed for poultry constituted the major share (57.7 percent) of total compound feed production in 2010. The feeds for pigs and cattle accounted for 25.8 percent and 13.3 percent respectively (see Figure 33).

54

Russian Federation - Meat sector review

Figure 33: Structure of compound feed production, 2010

26% Feed produced for poultry Feed produced for pigs 58%

Feed produced for cattle Feed produced for other animals 13% 3%

Source: FIRA PRO.

As shown in Figure 31, local compound feed is characterized by a large content of cereals. While the compound feed in Europe usually contains no more than 45 percent of grains, the grain content in the Russian Federation reaches 70 percent. This is mostly owing to a relatively low share of protein meals (soybean and sunflower seed meal) available in the Russian Federation. Though there was a slight increase in domestic soybean meal and cake output, current soybean meal production levels do not meet the increasing demand from feed manufacturers, leaving space for meal imports. Soybean meal is usually imported from Brazil or transported from the soybean processing facility Sodruzhestvo located in Kaliningrad. The following major feed-related issues are faced by Russian livestock producers: • p  urchased feeds usually cost 15-30 percent more than the feeds produced by the mills integrated into poultry production complexes; • outsourced feeds have poor traceability; • o  utsourced feed supplies are inconsistent and delivery schedules are not respected; • i ndependent feed mills do not provide consistent and reliable quality feed; • they often use cheap and low quality soybean and fish meal; • feed can often have mycotoxins. Among the issues related to the production of cattle (both beef and dairy), certain issues exist with the forage (hay, silage, etc.)

55

production, including cattle grazing on low-productive natural pastures; cutting grass beyond the optimum stage negatively affecting nutritional value of hay and its digestibility); and inefficient conservation and storage (especially in the case of late silage and haylage preparation and storage losses). Box 3: Feed quality issues Feed quality is one of the main concerns for livestock and poultry producers as it directly affects animal and poultry productivity and health. Many independent feed producers, being concerned by feed costs and their margins, often fail to supply quality feeds to their buyers. Many compound feed producers do not have adequate technical capacities to assure a uniform quality mix of feed ingredients, premixes and additives. As a result, lack of trust to external feed suppliers prevails amongst livestock and poultry producers. Many of them decide to invest in their own feed production facilities to assure reliable supplies. Many agroholdings have thus become leading feed producers in their respective regions. The GOR has recently updated the old Soviet compound feed standards to facilitate industry development. In July 2011, the Soviet-time state standard GOST 12220-96 ("Toasted soybean meal for feeds"), which envisaged that only 45 percent crude protein soybean could be used in compound feed production, was replaced with a new GOST R 53799-2010. The new standard allows compound feed producers to utilize six different protein levels (from 42 percent to 54 percent crude protein) in production of compound feeds. The list of specific compound feed standards effective in the Russian Federation is provided in Annex 4.

Animal health issues In the Russian Federation, animal health falls under the responsibility of the Rosselkhoznadzor (Federal Service for Veterinary and Phytosanitary Surveillance), and Rospotrebnadzor (Federal Service on Customers’ Rights and Human Well-being) focuses on overall food safety issues for all food products. Animal and poultry diseases represent a major threat to potential investors in the livestock and poultry production due to their devastating potential. Therefore, we decided to cover some of these issues as they affect sector development. Recent outbreaks In the last decade, the Russian Federation’s livestock production has been challenged by a series of animal disease outbreaks that have had a high level of production and financial impact, such as:

56

Russian Federation - Meat sector review

• cattle: foot-and-mouth disease (FMD); • poultry: AI; • pork: African swine fever (ASF). Foot-and-mouth disease (FMD). FMD has been historically endemic in many regions of the Russian Federation, though in the last 20-30 years outbreaks were very sporadic and were controlled by quick responses from veterinary authorities. In 2010-2012, there were at least 15 outbreaks of FMD in Trans-Siberia, Primorsky Krai and Irkustk Oblast that affected thousands of cattle, pigs, goats and sheep. According to genetic analysis, these recent cases of FMD were related to the FMD outbreaks in China, Mongolia and Eastern Kazakhstan in 2010-2011. Elimination of border controls between Kazakhstan and the Russian Federation – both in the Customs Union – makes cross border veterinary inspection and control more difficult. Avian influenza. This disease was registered in the Russian Federation in 1978. It occurred again in 2005-2006 and affected a few Russian regions as shown in Figures 34 and 35. Figure 34: AI outbreaks in the Russian Federation, 2005

62 affected sites in 10 regions of Russia Died - 26844, destroyed 609250 birds One affected commercial layers farm in Kurgan region

In Kalmykskaya Republic and Astrakhan region (colored in yellow) restriction measures were implemented in villages located close to migratory stations of waterfowl to prevent the spread of the virus to poultry

Source: All-Russia Scientific Research Institute of Animal Protection.

57

Figure 35: AI outbreaks in the Russian Federation, 2006 Total: 93 affected sites in 16 territories of Russia Total losses in poultry have not exceeded 1.400.000 birds As of 1 August 1 site in Tomskaya oblast was still under quarantine No new cases since 5 July

Source: All-Russia Scientific Research Institute of Animal Protection.

The Russian veterinary services, the federal government and local authorities took unprecedented measures to prevent further expansion of AI outbreaks, including: • strict quarantine regime introduced in affected areas; • backyard flocks were preventively culled; • the state compensated financial losses to the population; • s everal vaccines were developed and applied to selected flocks (over 150 million doses); • a national monitoring programme for pathological material of wild birds was implemented. There have been no outbreaks in commercial or backyard flocks in the Russian Federation since early 2007, and several positive cases of low-pathogenic AI antibodies were revealed as a result of monitoring migrating birds. African swine fever. ASF started spreading throughout the Russian Federation in August 2008, from Krasnodar Region and North Ossetia; supposedly it came from Georgia. According to estimates of Rosselhoznadzor, ASF was registered in 24 regions of the Russian Federation. It affected 254 settlements and 37 production facilities.

58

Russian Federation - Meat sector review

About 440 000 pigs were slaughtered in order to control the outbreak. According to various estimates, pork farms lost about 10 percent of production because of this pandemic. Figure 36: Map of AFS outbreaks in the Russian Federation

ASF OUTBREAKS (2 MARCH 2012)

Source: All-Russia Scientific Research Institute of Animal Protection (VNIIZZH).

The North Caucasus Federal District and South Federal District are considered to be an endemic (unfavourable) zone for ASF, and the disease can easily spread from a single infected animal outside the endemic zone. In early 2012, the veterinary authorities reinforced controls (see Figure 36.). As of 1 March 2012, rural households in the Krasnodar Region were prohibited to raise more than three pigs for finishing. Implementation of the new rules is likely to be difficult; however, the local authorities continue to promise to assist pork farmers in developing alternative livestock production activities. ASF is considered the main threat to the Russian Federation’s livestock sector as farmers and local authorities often do not declare outbreaks to veterinary authorities immediately, biosecurity on rural household farms and some industrial farms is not observed and animals enter into contact with wildlife and the geographical vastness complicates animal quarantine provisions.

59

Chapter 4 - Meat processing Recent trends in meat processing There have been notable shifts in the structure of the Russian meat market, including shrinking beef consumption in favor of poultry meat; progressive exit of rural households from the market; and an increased supply of fresh and chilled meat replacing frozen products. Formally registered meat and processed meat products in the Russian Federation doubled from 2005 to 2010, reaching 3.9 million tonnes of fresh meat and by-products (see Table 25). Though there was outstanding growth in the pork and poultry sector of 137 percent and 139 percent respectively in 2005-2010, beef production registered a 23 percent decrease. Table 25: Industrial production of main meat products in the Russian Federation, 2005-2010, thousand tonnes Change 2010 2010 vs. 2005

Product type

2005

2006

2007

2008

2009

Fresh meat and by-products:

1 857

2 185

2 561

2 899

3 441

3 888

109%

-Beef

327

303

284

278

252

251

-23%

-Pork

337

405

502

502

666

800

137%

1 141

1 424

1 721

2 067

2 426

2 729

139%

-Other types of meat

13

13

12

11

13

16

23%

-By-products

39

39

42

41

84

92

136%

Sausages and cooked meats

2 014

2 198

2 411

2 454

2 246

2 388

19%

Further processed meat products

987

1 093

1 254

1 451

1 503

1 614

64%

Standard cans, million*

549

523

521

580

690

651

19%

-Poultry meat and byproducts

Source: FSSS of Russian Federation, Meat Union of Russia and Meatinfo. * Net weight of one standard can is 350 g.

60

Russian Federation - Meat sector review

Production of precooked meat products increased by 64 percent during the period of 2005-2010 (see Table 25) to reflect an urbanizing population, higher incomes in the cities, new lifestyles and expansion of retail, hotel, restaurant and catering services (HORECA) that demand more value-added products in convenient packaging. The appetite of Russian consumers for sausages has always been high and continues to grow (19 percent from 2010 to 2005). It is worth noting that sausages take the fourth place in consumers’ food basket after dairy, vegetables and fruits and bakery products. The most popular sausage products according to the biggest Russian meat processing company, Cherkizovo, include: • bologna sausages (Doktorskaya) – 38 percent; • franks sausages (sosiski) – 27 percent; • smoked sausages – 18 percent; • other categories – 12 percent. After overcoming the economic recession of 2008-2009, Russian consumers started buying more sausages and meat products, thus stimulating production. As Russian consumers switched to more expensive sausage products, the share of smoked sausage production increased, and the share of bolognas and franks declined. As a result, the whole sausage segment grew by 18 percent reaching 2.4 million tonnes in 2010. However, locally produced products in this segment have started losing ground to foreign competitors as the quality of Russian sausages has decreased. With weak technical regulations and enforcement (as compared with the European regulations that measure animal protein) and aggravated by the financial crisis, many meat processors started adding less meat to the recipes in order to cut down on raw material costs. The meat-canning segment is traditionally important in the Russian Federation as the government maintains intervention stocks of beef and pork. Today the canned meat sector faces certain challenges as fresh, chilled (and frozen) meat become available as well as value-added meat products. We still note some growth in this segment featuring 18.6 percent increase from 549 million standard cans in 2005 to 651 million in 2010. However, in the precrisis years (2006- 2010) there was a slight decline in canned meat production.

61

Since the early 2000s, halal meat has been rapidly gaining importance in the Russian Federation. Today, there are over 2.3 million Muslims in the country. The International Centre under the Russia Muftis Council certifies about half of halal meat. Halal production is concentrated not only in Moscow but also in the south of the Russian Federation, in the North Caucasus and Volga Regions. This new category in the meat sector has grown considerably in recent years; by the end of 2010 there were 57 halal-certified meat-processing facilities across the country, and the share of halal products in the poultry subsector is about 6.5 percent.

Food safety issues Meat consumption will be increasingly affected by consumer awareness of food safety and quality issues as competition increases in the domestic market. It is expected that this increasing awareness will lead towards increased food safety standards of the major retail chains and food service companies in the Russian Federation. An increase in standards will inevitably require livestock and poultry producers and meat processors to invest in both introduction of the traceability systems and modern food safety control programmes. Box 4 illustrates some food safety issues by using the case of salmonella prevalence in the poultry meat sold in retail in the Russian Federation.

62

Russian Federation - Meat sector review

Box 4: Meat safety and quality: the need for continuous improvement The Russian Federation introduced new standards (GOSTs or GOSTs-R) for chicken meat, turkey, pork and beef in 2007-2011 to update the standards that were developed in the 1970s-1980s to regulate both the quality and the food safety aspects of meat and meat products in the Soviet Union. The list of the new meat standards is provided in Annex 4: Applicable State Standards in the Russian Federation. The major Russian meat producers started introducing modern quality and safety standards in the early 2000s. Some companies implemented the ISO 9001/02 systems, Good Manufacturing Practices, ISO 22000, ISO 14000 and the hazard analysis at critical control points (HACCP). In the Russian Federation, HACCP received the status of a National Standard in 2003, though the Russian version appears to be much shorter than the standards approved in the USA and the EU. As of early 2012, about 30 percent of the Russian slaughterhouses and the prime and secondary meat processing facilities had HACCP systems in place that conformed with the Russian regulations, though only a handful of them were certified by an international HACCP certification body. This is mostly due to lack of understanding of the HACCP system, professional consultants, and financial resources required for HACCP implementation and consistent effort from management. Currently, specific food safety indicators are regulated by the Sanitary Norms and Rules (SANPIN), developed and approved by the Ministry of Health of the Russian Federation. Adherence to SANPIN is controlled by the Federal Service for Surveillance in the Area of Consumer Rights Protection (RosPotrebNadzor) and Federal Service of Agricultural and Phytosanitary Surveillance (RisSelkhozNadzor). Russian sanitary regulations, especially requirements for antibiotics and feed additives, are often criticized by the country’s trading partners as not being based on scientific evidence and risk assessment. Certain compliance issues exist domestically as not all meat producers meet national food safety regulations and norms. This is especially true for the bacteriologic and maximum residue levels. In 2011, research* on salmonella prevalence on chicken meat in the Russian Federation – conducted in three regions: Moscow Oblast, Leningrad Oblast and Krasnodar Krai (with a total of 698 samples) – indicated that salmonella prevalence was 31.5 percent on whole birds. This indicator typically ranges around 4-16 percent in the USA and the EU. The same research suggested that strategies, such as good agriculture and management practices, should be enhanced to improve food safety of chicken meat in the Russian Federation. * Alali WQ, Gaydashov R, Petrova E, et al. Prevalence of Salmonella on retail chicken meat in Russian Federation. J Food Prot. 2012 Aug;75(8):1469-73.

63

Marketing channels According to the Federal State Statistics Service (FSSS), most domestically produced meat is marketed to processing companies (63.3 percent) and wholesale traders (21.8 percent). About 6.8 percent of meat production is purchased by the State, 4.1 percent is sold through retail and another 3.3 percent is channeled through HORECA. Barter and supplies that pass via consumer cooperatives are negligible (see Table 26). Table 26: Marketing channels of food products, 2010 Marketing channel

Thousand tonnes

Percent

Processors

3 613.7

63.3

Wholesalers

1 247.0

21.8

Organizations making purchases for state needs

390.1

6.8

Retail stores, branded stores, street kiosks

232.9

4.1

HORECA

190.1

3.3

33.3

0.6

4.9

0.1

5 712.1

100.0

Barter (exchange operations) Consumer cooperatives Total Source: FSSS of Russian Federation.

Meat holds an anchor position in the retail food market. In 2010, about 68 percent of meat and meat products were sold through retail stores. In 2010, retail turnover of meat and meat products in the Russian Federation reached RUR 1 264 billion (about USD 39 billion), and this trend is expected to grow by 30-35 percent in the upcoming years thanks to new openings (see Table 27).

64

Russian Federation - Meat sector review

Table 27: Retail sales by sector, 2006-2010, million USD Channel format

Change Change 2010/09 2010/06

2006

2007

2008

2009

2010

Store retail

195 285

250 341

308 116

248 457

292 575

17.8%

49.8%

Grocery retailers

106 825

139 808

176 415

155 811

188 760

21.1%

76.7%

Food/drink/tobacco specialized stores

3 555.9

4 422.4

5 052.7

4 355.8

5 162.9

18.5%

45.2%

Hypermarkets

6 509.9

10 559.9

15 709

14 315.4

18 066

26.2%

177.5%

Small grocery retailers:

37 562.8

47 955.6

59 211.2

52 987

62 969.5

18.8%

67.6%

- Convenience stores

3 051.1

4 694.1

6 260.5

6 136.3

7 331

19.5%

140.3%

- Forecourt retailers

319.3

374.9

420.8

331.4

400.3

20.8%

25.4%

- Small independent grocers

34 192.4

42 886.6

52 529.9

46 519.4

55 238.1

18.7%

61.6%

Supermarkets

38 275.8

50 954.8

64 886.3

57 269.6

71 703

25.2%

87.3%

Other grocery retailers

20 920.4

25 915.2

31 555.7

26 882.6

30 858.9

14.8%

47.5%

Source: FSSS of Russian Federation.

Large retail chains (like X5-Retail Group, Magnit, Seventh Continent, Dixie, Auchan and German Metro AG) have been shaping the meat market by setting rules for suppliers. Local producers are not always ready to address the requirements regarding quality standards, in particular traceability, packaging and high marketing budgets. Retail chain expansion has also entailed the fast development of a distribution infrastructure. If not economically efficient, small and medium retail stores leave the market. Markups in Auchan go from 0 to 17 percent, while street kiosks and small shops take up to 30-35 percent. Besides the traditional retail stores (supermarkets, hypermarkets, grocery stores and convenience stores), frozen meat is also marketed through open markets (small wholesale), fresh meat through farmers’ markets and processed meat products (sausages, franks, hams, delicacies) through branded company stores. Marketing channels differ significantly across the country: in the big cities the retail share is higher and the share of markets, non-chain stores, small stores and kiosks is lower than in smaller

65

towns and rural settlements. On average, modern retail trade sells 30 percent of all meat and meat products. In Moscow, this indicator is about 50 percent, and in Saint Petersburg it is about 80 percent.

Meat processing efficiency: costs and returns in the meat processing sector As a rule, major meat processing factories not only provide full processing of raw materials (from slaughter to packaged meat products) but also have a clear tendency for increased production capacities. This is largely due to the tightening environmental regulations that require meat processing facilities to build efficient sewage treatment plants. According to VNIIMP (All-Russia Meat Processing Research Institute), the share of a wastewater treatment facility in total meat processing factory investment costs may be as follows: • 7 percent for a new 100 tonne/shift meat processing facility; • 10 percent for a 30 tonne/shift establishment; • 3 0 percent for a small slaughterhouse with a daily production capacity of 2 tonnes/shift. High-capacity meat processing facilities (over 100 tonnes/shift) provide higher meat yields and may increase processors’ margins by adding value to slaughter by-products, such as the production of meat and bone meal from animal carcasses after the meat is removed. Experts estimate the average payback period of the meat processing industry to be 4-7 years. The typical costs of a meat processing plant are provided in Table 28.

66

Russian Federation - Meat sector review

Table 28: Cost breakdown of producing one tonne of boneless meat products Item 1

Index

RUR thousand (excl. VAT)

Percent

Production costs, including

166.6

85

1.1

Raw meat

143.2

73

1.2

Other ingredients

15.4

8

1.3

Core production staff wages

6.2

3

1.4

Other

1.9

1

2 3 (1+2) 4 5 (4-3)

Overheads, maintenances, etc.

30.5

15

Total cost

197.1

100

Revenues from sales

212.2

-

Margin per tonne

15.1

8

Source: Data from a meat processing plant in Northwestern Federal District (capacity of ten thousand tonnes of meat per year) as of 2011.

The profitability of meat production is also largely determined by the size of specific consumer groups and their products preferences. For example, the production of hard smoked sausages and delicacy meats can be much more profitable than the production of cooked sausages, frankfurters and wieners. However, the share of the former in total sales usually does not exceed 3-5 percent, depending on the region or city.

67

Chapter 5 - Meat market concentration The top five meat producers Among the meat subsectors, poultry plays a leading role in terms of concentrated production. The top five companies control 36.6 percent of the Russian industrial poultry output (see Table 29 and Figure 37). Table 29: Top five producers of poultry meat in the Russian Federation, 2010

Ranking

Company

Poultry production, slaughter weight, thousand tonnes

1

JSC Prioscoliye

355.2

14.1

10.1

2

Cherkizovo Group

194.1

7.7

5.5

3

Agroholding BEZRKBelgrankorm

148.8

5.9

4.2

4

Prodo Group

146.4

5.8

4.2

5

JSC Belaya Ptitza

78.0

3.1

2.2

922.5

36.6

26.2

Total Source: Russian Poultry Union.

68

Poultry production share, percent

Meat market share, percent

Russian Federation - Meat sector review

Figure 37: Share of the top five producers in total commercial poultry meat production, 2010 63%

Top five producers Other producers

37%

Source: Russian Poultry Union and companies’ data.

The biggest Russian turkey producers are Evrodon, Krasnobor, Sibirskaya Guberniya, M. Gaufuri and Egoriyevskaya Farms. The detailed profiles of the leading producers of poultry meat can be found in Annex 7. Raising pigs has a lower level of production concentration than poultry. In 2010, the top five producers generated an estimated 29 percent of the total pork output (see Table 30 and Figure 38). Table 30: Top five producers of pork, 2010 Company

Pork production, slaughter weight, thousand tonnes

Pork production share, percent

Meat market share, percent

1

APH Miratorg

137.6

8.4

4.6

2

GK AgroBelogorie

100

6.1

3.4

3

Cherkizovo Group

87.6

5.4

2.9

4

PRODO Group

77.43

4.8

2.6

5

GK RUSAGRO

61.9

3.8

2.1

464.53

28.5

15.6

Ranking

Total

Source: National Union of Pig Growers and companies’ data.

69

Figure 38: Share of the top five producers in total commercial pork production, 2010 71%

Top five producers Other producers

29%

Source: National Union of Pig Growers and companies’ data.

Detailed profiles of the leading pork producers are given in Annex 7. In contrast with poultry and pork, beef production has very low concentrations of production in the Russian Federation. The five leading producers supply only 3.3 percent of the total beef production volume (see Table 31 and Figure 39). This can be explained by the fact that beef production requires large areas of agricultural land for feed production that constrain the size of livestock farms. Table 31: Top five producers of beef, 2010 Company

Cattle production, slaughter weight, thousand tonnes

Cattle production share, percent

Meat market share, percent

1

AKGUP (Promyshlenny)

5

0.9

0.2

2

JSC (Agrocomplex)

4-5

0.8

0.2

3

OAO “KRASNY VOSTOK AGRO”

4

0.7

0.2

4

OAO (Agrofirma Mtsenskaya)

3

0.5

0.1

5

OAO “Belorechenskoe”

2-2.5

0.4

0.1

18-19.5

3.3

0.8

Ranking

Total Source: Companies’ data.

70

Russian Federation - Meat sector review

Figure 39: Share of the top five beef producers in commercial beef production, 2010

97%

Top five producers

Other producers

3%

Sources: Companies’ data and authors’ calculations.

The largest beef livestock farms (with over 3 million head) are Limited Liability Company (LLC) Warsaw in Chelyabinsk Region; Open Joint-Stock Company (OJSC), PKZ Zimovnikovsky in Rostov Region; SPK Ergeninsky in the Republic of Kalmykia; JSC, Plant Breeding named after Arashi Chapchaev in the Republic of Kalmykia; LLC, Center of Genetics, Angus, in Kaluga Region; SPK Fedoseevskiy in Rostov Region; and JSC PP, Progress in Rostov Region. Sales of beef from meat cattle are currently very low. The biggest producer generating revenues in this segment is All Beef in the Lipetsk Region.

Leading meat brands Branding is traditionally more developed in the processed meat product segment of the market: sausage products, delicacies and ready-to-cook and ready-to-eat processed products like meat dumplings, meat ravioli, meatballs, nuggets and patties. Chilled and frozen meats are also sold under trademarks; some are sold under the private labels of supermarkets. In the wholesale trade, especially when products are sold on a live weight basis or as half carcasses, the name of the slaughter enterprise is often referred to as a brand.

71

The leading brands of poultry meat (sales, in value) are: • b rands of GC Prioskolye: Prioskolye, Picnics Prioskolya, Al Safa and Coco Pulet11; • b rands of the Cherkizovo Group: Petelinka, Kurinoe tsarstvo, Mosselprom, Vasilevka and Domashnyaya kurochka; • brands of BEZRK-Belgrankorm: Yasnye zori and Kurinyj korol12; • brands of the Prodo Group: Troekurovo and RoKoKo. Leading brands of pork (sales, in value) are: • Miratorg13; • A gro-Belogorie Group of Companies: Dal’nie Dali and AgroBelogorie; • Cherkizovo Group. Leading brands of beef (sales, in value) are: • Klin Meat Plant (owned by the Prodo Group); • M eat and poultry plant Penzensky (belongs to Cherkizovo Group); • Ulyanovsk meat farm (owned by Cherkizovo Group). A list of the leading meat brands is available in Annex 6.

The top five meat processors The Russian meat processing sector is characterized by rather low consolidation due to vast distances, consumers’ preferences for local and regional producers and trademarks, lack of processors’ capacity to market and manage federal brands and different conditions of production assets. The leading meat processors are concentrated in the main pork and poultry producing regions, such as Belgorod Oblast, Moscow Oblast, Leningrad Oblast, Krasnodar Krai, Voronezh Oblast, Tatarstan and Lipetsk Oblast (see Figure 40). 11 This manufacturers meat processing sector also has brands like Fly de Lunch (food made of poultry meat: burgers, kebab, fillets, etc.), Slavnaya marka (sausages and cooked products), and chicken specialties. 12 Brand Rural Traditions was designed for the sausage segment. 13 Included in the meat processing sector of this manufacturer is the brand Gur Mama (nagetsy chicken, burgers, steaks, fillets and chicken pieces).

72

Russian Federation - Meat sector review

Figure 40: Number of meat processing plants*, 2009 70 60

percent

50 40 30 20 10 0

Vo

lg

a

Ce

nt

er

So

ut

h

U

N

Ca

uc

or

as

us

th

N

ra

ls

W

or

th

Fa

rE

es

t

as

t

Source: FSSS of Russian Federation. *Minimum plant capacity is 20 tonnes of finished product/day.

The following main trends of slaughterhouses and meat processing facilities have been observed: • c attle and swine slaughterhouses and the main processing facilities are close to meat production areas; • p oultry slaughter and processing are concentrated around poultry farms throughout the Russian Federation; • f urther meat and poultry processing and value-addition are concentrated around big cities. The main meat processing facilities are located in Moscow (17.2 percent) and in the Moscow Oblast Region (8.5 percent). Regional concentration of meat processing facilities is low; 43 percent of all processing facilities in 2009 were concentrated in the regions that have less than 2 percent of the total distribution (see Table 32).

73

Table 32: Leading meat processing regions, 2009, percent Russian Federation

100

Moscow

17.2

Moscow Oblast Region

8.5

Krasnodar Territory

4.1

Vladimir Region

3.8

Saratov Region

3.8

Pskov Region

2.8

Republic of Bashkortostan

2.7

Leningrad Region

2.5

Tyumen Region

2.4

Chelyabinsk Region

2.4

Novosibirsk Region

2.4

Sverdlovsk Region

2.2

Rostov Region

2.1

Others (regions that have less than 2%)

43.1

Source: FSSS of Russian Federation.

The Ostankisnky meat processing factory and Cherkozivo Group were the two largest meat processors in 2010. Only two more companies produced above 100 000 tonnes of meat products each in 2010 (see Table 33).

74

Russian Federation - Meat sector review

Table 33: Top five meat processors, 2010 Processed Processed meat meat production, production thousand tonnes share, percent

Meat market share, percent

N

Producer

1

Ostankinsky myasokombinat

151.0

3.6

3.5

2

Cherkizovo Group

142.0*

3.4

3.3

3

ABI PRODUCT

117.4

2.8

2.8

4

PRODO Group

105.7

2.5

2.5

5

JSC Mikoyanovsky myasokombinat

79.1

1.9

1.9

Source: Meat Union of Russia and companies’ data. *The company claimed its processing capacity increased to 190 000 tonnes before 2012.

The market of processed meat products is not concentrated as the five major players have 14 percent of the total market share by volume (see Figure 41). Figure 41: Share of the top five producers in the total industrial production of processed meat products 14%

Top five Others

86%

Source: Meat Union of the Russian Federation and companies’ data.

The leading brands of processed products In contrast with the milk processing industry, in which international companies like Danone, Unimilk and Wimm-Bill-Dann (the latter purchased by PepsiCo) dominate the market, there are no main

75

foreign meat market players in the Russian Federation, with an exception of the Atria Group, which owns KampoMos and PitProduct brands. The information on the top brands in the Russian meat market and their estimated value is provided in Table 34. More information on specific meat brands and their short profiles can be found in Annex 6. Table 34: Top three brands in the meat processing industry N

Sales volume (billion RUR)

Brand cost (million USD)

Share of consumer preference, percent

1

OstaNkino (22.5), Ostankinsky myasokombinat

Mikoyan (86), Mikoyanovsky myasokombinat*

Mikoyan (24.1), Mikoyanovsky myasokombinat

2

Cherkizovsky (12.9), Cherkizovo Group**

Cherkizovsky (77), Cherkizovo Group

Dymov (14.1), Dymov sausage production***

Tsaritsyno (10.5), GK Tsaritsyno

OstaNkino (49), OAO Ostankinsky myasokombinat

OstaNkino (12.6), Ostankinsky myasokombinat

3

Source: Forbes, 2010, Rubrand 2011 and “Favorite brands of Russians” 2011. * This producer has one more brand: Okhotniy ryad that produces fine-food where food is handmade using long-standing technologies. ** Fine food has the labels Pyat zvezd and Imperiya vkusa. Economy-class sausage production has the label Myasnaya guberniya. *** Fine food labels are Vysokaya kukhnya, Piccolini and Dymov N°1, and the economy class label is Shchedrino.

Sector consolidation trends This sections covers the most significant mergers and acquisitions in the meat sector of the Russian Federation in 2010-2011. Please refer to a separate section in this report on recent investment trends in the meat industry by each subsector.

76

Russian Federation - Meat sector review

Meat production In 2011, the Cherkizovo Group bought 100 percent of the assets of the Mosselprom agricultural holding. The Mosselprom business was valued at USD 252.9 million. Due to this deal, Cherkizovo hopes to increase its market share of domestic producers of poultry meat. The Cherkizovo Group also acquired the LLC poultry farm Zarechnaya, located in the Penza Region. The total value of the transaction amounted to USD 5.2 million. The Agroholding Komos-Group (Udmurtia) purchased 100 percent of the shares of Mendeleyev Poultry Farm from the administration of Perm Region for RUR 76 million. JSC Mendeleev Poultry Farm produces and markets hatching eggs, DOCs and commercial eggs. In 2009, the poultry farm produced 130 million eggs. In May 2010, the largest agro-industrial holding in the Tomsk Region, JSC Siberian Agricultural Group, bought the Tomsk Poultry Farm belonging to JSC Sibirskaya guberniya (included in the Krasnoyarsk agricultural holding ALPI) for RUR 1.5 billion. Production of broiler meat will increase 1.5 times, up to 30 000 tonnes per year. In June 2011, JSC Agrocomplex bought the Tbiliskaya Poultry Farm for RUR 60.5 million. JSC Poultry Breeding Tbilisi is located in the village Lovlinskaya in the Tbilisi District (Krasnodar Territory). The company produces and sells eggs and produces meat and crops. It is also involved in egg incubation and the breeding and sale of day-old chicks. In 2011, the JSC GAP Resource acquired JSC Stavropol Broiler for USD 120 million (estimated) from Interros Group. The production capacity of the complex is estimated at 45 000 tonnes of broiler meat per year. Further growth in the poultry industry will be determined by local demand and the level of consolidation in the market. According to Rabobank, the potential for further consolidation in the Russian poultry industry is significant as compared with the industry’s potential for growth (see Figure 42). It is assumed that in countries where domestic market growth potential is low and industry concentration is high companies will start looking for export opportunities.

77

Figure 42: Poultry industry production growth and consolidation rates in selected countries, 2010-2020 China

Thailand Russian Federation Brazil

US

EU 60

50

40

30

20

10

0

10

20

30

40

50

60

percent Consolidation rate

Production growth

Source: Crossroads for Growth: the International Poultry Sector Towards 2020, Rabobank, 201114.

In the fourth quarter of 2010, the Cherkizovo Group bought from the NAPCO Group 100 percent of the Penza Grain Company and the Lipetskmyaso company shares (pig-breeding farms located in Lipetsk and Penza Districts) for USD 100 million. JSC Siberian Agricultural Group acquired from LLC Group Sinara a 75 percent stake in JSC Meat concern Kamensk-Ural (Micom). The same group acquired 100 percent of the pig complex Polevskoye shares for the purpose of building a vertically integrated agricultural holding company, LLC Pig Complex Ural in the Urals. In January 2012, LLC Russian Dairy Company (RUSMOLKO) and the company Olam International signed an agreement on a strategic partnership. The main result of their joint efforts will be investing USD 800 million in the Russian Federation’s dairy industry over eight years. RUSMOLKO, which, having a sufficiently large population of cattle, may be one of the largest producers of beef in the future.

14 https://www.rabobankamerica.com/content/documents/Rabobank_Crossroads_ for_Growth_September2011.pdf.

78

Russian Federation - Meat sector review

Meat processing The Cherkizovo Group bought the meat processing plant Otechestvenny Product in the Kaliningrad Region for USD 4.1 million. The group also absorbed the debt of the acquired company (USD 1.7 million). The group plans to focus on delicacy products such as smoked meat, hams, salamis and cooked sausage products. The plant has high potential owing to its location in the free economic zone with certain customs preferences. EGO-Holding gained control (51 percent of shares) of Kornshtadt meat processing plant (KMPP) for USD 15 million. The business plans to return KMPP to the first place in the market in the coming years. JSC Siberian Agricultural Group acquired 75 percent of the stakes in JSC Meat concern Kamensk-Ural (Micom) from LLC Group Sinara in order to vertically integrate it into the agricultural holding LLC Pig Farm Ural.

The rise of agroholdings The Russian meat sector is formed by a multitude of companies, the majority of which are vertically integrated holdings. These holdings are often parts of larger financial groups that also do business in other sectors of the economy. The major Russian agroholdings involved in meat production produce feed grains to make their own compound feed, raise livestock and poultry, have slaughter and meat processing facilities and engage in meat marketing. In 2011, there were more than 250 agroholdings in the Russian Federation that farmed on 15.5 million hectares of arable land (there are 113 million hectares in the country). About 40 agroholdings farm on more than 100 000 hectares each15. The biggest agroholdings operating in the meat sector are Mirtorg Agroholding, Cherkizovo Group and BEZRK-Belgrankorm. Miratorg Agroholding The company began operating in the mid-1990s as a meat importer. By 2000, it had established a joint venture with Sandia, a Brazilian company, in meat processing in the Russian Federation.

15 D.Rylko, Director of IKAR “Russian New Agricultural Operators (Agroholdings): Emergence, Performance, and Impact on the Domestic and World Agriculture and Agribusiness (https://moel.uni-hohenheim.de/fileadmin/einrichtungen/moel/ Downloads/Rylko_Russian_Agroholdings_Oct_2011.pdf).

79

Following the introduction of the TRQs on meat imports in mid2000, the company engaged in domestic pork production. The company farms about 150 000 hectares16 . Along with its subsidiaries, the holding is engaged in the production of grain and compound feed for animals; pork production; livestock slaughtering and meat processing; production of ready-to-cook food; and transportation. The company’s products include cutlets, dumplings, chilled and frozen fish and seafood, frozen vegetables, lasagna, pizzas, poultry, salami and spring rolls. It also operates a network of cold storage facilities, as well as distributes food products to retail chains, processing plants and the food service sector. The company is based in Moscow with offices in Saint Petersburg, Kaliningrad, Belgorod, Yekaterinburg and Rostov-on-Don. Miratorg Agribusiness Holding operates as a subsidiary of Agromir Limited. Cherkizovo Group The Cherkizovo Group is a leading Russian, vertically integrated, agroholding company with operations spread across the full production cycle from feed production and breeding to meat processing and distribution. The holding company was formed in 2005 through a merger of the Cherkizovsky and the Michailovsky agro-industrial groups. Cherkizovo Group is a publicly listed company quoted on the London Stock Exchange (LSE: CHE17 and RTS/MICEX). It is the largest meat manufacturer in the Russian Federation and one of the top three companies serving the Russian Federation’s poultry, pork and meat processing markets. The company is also the country’s largest producer of fodder. The group includes:

16 Ibid. 17 http://www.londonstockexchange.com/exchange/prices-and-markets/stocks/ summary/company-summary.html?fourWayKey=US68371H2094USUSDIOBE.

80

Russian Federation - Meat sector review

• s even full-cycle poultry production facilities, with a total capacity of 400 000 tonnes in live weight p.a.; • 1 4 modern pork production facilities with a total capacity of 180 000 tonnes in live weight p.a.; • s ix meat processing plants with a total capacity of 190 000 tonnes p.a.; • six fodder plants with a total capacity of 1.4 million tonnes p.a.; • g rain storage facilities with a total storage capacity exceeding 500 000 tonnes; • a land bank exceeding 100 000 hectares. In 2012, Cherkizovo’s consolidated revenue exceeded USD 1.5 billion, and its net profit amounted to USD 225 million. Within the last five years alone, Cherkizovo has invested more than USD 1 billion into the development of the Russian Federation’s agriculture sector. BEZRK-Belgrankorm This agroholding is comprised of 18 production units of different specializations and integrated around feedstuff production since 1987. This integration lowers the production costs of poultry and pork. Since 1998, when its meat production business line was launched, BEZRK-Belgrankorm has been developing fast to become one of the biggest broiler meat producers in the Russian Federation, employing over 1 000 people. The company produces high quality compound granular and expanded fodder, as well as pork, broiler meat and eggs, milk, processed meat products and pre-prepared foods. Short profiles of major meat producers in the Russian Federation are provided in Annex 7.

Key financial indicators of agroholdings and their benchmarks compared with world producers Despite a relatively low level of industry consolidation and various issues faced by Russian meat producers, the key financial indicators largely compare favorably with those of the global meat producers and, to a certain extent, look even more favorable in the future (see Table 35).

81

82

2.13

-5.47

1.82

-1.56

2.38

0.19

7.05

3.44

2.28

Pilgrim’s Pride

Sanderson Farms, USA

Brasil Foods, Brazil

Marfrig, Brazil

CP Foods, Thailand

DaChan Food, China

LDC, France

Cherkizovo, Russia

MHP, Ukraine

2.31

2.95

7.17

N/A

2.75

0.29

2.14

2.96

0.65

2.02

2012

2.69

3.12

7.93

N/A

3.16

0.40

2.48

4.91

0.91

2.31

2013

5.8

4.4

12.0

N/A

13.5

38.5

15.9

17.3

10.6

8.9

2012

P/E

5.0

4.2

10.8

N/A

11.7

28.0

13.7

10.4

7.5

7.8

2013

2 302

1 499

992

231

10 868

6 827

18 970

1 432

3 198

7 998

EV

426

319

226

N/A

1.045

1.003

1 923

170

453

1 833

2012

EBITDA

491

351

225

N/A

1 210

1 164

2 272

235

539

1 996

2013

5.4

4.7

4.4

N/A

10.4

6.8

9.9

8.4

7.1

4.4

2012

4.7

4.3

4.4

N/A

9.0

5.9

8.4

6.1

5.9

4.0

2013

EV/EBITDA

802

718

7

-139

1 462

4 618

2 808

274

1 432

1 466

Net Debt

2.0

3.0

0.0

-0.5

2.3

4.8

1.8

-3.0

-8.6

0.8

Net Debt/ LTM EBITDA

* Rabobank Poultry Quarterly: Outlook for Global and Regional Markets, April 2012 http://www.rabobank.de/uploads/media/Rabobank_Poultry2012_01.pdf.

Source: Bloomberg, 2012 as reported by Rabobank*.

1.89

Tyson Foods, USA

2011

EPS

Table 35: Key financial indicators of world meat producers, 2011-2013

Russian Federation - Meat sector review

Recent investments in the meat sector The Russian meat sector has been recently experiencing an investment boom thanks to growing demand and state support programmes. According to our estimates, based on available information on the ongoing and planned investments in 2009-2014, it is clear that poultry production has been a leading subsector, attracting about 44 percent of all investments in the meat sector (see Table 36). Investments in the poultry sector were mainly focused on rehabilitation and construction of new plants and facilities. Information on poultry investment projects, investors, regions, declared investment value, anticipated production capacity and starting year are provided in Annex 8. Considering the ongoing boom in domestic broiler meat production, as well as the fact that poultry production facilities are usually located close to main consumption centers, we built an investment model to assess profitability of a potential start up broiler meat production in Far East Russia. Box 5 contains the main findings of our analysis, and Annex 9 contains information on the main variables and assumptions and describes their sensitivity to changes in key variables.

83

Box 5: Investment in broiler meat production in the Russian Federation: low profitability with high sensitivity to risks The potential investment considered in this analysis was located in the Far East Russia. It envisaged construction of a large-scale broiler meat production with a capacity to produce up to 7.6 million broilers per year. The total investment needs for this project were assessed at RUR 1.1 billion. The results of this model showed that with a nine year discounted payback period and a 10 percent p.a. discount rate in Russian roubles (RUR), this investment promises to be marginally profitable with the following main financial results: positive net present value (NPV) of RUR 0.5 billion; internal rate of return (IRR) of 15 percent (as compared with the discount rate of 10 percent used in the calculations). Although these results show potential profitability, this investment was very sensitive to changes in the key variables. For instance, the feed costs, which are the major cost to poultry producers, can be highly volatile in recent years. In our investment model, a 10 percent increase in compound feeds prices from the levels anticipated in the model (RUR 12.48 per one kilogram of compound feed) changed investment profitability to be negative. From this perspective, investment in broiler meat production can be a rather risky business in the Russian Federation, especially, considering long payback period and other risks, such as poultry diseases. However, the same is true for broiler meat producers in other countries as they also face the same constraints and tend to operate on low margins. Improved feed conversion rates, on the other hand, would help increase returns on investment in broiler meat production in the Russian Federation. For instance, the feed conversion rate assumed in our model was 1.92 kilogram of compound feed per 1 kg of broiler weight. If the feed conversion rate would be reduced to 1.75 kilogram of feed – the result already achieved by some companies in Russian Federation – this start up investment would show the following profitability results: NPV of RUR 0.8 billion; IRR of 18 percent; discounted payback period of 8 years.

Pork and beef were the second and third subsectors, attracting USD 2.4 billion and USD 1.1 billion of investments respectively (33 percent and 15 percent of the total of meat sector investments) according to our estimates (see Table 36). Construction of new livestock complexes has been a major objective for national and regional governments. More information on specific investment projects in this subsector can be found in Annex 10. According to the Ministry of Agriculture, in 2009-2010 beef cattle inventories increased by 409 100 heads as Russian farmers built and modernized 168 facilities for beef cattle production. These new production sites run over 60 000 heads of cattle. The leaders in this new subsector were the Republic of Kalmykia, Altay Kray,

84

Russian Federation - Meat sector review

Republic of Bashkortostan and Bryansk Region. Farmers invested in construction of new barns as well as purchase of beef cattle. Annex 11 contains short descriptions of the recent investment projects in the beef sector. It should be also noted that the recent global economic recession has forced some agricultural companies to review their ambitious business expansion plans and put some meat projects on hold. For instance, the Russian Farms Group postponed the construction of a RUR 3.5 billion dairy farm in Lipetsk Region; Miratorg suspended its cattle meat project in Bryanks Region; the Rubezh Group cancelled the planned expansion of the Myasnye delikatesy meat processing plant in Saint Petersburg; and Optifood Group postponed its poultry project in the Rostov Region.

Meat processing The meat-processing sector was estimated to attract about USD 537 million in investments, based on the information provided in Table 37. It should be noted that the information on investments provided in this table was gathered through open information sources. Considering the low levels of concentration in the meat processing industry, it is likely that these estimates of investments are somewhat underestimated.

85

Table 37: Recent investments in meat processing facilities Name and brief project description

Implementing company (holding)

Region

Investment, million USD

Starting year

Project at full capacity

1

Slaughter and processing plant for beef cattle operation

Prodcontract Group

Republic of Kalmykia

166.7 (total for vertically integrated complex)

2

New meat processing plant in Gorelovo with a daily capacity of 90 tonnes of hot dogs, sausages and cooked sausages under the brand Pit-product.

Atria Group

Leningrad Region

93.3

Zarechnoe

Voronezh Region

10 (estimate)

2011

2012

4

Slaughter and prime processing plant with a capacity of 22.5 tonnes of chilled pork meat per day. The company targets the retail market of Russia.

LLC GC AgroBelogor’e

Belgorod Region

117

2009

2009

5

Commissioning of slaughter and primary processing of pork with full capacity of 2 million heads.

AIH Miratorg

Belgorod Region

150-200 estimate

3

Construction of a slaughterhouse for cattle in Ramonsky District with a capacity of processing and cutting 30 heads of cattle per hour (hph), expandable to 50 hph. The project involves creation of the genetic center of Aberdeen Angus and Hereford and feedlots for 20 thousand animals. The total project cost is RUR 6 billion (USD 200 million).

2010

2010

Source: Author/LMC International, based on calculations and estimates.

86

3rd quarter 2012

2009

Russian Federation - Meat sector review

Chapter 6 - Meat trade Imports and exports of meat and meat products Imports Imports of meat and edible meat offal decreased from 3.3 million tonnes in 2007 to 2.4 million tonnes in 2012, or by 27 percent. This was largely because of a drastic 64 percent decrease in poultry meat imports. Prior to 2010, poultry meat was the main kind of meat imported into the Russian Federation. It is now third after pork and beef. Imports of edible meat offal for further processing have been quite stable at about 300 000 tonnes per year (see Figure 43). The most notable increase was in chilled beef imports, which responded to growing consumer demand for quality beef cuts. Imports of chilled beef almost doubled from 21 000 tonnes in 2007 to 41 000 tonnes in 2012 (see Figure 43). Pork imports, despite a short drop in 2009-2011, increased again in 2012. In 2012, the Russian Federation imported 7 percent more pork than in 2007. This was largely due to increased imports in July-December 2012 due to lower import tariff protection following the Russian Federation’s accession to the WTO.

87

Figure 43: Imports of meat and meat products, 2007-2012 3 500 3 000

21 307 247

20 321 267

thousand tonnes

2 500 2 000

1 287

12 298

20

256

292

36

266

291

1 218

1 000

650 713

500 672 0 2007

289

280

948 1 500

41 273

470

404

791

791

2008

585

624

606

567

636

641

657

720

2009

2010

2011

2012

0201 Beef

0207 Poultry (fresh and frozen)

0206 Edible meat offal

0202 Beef (frozen)

0209 Pig/ Poultry fat

0203 Pork (fresh and frozen)

Source: Russian Customs Committee as reported by the Global Trade Atlas.

In value terms, the Russian meat import bill increased from USD 5 billion in 2007 to 7 billion in 2012 (up 38 percent), largely due to increases in beef import volumes and prices. Beef is the most important meat in the structure of meat imports. The structure of meat imports into the Russian Federation in 2012 is provided in Figure 44.

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Russian Federation - Meat sector review

Figure 44: Structure of the value and quantity of imported meat products, 2012 1 0 90 80

percent

70

396 219 460 474 707

60 50

2 407

737 27 41 273 289

40 470

30 20

2 583

10 0

Value, million USD Beef (frozen) Pork (fresh and frozen) Poultry (fresh and frozen)

585 Quantity, thousand tonnes Edible meat offal Beef (chilled) Other kinds of meat

Pig/poultry fat Source: Russian Customs Committee as reported by the Global Trade Atlas.

The declining trend in poultry imports is due not only to the reduced quota but also to the restrictions on chlorine content in meat, which the Russian Federation implemented following the EU on 1 January 2010. This regulation has effectively restricted imports from the USA. There is a pronounced seasonality of meat imports due to the Russian Federation’s specific consumption patterns: high demand before the seasonal festivities and low demand during Lent. Import tariff-rate quota is another factor affecting distribution of imports throughout the year. Usually the government starts issuing import licenses for 25 percent of the annual quota volume in mid-January; therefore, the import shipments arrive in February-March. May and June see high sales because of summer picnics and barbeques. And the last months of the year register the biggest imports as importers rush to use their quotas and build the stocks for December-February sales.

89

Figure 45: Major importers of meat to the Russian Federation, 2010-2012, average Beef 16% Brazil 7%

Paraguay 44%

7%

Uruguay United States of America Australia Others

12% 14% Pork 17%

23%

Canada Brazil 24%

Germany United States of America

11%

Denmark Others

10% 15% Poultry 6%

2%

5% United States of America Brazil 32%

55%

Ukraine France Argentina

Source: Russian Customs Committee as reported by the Global Trade Atlas.

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Russian Federation - Meat sector review

Annex 12 contains detailed official Russian trade statistics for all main meat producers by value, quantity of imports and exports, average product values, main suppliers and monthly trade series. As can be seen from Figure 45, major exporters of meat to the Russian Federation are the USA (poultry, pork, beef), Brazil (poultry, pork, beef), the EU (live pigs, pork, mechanically separated poultry, beef), Canada (pork, by-products), Australia, Uruguay and Paraguay (all beef). The bulk of imported poultry (over 85 percent) goes into retail and is mainly sold on open markets and in small stores in rural areas. About 10 percent is further processed, and the rest is marketed through retail as further processed products. Almost all imported beef and pork is frozen (beef at 98 percent, pork at 99.5 percent), and most of it (over 80 percent) goes for further processing. Importers enjoy steady demand for these products from processors thanks to a consistent quality and lower prices compared to similar domestic products. Exports The Russian Federation doesn’t export any meat except for poultry. These exports have grown, if on a small scale, in the category of chicken by-products (feet) that is largely requested by SouthEast Asia (mostly Hong Kong). The Russian Federation has also traditionally supplied its neighbors in the Commonwealth of Independent States (CIS); however, the quantities of meat exports to those countries are marginal (see Figure 46). Figure 46: Meat exports from the Russian Federation, 2007-2012

thousand tonnes

25 20 15 10 5 0

2007

2008

0207 Poultry meat

2009

2010

0210 Meat & Ed Offal Salted, Dried Etc. & Flour & Meal

2011

2012

Other meat products

Source: Russian Customs Committee as reported by the Global Trade Atlas.

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Russian meat is higher priced than the meat from its competitors. Some minor shipments of meat for ship crews, military bases and offshore, state-owned production facilities also get recorded in the official exports statistics. The National Livestock Development Strategy until 2020 sets the goal for exporting 400 000 tonnes of poultry and 200 000 tonnes of pork by 2020. However, it is doubtful these export targets will be met as domestic meat prices remain well above other suppliers. Since there is still some room for domestic beef and pork market growth, these should probably be the primary areas for addressing domestic competitiveness issues. However, the Russian Federation still may increase exports of poultry meat to Central Asia, Caucasus (Armenia and Azerbaijan) and niche markets in Asia. But the Russian producers will need to tackle constraints for poultry exports, which include (i) high production costs, (ii) improved microbiological contamination indicators (see Box 4 on salmonella prevalence), (iii) absence of veterinary agreements with the majority of target countries, and (iv) development of a traceability system. Exports and imports of processed meat products The value of further processed meat products imported into the Russian Federation (salami, ham, sausage and other products falling under the codes 1601 and 1602 of the Harmonized System [HS]) increased as compared with 2010, while the Russian Federation’s exports of the same products to the traditional markets in the former Soviet Union decreased (see Table 38). The Russian Federation imports mostly pork-based sausages and different kinds of hams from the EU.

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Russian Federation - Meat sector review

Table 38: Imports and exports of processed meat products, 2010-2012 Million USD

Commodity (HS Code) and trade flow

Description

1602, Import

Prepared or preserved meat, meat offal

1601, Import

1602, Export

1601, Export

Main

Percent change

2010

2011

2012

2012/ 2011

Spain, Germany, France, Hungary

119

197

172

44

Sausages, similar product meat, etc.

Lithuania, Spain, Latvia, U.S.

27

54

69

157

Prepared or preserved meat, meat offal

Turkmenistan, Azerbaijan, Georgia

14

15

15

2

Sausages, similar product meat, etc.

Azerbaijan, Armenia, Georgia

36

10

10

-73

Source: Customs Committee of Russia as reported by the Global Trade Atlas.

Impact of bilateral agreements: the Russian Federation and the Customs Union Russian bilateral trade agreements with Ukraine and Russian customs union with Belarus and Kazakhstan have a great impact on the country’s meat market. The impact can be clearly seen from the increased imports of poultry meat from Ukraine under the freetrade agreement; these imports are not constrained by the Russian meat import TRQ or import duties, shown in Table 53 in Annex 12. Trade with Belarus and Kazakhstan is rarely seen now in the official customs statistics. In 2010, pork and beef exports from Belarus to the Russian Federation increased by 37 and 28 percent respectively compared to 2005, according to the data reported by Belarus to UN Comtrade. Poultry trade from the Union partners boomed with some 38 000 tonnes sold, almost quadrupling in 2010, as a result of Belarus’s expansion towards the Russian market (see Figure 47).

93

Figure 47: Belarus’s export quantities and average free on board (FOB) prices of poultry meat to the Russian Federation, 1998-2010 45 000

2.50

40 000 35 000

2.00

25 000

1.50

20 000 15 000

1.00

10 000 0.50

5 000

0 1998

2000

2002

2004

Export quantity

2006

2008

2010

Avg price

Source: UN Comtrade.

As can be seen from Figures 48 and 49, within the Customs Union, Belarus is the biggest supplier of meat to the Russian Federation, accounting for 94 percent of exports to the Russian Federation, which absorbs over 99 percent of Belarus’s total meat exports. Belarus ships mainly beef (64 percent of its meat exports to the Russian Federation in 2010, on volume), pork (19 percent) and poultry meat (another 19 percent). Belarus’s meat is pricecompetitive thanks to domestic price and trade control measures and because all exports are conducted through the state trading companies. It is not clear to what extent Belarusian exports of meat will be influenced by the Russian Federation’s WTO accession and the improved market access for other suppliers. The Belarusian producers and exporters are generally believed to be supported by the state. As Belarus, the Russian Federation and Kazakhstan create the Single Economic Space, they will have to coordinate domestic support policies as well. This issue has already been brought up and is believed to be the main reason behind Belarus’s occasionally “voluntary” restrictions on exports to the Russian Federation.

94

USD/kg

tonnes

30 000

Russian Federation - Meat sector review

Figure 48: Russian imports of pork from the Customs Union and Ukraine, 1995-2011 70

thousand tonnes

60 50 40 30 20 10 0 1995

1997

1999

2001

Kazakhstan

2003 Belarus

2005

2007

2009

2011

Ukraine

Source: UN Comtrade.

The availability of beef for suppliers to the Russian Federation from Ukraine and Kazakhstan is low. Therefore, Belarus will likely remain the only sizable beef supplier with which the Russian Federation has a free-trade agreement (see Figure 49). Figure 49: Russian imports of beef from the Customs Union and Ukraine, 1995-2011 250

thousand tonnes

200

150

100

50

0 1995

1997

1999

2001

Kazakhstan

2003 Belarus

2005

2007

2009

2011

Ukraine

Source: UN Comtrade.

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Chapter 7 - Meat prices Poultry, pork and cattle prices in 2005-2010 were on a rise in the Russian Federation. The average annual growth of prices for cattle and poultry18 in live weight was as follows (see also Figure 50): • poultry: 30 percent; • swine: 38 percent; • cattle: 64.5 percent. Prices for cattle grew much faster than prices for pigs, which is explained by the gradual reduction of livestock inventories for slaughter. Figure 50: Annual average poultry, pork and cattle live weight prices, 2005-2010 75 000 69 263.4

70 000

69 748.3

RUR/tonne (excl. VAT)

65 000 60 988.3 60 000 54 371.4

55 000 50 000

50 420.4

51 821.0

49 050.6 43349.7

40 813.4 40 000

45 074.8

39 821.9 41 762.2 39 235.4

35 000 34 003.1 2005

2006

2007

Poultry and other farming birds Source: FSSS of Russian Federation.

18 For all fatness classes.

96

54 229.5 52 966.3

45 641.0

45 000

30 000

55 950.5

2008

2009 Swine

2010 Cattle

Russian Federation - Meat sector review

The prices for cattle in live weight and slaughter weight are closely correlated considering typical slaughter yields from the live weight basis (0.75 for poultry, 0.6 for pork and 0.45 for beef). Prices for cattle differ greatly depending on the region and category of meat. For instance, the average price for first category hogs in live weight as of December 2010 in the Central Federal District was 72.1 RUR/kg (excl. VAT) as compared with 134.4 RUR/ kg (excl. VAT) in the Far Eastern Federal District. The average annual prices for meat and meat products also had a clear upward tendency, reflecting increasing incomes and producer and consumer prices in the Russian Federation19. In 2005-2010, annual meat prices increased as follows: • 5.5 percent for poultry meat; • 8 percent for pork; • 13 percent for beef; • 4.4 percent for edible subproducts (livers, etc); • 14.5 percent for cooked sausage products; • 13 percent for further processed meat products; • 9 percent for canned meat products. The trend of increasing prices of meat products is shown in Figure 51.

19 As per FSSS of Russian Federation, the average inflation level amounted to 10.5 percent for 2005-2006.

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Figure 51: Prices for raw and processed meat products, annual average, 2005-2010 141 128.7 14 000 127 502.1

RUR/tonne (excl. VAT)

12 000 115 673.7 10 000

8 000

6 000

82 345.1 81 896.5

84 363.5

77 008.9

71 333.1 70 865.3

58 371.7 55 683.6 51 283.0

38 662.4

4 000 2 000

27 081.5 2005

2006

Sausage and cooked meat Pork Beef Animal slaughter sub-products

2007

2008

2009

2010

Poultry Semi-prepared foods from meat pork Meat cans (thousand pcs)

Source: FSSS of Russian Federation.

The increase of prices for sausage products is closely correlated with the trend of higher consumption of more expensive sausage products as a result of growing incomes. Canned meat has traditionally been a low-end segment as it is made of the less valuable parts of animal carcasses like the trimmings. Therefore, the price increase of canned meats is less pronounced compared with that of precooked meat and sausage products. In general, the price dynamics are consistent with the inflation rate or they slightly exceed it, with the exception of poultry and edible by-products. The average annual price increase for such products remains below the average inflation rate due to a relatively higher supply.

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Russian Federation - Meat sector review

Chapter 8 - Policy Agricultural policy goals The agricultural policy of the Russian Federation is an integral part of the state’s socio-economic policy 20. The policy is aimed at sustainable development of agriculture and rural areas. The main objectives of the agrarian policy are: • increasing competitiveness of Russian agriculture and agricultural producers and improving quality of food products; • ensuring the sustainable development of rural areas and employment and improving living standards in rural areas; • preservation and reproduction of natural resources used in agricultural production; • creation of a well-functioning market for agricultural products, raw materials and food and increasing profitability of agricultural producers; • creation of a favourable investment climate and increasing investment in agriculture; and • maintaining price parity between agricultural products and industrial inputs used in agriculture. The agricultural support system in the Russian Federation has been driven by a progressive orientation of policies towards import substitution and achievements of self-sufficiency. In order to implement national agricultural policy goals, the government has developed sector and subsector development programmes, such as the State Programme for the Development of Agriculture and Markets of Agricultural Products, Raw Materials and Food for 2008-201221 or 2013-202022. The livestock and poultry sectors are integral parts of these agricultural development programmes. The agricultural policy objectives have been pursued at relatively high costs to Russian taxpayers and consumers as the majority of support is provided through market price, variable input use and 20 The Federal Law on Agricultural Development: http://base.consultant.ru/cons/cgi/ online.cgi?req=doc;base=LAW;n=126592 in Russian. 21 http://www.mcx.ru/documents/document/v7_show/1348.145.htm in Russian. 22 http://www.mcx.ru/navigation/docfeeder/show/342.htm in Russian.

99

fixed capital formation in agriculture (investment subsidies and interest rates)23, which are amongst the most distorting measures. According to the OECD data the PSE – which measures the annual monetary transfers from consumers and taxpayers to farmers arising from policy measures that support agriculture (regardless of their nature, objective and impact) – amounted to around half of a trillion RUR, on average 22 percent from RUR 2.1 trillion of the total value of agricultural production in the Russian Federation in 2008-2010. Within the PSE, transfers to producers of poultry and livestock totaled about RUR 227 billion per year on average (20082010), which comprises 44 percent of all transfers to all farmers measured by OECD24 through the PSE.

Livestock and poultry in the context of agricultural support polices and measures The indicators of the MPS are key to assessing support levels enjoyed by producers. In 2008-2010, about 65 percent of all transfers to Russian farmers were because domestic agricultural prices were higher than comparable world reference prices at a farm-gate level. The specific composition of the MPS for key agricultural commodities in 2008-2010 is illustrated in Figure 52. The negative price support of wheat, maize, sunflower seed and other grains indicates that producers of these commodities are “taxes” in the Russian Federation because of their low domestic prices. Because domestic prices for beef, pork and poultry meat are much higher as compared with international reference prices, poultry and livestock farmers receive significant transfers from consumers (who have to pay more for domestic products). Beef and veal, pork and poultry meat account for 9 percent, 20 percent and 15 percent (44 percent in total) of all transfers measured by the PSE. Therefore, the meat sector is the most

23 Please refer to OECD Producer Support Estimate Manual (http://www.oecd.org/ tad/agricultural-policies/psemanual.htm) for specific definitions and classifications of support programmes. 24 OECD PSE Database for the Russian Federation Producer and Consumer Support Estimates database http://www.oecd.org/agriculture/agricultural-policies/ producerandconsumersupportestimatesdatabase.htm#country.

100

Russian Federation - Meat sector review

significant beneficiary of the state support policy in the Russian Federation’s agriculture sector. Figure 52: Market price support of specific products in the Russian Federation, 2008-2010, average annual 120

25 102

98

100

67

60

15

44

40

10

s

w

er

ra in

0

lo

MPS (left axis)

es m O od th iti er es m co

gs Eg

5

ta to

Po

m ea t

try

gm ea t

ul Po

Pi

ef

an d

M ilk

-16

Be

-27

ve al

Su ga r

-40

-24

Su

-11

-20

8

nf

er g th

12

O

0

W he at M ai ze

20

percent

RUR billion

20

75

80

0

Share in total PSE all transfers (right axis)

Source: Authors’ presentation based on the OECD PSE Database.

The government support policies have placed importance on stimulating growth of livestock production through border protection measures (both tariff and non-tariff) to support domestic prices and investments in fixed capital and new farms (via interestrate subsidies and grants). Livestock producers also benefit from domestic grain prices that are lower than international ones.

Competitiveness with imports The MPS indicators reflect the gap between domestic and international import parity prices; therefore, they act as indicators of domestic products’ competitiveness with imported products of comparable quality under the conditions of no import protection (like import duties, sanitary and phytosanitary measures [SPS], etc.). The improvement of the domestic industry’s competitiveness is one of the major goals of the Russian Federation’s agricultural policy. In order to illustrate trends in competitiveness of domestic products, we calculated the MPS per 1 tonne of poultry, pork and beef using information provided by the OECD (see Figure 53).

101

Improving competitiveness between domestic products and imports means reducing the gap between domestic and import parity prices to zero (MPS =0). However, it is evident from Figure 53 that the gap between domestic and international prices only increased, from USD 470-900 per 1 tonne for various meats in 2001 to USD 900-1 200 in 2010. In fact, domestic beef was more competitive with imports than poultry and pork was, as beef had a lower MPS. It is clear that the protectionists’ policies have not improved competitiveness of the domestic industry so far. Figure 53: Market price support for meat in the Russian Federation, 2001-2010 2 500

USD/tonne

2 000

1 500

1 000

500

0 2001

2002

2003

2004 2005

Poultry

2006

Pork

2007

2008

2009

Beef and veal

Source: Author’s calculations based on the OECD PSE Database.

Specific budgetary support programmes At the end of 2011, the Russian Federation implemented the following major federal programmes for the development of livestock production and meat processing:

102

2010

Russian Federation - Meat sector review

• S tate Programme for the Development of Agriculture and Markets of Agricultural Products, Raw Materials and Food for 2008-2012; • s ector-targeted programme: Development of pork in the Russian Federation for 2010-2012; • s ector-targeted programme: Development of beef cattle in the Russian Federation 2009-2012; • sector-targeted programme: Development of the poultry industry in the Russian Federation for 2010-2012 and the period up to 2018-2020; • s ector-targeted programme: Development of the primary processing of livestock in 2010-2012. Government support measures contribute to the development of the livestock industry by subsidizing interest rates on short-term investment credits and supporting livestock breeding and various regional programmes. State subsidies for livestock production from the federal budget amounted to RUR 22.8 billion in 2011 and another RUR 27 billion for the dairy sector, which is closely linked to the beef market. More than 3 000 projects were already accomplished in the meat and dairy industries under these programmes. Subsidized loans and interest rate subsidies Following the State policy of reconstruction and development of the Russian Federation’s agricultural complex infrastructure, OJSC Russian Agricultural Bank and OJSC Sberbank of Russia began to provide long-term (up to ten years) loans for investments in agricultural projects, including livestock farming. Interest payments on loans may be deferred for up to 36 months. In 2010, compensation of interest rates to agricultural producers was administered by the Resolution of the Russian Federation Government of 4 February 2009 N90. Agricultural producers were entitled to reimbursement of interest on investment loans and loans to replenish working capital; reimbursements were received in Russian banks in the form of subsidies from the budget. This resolution covered loans for construction, reconstruction and modernization of cattle-breeding complexes and farms, livestock and feed production facilities, slaughterhouses and cold stores. In 2010, the Federal budget compensated RUR 62.8 billion in interest rates, of which RUR 45.1 billion were subsidies on investment loans and RUR 17.7 billion were short-term credits.

103

In 2010, the Government of the Russian Federation continued implementing the package of anticrisis measures in the agricultural sector: • c ompensation from the federal budget on investments and short-term loans remained at 80 percent of the refinancing rate of the Russian Central Bank, and compensations from regional budgets remained at up to 20 percent; • c ompensation of the 100 percent refinancing rate of the Central Bank was guaranteed to agricultural producers engaged in the production of cattle meat and milk and for short-term and investment loans aimed at construction, reconstruction and modernization of livestock complexes and farms, cattle receiving points and/or primary processing of farm animals and milk; • s ubsidies on loans for refinancing previously made investments were kept in full. The Interagency Commission for the coordination of crediting issues of the agro-industrial complex held 13 meetings and selected 748 subsidized investment projects with the total amount of credit of RUR 197.3 billion in 2010 (see Table 39), a 40 percent increase as compared with the RUR 112.7 billion that were approved in 2009.

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Russian Federation - Meat sector review

Table 39: List of investment projects in agriculture selected for subsidies, 2010

Number of projects

Loans amount, billion RUR

Subsidies from the federal budget, billion RUR

Construction, reconstruction and modernization of livestock facilities, including poultry farms (with breeder farms)

492

154.81

2.36

Construction, reconstruction and modernization of facilities for primary processing and grain storage

105

25.99

0.34

Construction, reconstruction and modernization of facilities for primary processing of meat and milk

43

7.75

0.18

Construction, reconstruction and modernization of sugar mills

29

4.52

0.13

Other

79

4.23

0.07

Total

748

197.3

3.08

Description

Source: National report “On the progress and results of implementation in 2010 of the State programme of agricultural development and regulation of markets for agricultural products, raw materials and food in 2008-2012”.

The Ministry of Agriculture, together with the administrations of the Russian regions, selected 57 new investment projects in 2010 for beef cattle breeding with the total amount of requested loans valued at RUR 31.4 billion (USD 1.05 billion):

105

• V  neshEconombank signed loan agreements for at least one investment project – Bryansk Meat Company – for RUR 20.4 billion (USD 680 million); • O AO Rosselkhosbank signed loan agreements for 35 investment projects totaling RUR 4.53 billion (USD 151 million); • S berbank of Russia signed loan agreements for 14 investment projects totaling RUR 596 million (USD 20 million). Along with the strict requirements of the value of the collateral and turnover, the borrowers are facing other difficulties such as bureaucratic barriers and the requirement of extensive documentation to obtain a loan. Subsidized leasing The government of the Russian Federation established the state company OJSC RosAgroLeasing in 2001 to provide domestic agricultural producers with modern agricultural technology, hightech equipment and highly productive breeding cattle. The new national system of agrarian financial leasing started functioning in 2002. RosAgroLeasing offers its clients the following services: • extended loan repayment period of up to 10-15 years vs. 7-8 years of maximum bank loans; • opportunity to purchase modern equipment with minimal down payment (up to 7 percent vs. 20-30 percent for bank credit); • flexible scheduling of lease payments considering seasonal fluctuations or other peculiarities of a lessee’s business activity. Direct subsidies to support the production and breeding of livestock Besides subsidizing interests rates, the government provides support from regional and federal budgets to agricultural producers by means of direct subsidies to develop pedigree livestock breeding (for purchased breeding stock, maintenance of breeding livestock, etc.). Table 40 provides an example of specific programmes in the Voronezh Region of the Russian Federation.

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Russian Federation - Meat sector review

Table 40: Types and rates of subsidy for beef cattle in the Voronezh Region Item 1 1.1

Trade line

Size (subsidiary rate)

From the federal budget Development of beef cattle production

1.1.1

For purchase of pedigree cattle of specialized beef breeds

about 12 thousand RUR/head

1.1.2

For establishing rearing farms of beef purebred and cross-bred cattle to the live weight of 450 kg within two years

21 RUR/kg of the live weight

1.1.3

For maintenance of breeding stock at farms with Cow-Calf system

3 000 RUR/head per year

Reimbursement of interest rates for loans

80 percent of the CBR refinancing rate

1.2 2 2.1

Ministry of Agriculture Order of 6 October 2008 N494

Russian Government Decree from 4 February 2009 N 90

From the regional budgets Development of beef cattle production

2.1.1

For the purchase of pedigree cattle of specialized beef breeds

65 RUR/kg of the live weight

2.1.2

For purchases of genetic material

bull semen at a 50 RUR/dose and embryos at 6 000 RUR/pcs.

2.1.3

For acquiring equipment for feed preparation and distribution, generators for autonomous power supply, electric fences

20 percent of cost (VAT excluded)

2.1.4

For the increase of breeding stock at farms with Cow-Calf system

4 000 RUR/head/year

2.2

Base

Reimbursement of interest rates for loans

20 percent of CBR refinancing rate

Sector-targeted programme: Development of beef cattle in the Voronezh Region for 2012-2013

Russian Federation Government Decree from 4 February 2009 N 90 (in the Russian Federation Government Decree edition from 31.12.2009 N 1198)

Source: Ministry of Agriculture Order of 6 October 2008 N494; Russian Government Decree from 4 February 2009 N 90; Sector-targeted programme: Development of beef cattle in the Voronezh Region for 2012-2013; Russian Federation Government Decree from 4 February 2009 N 90 (in the Russian Federation Government Decree edition from 31.12.2009 N 1198).

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Under the programme Development of Beef Cattle in Russia 2009-2012, the State co-financed 22 regional programmes in 20092010 and allocated RUR 6.67 billion (USD 222 million), including RUR 4.59 billion (USD 153 million) from the federal budget and RUR 2.1 billion (USD 7 million) from the regional budgets. Most of the federal budget has been allocated to regions with traditional beef cattle breeding: Republic of Kalmykia (RUR 910 million), Krasnodar Kray (RUR 427 million), Republic of Bashkortostan (RUR 426 million) and Saratov Oblast (RUR 374 million.

Subsidized feed Some domestic poultry producers find it difficult to maintain profitable operations at the times of high grain and feed prices. They indicate that higher grain prices translate into an increase in production costs of about RUR 10 per kilogram of meat. In December 2010, Russian poultry producers appealed to the Russian Government (GOR) requesting subsidies for domestic poultry producers to be included in the 2011 budget. The funds were to be used to reimburse the poultry industry for feed costs in the first half of the year at the amount of about RUR 5 per kilogram of poultry meat (in live weight). The industry claimed that without direct subsidies the prices of poultry meat would increase, customers would decrease poultry consumption, poultry farms would reduce production and some of them might go bankrupt by the summer of 2011. To address the issue of higher feed prices, the GOR sold grain from the state intervention fund. Interventions started in February 2011 and resulted in a price decrease from the initial level of RUR 8 800 per tonne of barley to approximately RUR 6 150 per tonne. As an additional measure of support, the GOR also lowered the freight rates for the transportation of grain and soybeans. In 2011, the GOR also responded to the requests of the National Union of Swine Breeders and the Russian Poultry Union to provide RUR 9 billion to the pork and poultry industries in order to offset the losses caused by high feed prices as a result of the drought in 2010.

Trade measures Tariff-rate quota In 2003, the Russian Federation introduced a restrictive quota to control imports of beef, pork and poultry. The annual quota for poultry was set at 1.05 million tonnes, and the TRQs for beef

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Russian Federation - Meat sector review

and pork at around 0.45 million tonnes. The restrictive quota on poultry was then converted in 2006 to a TRQ. In January 2009, the TRQs for pork and poultry were lowered further, and the out-ofquota tariffs were raised, from 60 to 75 percent and from 80 to 95 percent, respectively. Figure 54: Volume of tariff quotas for meat commodity groups, 2004-2010 1 400

thousand tonnes

1 200

1 050

1 050

1 130.8

1 171.2

1 211.6

1 252

1 000 780

800 600 400

450 447.5

467.4 457.5

476.1

484.8

493.5

502.2

462.78

468.3

473.9

473.5

2008

2009

560

200 0 2004

2005

2006

2007

2010

Cattle meat, fresh, chilled or frozen (commodity item 0201-0202 of the Russian FEACN) Pork meat, fresh, chilled or frozen Poultry meat and giblets, fresh, chilled or frozen (commodity item 0105)

Source: Meatinfo.

The introduction of the quota system was a protective measure to limit imports and allow for production growth of the domestic meat industry. Import limitations have helped local producers gain domestic market shares and increase their margins. A good example of this is that the biggest importers of meat turned into major investors in the Russian meat sector: Miratorg, Agroimport, Optifood, White Frigate, Rubezh and Global Trading, among others. However, the introduction of quotas seems to have had some negative effects on the domestic meat market and its production: • market distortion and a negative impact on competitiveness; • l ack of competition with higher quality imported meat products did not stimulate quality enhancement programmes; • l imited supply caused higher prices and reduced affordability of meat products for Russian consumers with low incomes.

109

Table 41 describes the volume of tariff-rate quotas for 2012 established by the Decree of the Government of the Russian Federation of 29 December 2011, number 1194, On distribution of tariff quotas for beef, pork and poultry meat in 2012. Table 41: Volume of tariff-rate quotas, 2012

1

Product name

Quota volume, thousand tonnes

Fresh or frozen bovine meat (CU HS code 0201) - total

30

Including:

2

European Union

29

Other countries

1

Frozen bovine meat (CU HS code 0202) – total

530

In quota tariff

Above quota tariff

50% 15% but not less but not less than 0.2 EUR than 1.0 EUR per kilo per kilo

Including: European Union

60

United States

60

Costa Rica

3

Other countries

407

3

Fresh, chilled or frozen pork (CU HS code 0203) – all countries

4

Pork trimming (CU HS codes 0203 29 550 2 and 0203 29 900 2)* – all countries

400

5

Frozen bone-in chicken halves or quarters, (CU HS code 0207 14 200 1) frozen bonein chicken legs and their cuts (CU HS code 0207 14 600 1) – all countries

250

6

Frozen boneless chicken meat (CU HS code 0207 14 100 1) – total, including:

70

European Union Other countries

56 14

Frozen boneless turkey meat (CU HS code 0207 27 100 1) – all countries

10

7

50% 15% but not less but not less than 0.2 EUR than 0.2 EUR per kilo per kilo

75% 15% but not less but not less than 0.25 than 1.5 EUR per kilo EUR per kilo

80% 25% but not less but not less than 0.2 EUR than 0.7 EUR per kilo per kilo

Source: Custom Union Commission, 2011. * Pork trimming can be imported using both pork trimming quotas and frozen pork meat quotas.

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Comparison of protection of poultry, pork and beef producers between the Russian Federation and other countries The levels of domestic market protection (through a variety of policy measures, including SPS measures) can be described by the Producer Nominal Protection Coefficient (NPC). As measured by the OECD, protection of poultry, pork and beef farmers in the Russian Federation from import competition in 1995-2010 was often higher than in other meat producing countries (see Figure 55, Figure 56, Figure 57). This was largely a result of the protectionist import-substitution policies. The level of protection of Russian poultry producers in recent years was comparable to that in the EU and Ukraine; however, it was far above protection of poultry producers in the USA, Brazil and China (see Figure 55). Figure 55: Poultry: NPC in selected countries, 1995-2010 2.5 2 1.5 1 0.5 0 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Russian Federation

Brazil

Ukraine

China

USA

EU

Source: OECD.

Pork producers have enjoyed the highest levels of protection among all types of meat. In 2010, Russian pork producers received pork prices at the farm-gate level that were two times higher than the international import parity prices excluding import tariffs. Among the countries shown in Figure 56 only Ukraine had a slightly higher level of protection of domestic producers than that of the Russian Federation.

111

Figure 56: Pork NPC in selected countries,1995-2010 2.50 2.00 1.50 1.00 0.50 0.00

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Russian Federation

Brazil

Ukraine

China

USA

EU

Source: OECD.

As for beef, it is clearly seen in Figure 57 that while the EU-27 has progressively lowered import protection of its beef producers since 2001, the level of protection has remained fairly unchanged in the Russian Federation in 2005-2010. By 2010, the level of protection of beef producers in the Russian Federation exceeded that in the EU, USA, Brazil, China and Ukraine. Figure 57: Beef NPC in selected countries,1995-2010 2.50 2.00 1.50 1.00 0.50 0.00 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Russian Federation

China

Source: OECD.

112

Brazil

Ukraine

USA

EU

Russian Federation - Meat sector review

Comparison of support to poultry, pork and beef producers between the Russian Federation and other countries The levels of support received by producers of specific commodities can be described by the percentage producer single commodity transfers (percent SCT), which represents the commodity transfers to producers from consumers and taxpayers as a share of gross receipts received by farmers for that specific commodity. It is also an indicator of the level of support on which a specific commodity is dependent. As measured by the producer single commodity transfers (SCT)25, the government support to the meat sector in the Russian Federation has been particularly high as indicated in Figure 58, Figure 59 and Figure 60. In 2009-2010, Russian poultry meat producers received about 40 percent of poultry meat prices in transfers from producers (who paid higher prices than they would have paid for comparable quality imported poultry meat) and taxpayers (who provided funding for government support programmes). Producers in the USA and Brazil received no transfers (see Figure 58). Figure 58: Poultry, percentage SCT in selected countries, 2001-2010 80 60 50 40 30 20 10 0

Russian -10 Federation

China

Brazil 2001-02

Ukraine 2005-06

USA

EU

2009-10

Source: OECD.

25 Producer SCT is the monetary value of gross transfers from consumers and tax payers to agricultural producers measured at the farm gate level and arising from specific policies linked to the production of a single commodity. The Percentage Producer Single Commodity Transfers (percent SCT) represents the commodity SCT transfers as a share of gross receipts for the specific commodity. It indicates the level of support for a specific commodity that is dependent on the actual production of that commodity.

113

A similar situation is observed with the transfers to pork producers in the Russian Federation as compared with other countries. In 2009-2010, only Ukraine provided a higher level of support from its consumers and taxpayers than the Russian Federation. Since 2001, the EU-27 gradually reduced its support to pork producers to the levels that only slightly exceed the SCT to pork producers in the USA (see Figure 59). Figure 59: Pork, percentage SCT in selected countries, 2001-2010 80 60 50 40 30 20 10 0 -10

Russian Federation

China

Brazil 2001-02

Ukraine 2005-06

USA

2009-10

Source: OECD.

Beef producers in the Russian Federation received about 30 percent of the beef price in transfers from consumers and taxpayers in 2009-2010. Only the EU provided similar levels of support to its beef farmers in 2009-2010; however, since 2001 there has been a clear tendency for reduced support to beef farmers in the EU (see Figure 60).

114

EU

Russian Federation - Meat sector review

Figure 60: Beef, percentage SCT in selected countries, 2001-2010 80 70 60 50 40 30 20 10 0

Russian -10 Federation

China

Brazil 2001-02

Ukraine 2005-06

USA

EU

2009-10

Source: OECD.

Impact of policies on industry development and risks Russian Federation’s WTO accession On 16 December 2011, after 17 years of negotiations, the Russian Federation signed a WTO accession protocol. On 22 August 2012, the WTO welcomed the Russian Federation as its 156th member. As a part of the accession package, the Russian Federation fixed the level of its Aggregate Measurement of Support to USD 9 billion in 2012 and 2013, which was believed to be two times higher than the level of agricultural support immediately prior to the accession, USD 4.5 billion per year. However, the Russian Federation will have to decline to Final Bound Total AMS (Aggregate Measurement of Support) of USD 4.4 billion by 2018. Market access The Russian Federation agreed to reduce the average rate of import duties on agricultural products from 15.1 percent to 11.2 percent. Its WTO commitments regarding agricultural trade resulted mainly from bilateral negotiations with the USA, the EU and members of the Cairns Group of agriculture exporters.

115

According to the WTO26, the Russian Federation agreed to reduce and bind its tariffs on: • dairy products: to 14.9 percent from 19.8 percent; • cereals: to 10.0 percent from 15.1 percent; • oilseeds, fats, and oils: to 7.1 percent from 9.0 percent. See Table 42 for imports within tariff-rate quotas of beef, pork (until 2020) and poultry. Table 42: Comparison of the import duties rates, currently existing in the WTO Current tariff rate for inquota imports percent (no less than .xx Euro per kg)

Tariff rate for in-quota imports after WTO accession (no less than .xx Euro per kg / flat tariff option)

15 (.50)44

15 (.55-27.5)

Pork

15 (.75)

0 (.65-25)

Poultry

25 (.95)

25 (.80-37.5)

40

5

Commodity

Cattle

Live pigs

Source: Agroinvestor according to the Ministry of Economic Development and the Report of the working group on Russian Federation’s accession to the WTO.

Following WTO accession, the Russian Federation started to implement its commitments, particularly those regarding meat import TRQs. For instance, the volumes for 2013’s TRQs were adjusted to meet the Russian Federation’s WTO commitments as follows: • p rovided additional in-quota market access for fresh and chilled beef (from 33 330 tonnes in 2012 to 40 000 tonnes in 2013); • p rovided additional in-quota market access for poultry (from 341 330 tonnes in 2012 to 364 000 tonnes in 2013). Country-specific TRQ allocations were made for Russian frozen beef imports (the EU [60 000 tonnes], the USA [60 000 tonnes],

26 http://www.wto.org/english/thewto_e/minist_e/min11_e/brief_russia_e.htm.

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Russian Federation - Meat sector review

Costa Rica [3 000 tonnes] and other WTO member states [407 000 tonnes]), Russian fresh and chilled beef imports (i.e. the EU [29 000 tonnes] and other WTO member states [11 000 tonnes]) and Russian frozen de-boned chicken imports (i.e. the EU [80 000 tonnes] and other WTO member states [20 000 tonnes]). Sanitary measures Russian restrictions on imports of agricultural products, particularly meats, have been a sensitive issue in trade relations with the USA, the EU, Brazil, and other agriculture-exporting countries. As a WTO member, the Russian Federation will be obligated to adhere to the provisions of the WTO Sanitary and Phytosanitary Measures (SPS) Agreement when imposing measures to protect human, animal, or plant life or health. The Russian Federation has a practice of using rigid SPS requirements for imported animal and plant products. The country has required that imported meats be shipped only from facilities that are on a Russian government-approved list for meeting Russian safety requirements. For many exporters, these requirements have adversely affected exports of meats, especially poultry, pork, dairy products, grains and oilseeds. Many agricultureexporting countries have argued that the Russian Federation’s SPS requirements do not conform to international standards and are not based on accepted science as required under the WTO SPS Agreement. As a result of bilateral accession negotiations with the USA, the EU and members of the Cairns Group, as well as with the WTO Working Party, the Russian Federation has committed to: • d eveloping and applying international standards to SPS through membership in the Codex Alimentarius, the World Organisation for Animal Health (OIE) and the International Plant Protection Convention; • n egotiating veterinary export certificates that include requirements different from those of the Customs Union if an

117

exporting country makes a substantiated request to negotiate such a certificate prior to 1 January 2013; • r efraining from suspending imports from establishments based on results of onsite inspections before giving the exporting country the opportunity to propose corrective measures27. Implications for agriculture According to the Ministry of Agriculture, the negotiated terms for agriculture are among the best compared with other countries, and their main task is to increase competitiveness of Russian agriculture using the following negotiated favourable terms: • T he level of state support is allowed to increase to USD nine billion (for two years); that is a more than 50 percent increase from the planned RUR 170 billion (USD 5.6 billion) in 2012. • T he state support shall be better structured by a shifting between “boxes”. While USD nine billion is the limit for measures in the “amber” box, there are no limits for state support within the “green” box, such as house construction, roads, infrastructure, subsidies for science, education, training, irrigation and land reclamation. • S upport of pork processing will be allocated RUR 6 billion in subsidies annually within three years as an adjustment to lower import protection. • T he State Programme 2013-2020 drafted by the Ministry envisages all measures of support allowed by WTO: infrastructure development programmes, social development of rural territories, irrigation and land reclamation. Moreover, together with associations and industries’ unions, the Ministry of Agriculture is developing a number of mitigation measures necessary for adapting Russian Federation agriculture to WTO requirements. In particular:

27 World Trade Organization: Working Party Seals the Deal on Russia’s Membership Negotiations, 10 November 2011, http://www.wto.org/english/news_e/news11_e/ acc_rus_10nov11_e.htm.

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Russian Federation - Meat sector review

• p roposals for the extension of tax concessions for agricultural producers (tax on profit); • e xtensions to release agricultural producers from paying VAT on imported breeding animals, embryos and semen until 2020; • m easures to strengthen the functions and powers of the Ministry and the Federal Veterinary and Phytosanitary Surveillance Service (VPSS); • a dditional authority for the Ministry of Agriculture and VPSS to increase their staff as a result of the need to adapt to the conditions of the WTO; • c hanges to the federal law “On Agriculture”, suggested by the Ministry, to determine the criteria of regions with unfavourable conditions for agriculture. Support of these regions will be treated as a “green box” measure, which means that support to farmers in these regions will not be subject to restrictions. Possible sector-specific implications The WTO accession will not significantly affect the Russian poultry meat producers due to the TRQ and the already significant, current share of domestic producers of the total poultry meat supply. Selected poultry products will be subject to 25 percent within the TRQ and (a fairly high) 80 percent outside the TRQ. Therefore, in the next decade the Russian poultry market will likely see more competition between domestic producers, rather than between imports and Russian products. For pork, the Russian Federation has agreed to a global TRQ of 400 000 tonnes for fresh, chilled and frozen pork and a separate TRQ of 30 000 tonnes for pork trimmings. Both TRQs will have zero in-quota rates. Beginning 1 January 2020, the Russian Federation will adopt a tariff-only regime for pork with a bound duty of 25 percent, and it will apply this duty to all imports, including from countries exporting under its tariff preference programme. Therefore, pork producers will most likely face the most serious challenges after WTO accession. It is not clear if the beef sector will be effectively protected from import competition by the 530 000 tonnes TRQ with 15 percent within TRQ tariff and 55 percent outside the TRQ tariff. Future developments will depend on the domestic demand for withinquota fresh and chilled beef.

119

Annex 1 - Distribution of poultry, swine and cattle inventories by region and type of farm in 2010 Poultry Table 43: Number and structure of poultry inventories by region, 2010 All types of farms

Ag enterprise

Household farms

Individual farms

Russian Federation

471 013.7

369 709.6

5 522.5

95 781.6

Central Federal District

136 541.6

115 366.1

373.8

20 801.6

Belgorod Region

47 646.4

45 294.7

18.9

2 332.8

Bryansk Region

6 609.0

5 142.0

6.9

1 460.1

Vladimir Region

3 622.0

3 290.0

25.4

306.5

Voronezh Region

14 019.1

8 608.2

36.2

5 374.7

Ivanovo Region

2 963.2

2 733.1

2.5

227.5

Kaluga Region

3 238.6

2 790.9

5.3

442.4

Kostroma Region

3 691.8

3 521.9

7.1

162.8

Kursk Region

2 900.0

1 018.5

8.8

1 872.6

Lipetsk Region

9 745.0

8 250.0

8.4

1 486.5

11 455.7

10 954.2

7.5

494.0

Oryol Region

3 589.9

978.2

7.3

2 604.4

Ryazan Region

5 101.3

4 362.3

4.8

734.2

Smolensk Region

1 566.4

803.8

4.8

757.8

Moscow Region

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Russian Federation - Meat sector review

All types of farms

Ag enterprise

Household farms

Individual farms

Tambov Region

5 236.1

3 711.7

22.4

1 502.0

Tver Region

3 137.1

2 767.2

20.8

349.0

Tula Region

3 927.7

3 369.6

16.2

541.9

Yaroslavl Region

8 092.3

7 769.7

170.3

152.2

Northwestern Federal District

44 113.7

42 987.4

116.1

1 010.2

407.4

378.8

1.8

26.8

Komi Republic

1 855.3

1 832.3

8.3

14.7

Arkhangelsk Region

2 823.8

2 789.8

0.2

33.9

0.1

0.0

0.0

0.1

Arkhangelsk Region (excl. Nenets Autonomous Area)

2 823.7

2 789.8

0.2

33.8

Vologda Region

4 332.6

4 191.2

33.8

107.6

Kaliningrad Region

1 595.7

1 284.0

15.7

296.0

Leningrad Region

25 493.4

25 325.2

7.3

160.9

721.5

679.4

40.0

2.1

Novgorod Region

5 463.4

5 295.9

4.5

163.0

Pskov Region

1 420.6

1 210.8

4.5

205.3

Southern Federal District

61 633.2

34 167.7

734.3

26 731.3

Republic of Adygea

3 342.1

2 567.2

96.8

678.0

230.5

0.5

21.1

208.9

22 831.8

12 680.3

340.5

9 811.0

Republic of Karelia

Including Nenets Autonomous Area

Murmansk Region

Republic of Kalmykia Krasnodar Territory

121

All types of farms

Ag enterprise

Household farms

Individual farms

Astrakhan Region

1 551.9

1 314.6

27.1

210.1

Volgograd Region

9 518.8

4 150.8

39.1

5 328.9

Rostov Region

24 158.2

13 454.2

209.6

10 494.4

North Caucasian Federal District

27 719.9

13 892.6

1 764.2

12 063.1

Republic of Dagestan

3 012.0

505.2

410.2

2 096.7

Republic of Ingushetia

254.7

0.0

67.6

187.1

Kabardino-Balkar Republic

3 639.7

925.6

831.7

1 882.4

KarachaevoCherkessia Republic

2 616.6

1 096.7

16.1

1 503.8

Republic of North Ossetia-Alania

1 692.7

758.3

44.1

890.3

Chechen Republic

1 008.1

138.3

7.3

862.4

Stavropol Territory

15 496.0

10 468.4

387.2

4 640.4

Volga Federal District

94 966.6

73 632.9

1 858.3

19 475.5

Republic of Bashkortostan

10 370.2

6 649.1

328.7

3 392.4

Republic of Mari El

4 388.0

3 991.8

38.6

357.6

Republic of Mordovia

8 981.0

7 881.7

35.4

1 064.0

Republic of Tatarstan

14 094.6

11 178.5

879.9

2 036.3

Udmurt Republic

6 447.3

5 177.6

11.9

1 257.9

Chuvash Republic

2 992.0

2 284.3

60.4

647.3

Perm Territory

6 757.0

6 370.9

47.8

338.4

Kirov Region

2 174.1

1 875.6

4.5

293.9

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Russian Federation - Meat sector review

All types of farms

Ag enterprise

Household farms

Individual farms

Nizhny Novgorod Region

9 039.6

7 840.2

8.3

1 191.1

Orenburg Region

8 064.9

5 436.4

42.6

2 586.0

Penza Region

7 698.0

6 242.6

28.9

1 426.5

Samara Region

3 496.7

2 026.9

13.8

1 456.0

Saratov Region

6 581.7

3 530.2

229.5

2 822.1

Ulyanovsk Region

3 881.5

3 147.2

128.2

606.1

40 284.0

37 096.7

191.2

2 996.1

1 667.9

741.9

26.0

900.0

12 139.7

11 732.2

96.9

310.6

8 293.2

7 697.8

46.5

549.0

173.3

99.8

40.9

32.6

3.1

0.6

1.7

0.8

Tyumen Region (excl. Khanty-Mansy Autonomous Area-

8 116.8

7 597.4

3.9

515.6

Chelyabinsk Region

18 183.2

16 924.8

21.8

1 236.5

Siberian Federal District

55 054.9

43 651.1

274.5

11 129.2

83.0

0.0

2.5

80.5

416.9

239.3

13.0

164.6

23.0

8.3

0.2

14.5

1 355.6

1 137.0

3.1

215.5

11 199.3

7 159.2

3.1

3 990.0

Ural Federal District Kurgan Region Sverdlovsk Region Tyumen Region Including KhantyMansy Autonomous Area-Yugra Yamalo-Nenets Autonomous Area

Republic of Altai Republic of Buryatia Republic of Tyva Republic of Khakassia Altai Territory

123

All types of farms

Ag enterprise

Household farms

Individual farms

Transbaikal Territory

643.6

134.8

50.1

488.5

Krasnoyarsk Region

8 256.2

6 849.4

20.3

1 357.8

Irkutsk Region

7 228.3

6 357.8

49.0

863.7

Kemerovo Region

5 850.0

5 034.0

6.8

752.0

Novosibirsk Region

9 206.2

8 150.2

64.0

1 026.4

Omsk Region

7 233.6

5 165.0

29.6

2 052.1

Tomsk Region

3 559.2

3 416.2

16.5

123.4

10 699.8

8 915.1

19.6

1 574.6

Republic of Sakha (Yakutia)

777.3

719.1

210.2

51.9

Kamchatka Territory

247.6

200.5

6.3

44.4

Primorsk Territory

4 289.5

3 640.6

2.7

638.7

Khabarovsk Territory

1 844.2

1 686.3

1.8

156.2

Amur Region

2 701.8

2 128.4

112.7

460.7

Magadan Region

96.1

74.9

10.2

11.0

Sakhalin Region

587.5

452.9

6.4

128.2

Jewish Autonomous Region

143.3

0.5

59.8

83.0

12.4

11.9

0.0

0.4

Far Eastern Federal District

Chukot Autonomous Area

Source: FSSS of Russian Federation.

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Russian Federation - Meat sector review

Swine Table 44: Number and structure of swine inventories by region, 2010

Russian Federation

All types of farms

Ag enterprise

Household farms

Individual farms

17 332.8

11 408.8

656.6

5 267.4

Central Federal District

5 993.8

5 163.4

87.8

742.6

Belgorod Region

2 704.0

2 641.9

2.2

59.9

Bryansk Region

187.5

115.7

5.0

66.8

Vladimir Region

141.1

122.0

11.6

7.5

Voronezh Region

484.9

291.3

17.3

176.3

Ivanovo Region

15.5

6.5

1.3

7.7

Kaluga Region

64.5

37.5

8.1

18.9

Kostroma Region

46.7

36.6

1.1

9.0

Kursk Region

382.0

320.8

4.0

57.2

Lipetsk Region

411.3

353.8

4.3

53.1

Moscow Region

298.2

280.1

3.7

14.4

Oryol Region

337.3

256.3

3.9

77.0

Ryazan Region

153.5

127.8

1.9

23.9

88.5

67.8

1.9

18.8

Tambov Region

289.6

167.8

9.7

112.1

Tver Region

211.0

189.6

4.2

17.2

Tula Region

119.1

94.1

6.0

19.0

59.0

53.8

1.4

3.7

737.4

639.7

18.8

78.9

Republic of Karelia

15.3

9.5

2.1

3.7

Komi Republic

23.7

15.9

3.5

4.2

Arkhangelsk Region

20.1

10.8

1.2

8.1

Smolensk Region

Yaroslavl Region Northwestern Federal District

125

All types of farms

Ag enterprise

Household farms

Individual farms

0.0

0.0

0.0

0.0

20.1

10.8

1.2

8.1

97.8

78.9

1.6

17.3

Kaliningrad Region

136.3

124.2

1.9

10.2

Leningrad Region

194.3

181.1

3.3

9.9

Murmansk Region

45.3

42.0

1.9

1.4

Novgorod Region

125.5

111.0

2.1

12.4

79.0

66.2

1.2

11.7

1 946.7

972.8

74.9

898.9

Republic of Adygea

53.9

39.5

1.6

12.8

Republic of Kalmykia

17.4

0.2

3.3

13.9

864.0

614.8

34.8

214.4

Astrakhan Region

7.2

2.4

1.6

3.2

Volgograd Region

495.2

127.8

9.8

357.6

Rostov Region

509.0

188.0

23.9

297.0

North Caucasian Federal District

418.3

204.8

8.3

205.2

1.1

0.2

0.3

0.7

-

-

-

-

56.5

47.1

0.3

9.1

18.7

13.5

2.6

2.6

28.4

7.8

0.5

20.0

Chechen Republic

-

-

-

-

Stavropol Territory

313.7

136.3

4.6

172.8

Including Nenets Autonomous Area Arkhangelsk Region (excl. Nenets Autonomous Area) Vologda Region

Pskov Region Southern Federal District

Krasnodar Territory

Republic of Dagestan Republic of Ingushetia Kabardino-Balkar Republic Karachaevo-Cherkessia Republic Republic of North Ossetia-Alania

126

Russian Federation - Meat sector review

All types of farms

Ag enterprise

Household farms

Individual farms

3 714.9

2 166.5

189.1

1 359.3

Republic of Bashkortostan

309.5

160.3

25.1

124.0

Republic of Mari El

179.9

167.8

1.2

10.9

Republic of Mordovia

311.0

161.8

5.5

143.7

Republic of Tatarstan

622.9

496.7

30.5

95.7

Udmurt Republic

295.8

252.1

3.8

39.9

Chuvash Republic

211.4

122.9

9.4

79.1

Perm Territory

206.3

157.4

7.4

41.4

Kirov Region

181.7

157.7

1.7

22.3

Nizhny Novgorod Region

143.2

72.8

5.4

65.0

Orenburg Region

260.8

112.1

27.3

121.4

Penza Region

290.9

94.3

22.2

174.4

Samara Region

209.5

111.9

11.5

86.1

Saratov Region

346.6

30.9

33.7

282.0

Ulyanovsk Region

145.3

67.7

4.3

73.4

1 162.2

730.4

69.8

361.9

Kurgan Region

130.5

28.3

16.2

86.0

Sverdlovsk Region

270.8

237.8

8.8

24.2

Tyumen Region

374.4

175.6

34.3

164.6

40.5

7.2

29.9

3.3

2.3

1.3

0.9

0.1

331.7

167.0

3.5

161.1

386.4

288.7

10.6

87.1

Volga Federal District

Ural Federal District

Including KhantyMansy Autonomous Area-Yugra Yamalo-Nenets Autonomous Area Tyumen Region (excl. Khanty-Mansy Autonomous AreaChelyabinsk Region

127

All types of farms

Ag enterprise

Household farms

Individual farms

3 050.6

1 386.6

151.8

1 512.2

Republic of Altai

11.3

0.1

0.9

10.3

Republic of Buryatia

74.7

35.0

7.1

32.6

Republic of Tyva

26.2

1.5

1.2

23.6

Republic of Khakassia

60.7

2.1

9.3

49.4

Altai Territory

569.6

96.8

13.7

459.1

Transbaikal Territory

121.0

12.0

14.0

95.0

Krasnoyarsk Region

447.7

177.3

15.4

255.0

Irkutsk Region

221.6

106.7

29.2

85.7

Kemerovo Region

417.6

284.1

16.2

117.4

Novosibirsk Region

373.7

178.3

17.3

178.1

Omsk Region

522.0

327.1

23.1

171.8

Tomsk Region

204.6

165.8

4.5

34.3

309.1

144.6

56.1

108.4

27.4

10.2

9.5

7.7

Kamchatka Territory

13.3

8.1

1.5

3.6

Primorsk Territory

91.6

51.4

12.4

27.8

Khabarovsk Territory

62.7

42.2

8.1

12.4

Amur Region

74.0

18.6

11.8

43.5

Magadan Region

2.5

0.7

1.0

0.8

Sakhalin Region

17.4

11.3

1.3

4.8

19.9

1.8

10.5

7.6

0.3

0.3

0.0

0.0

Siberian Federal District

Far Eastern Federal District Republic of Sakha (Yakutia)

Jewish Autonomous Region Chukot Autonomous Area Source: FSSS of Russian Federation.

128

Russian Federation - Meat sector review

Cattle Table 45: Number and structure of cattle inventories by region, 2010 All types of farms

Ag enterprise

Household farms

Individual farms

20 069.4

9 155.2

1 656.6

9 257.6

Central Federal District

2 843.9

2 023.3

116.6

703.9

Belgorod Region

235.3

157.6

13.8

63.9

Bryansk Region

212.7

162.7

15.2

34.8

Vladimir Region

145.2

133.6

2.3

9.3

Voronezh Region

386.2

223.0

15.3

148.0

Ivanovo Region

76.1

57.6

3.5

15.0

Kaluga Region

131.3

114.8

4.3

12.2

66.8

51.5

2.2

13.0

Kursk Region

199.5

111.6

9.8

78.0

Lipetsk Region

143.1

88.3

5.8

49.0

Moscow Region

260.2

243.0

3.5

13.7

Oryol Region

135.3

92.8

4.7

37.9

Ryazan Region

177.3

151.1

2.2

24.0

Smolensk Region

141.2

106.1

9.1

26.1

Tambov Region

143.9

29.3

12.2

102.4

Tver Region

157.5

117.3

7.5

32.8

Tula Region

100.9

73.1

3.1

24.7

Yaroslavl Region

131.2

109.9

2.0

19.2

Northwestern Federal District

697.1

556.5

29.6

111.0

Republic of Karelia

25.7

19.4

1.1

5.1

Komi Republic

37.8

20.3

4.9

12.6

Arkhangelsk Region

54.3

36.3

6.7

11.3

Russian Federation

Kostroma Region

129

All types of farms

Ag enterprise

Household farms

Individual farms

1.6

1.5

0.0

0.1

52.7

34.8

6.7

11.2

185.7

161.9

7.6

16.2

61.5

31.9

2.5

27.0

179.1

166.1

2.3

10.7

7.8

7.1

0.5

0.2

43.0

29.3

2.4

11.3

102.3

84.1

1.7

16.5

2 447.2

736.0

456.1

1 255.1

49.2

5.5

3.5

40.2

Republic of Kalmykia

565.0

102.2

240.6

222.2

Krasnodar Territory

633.1

431.5

34.4

167.2

Astrakhan Region

262.8

15.6

79.5

167.6

Volgograd Region

339.3

51.0

38.8

249.5

Rostov Region

597.9

130.1

59.4

408.4

2 205.6

328.4

225.3

1 651.9

Republic of Dagestan

909.7

105.8

77.2

726.6

Republic of Ingushetia

55.8

1.4

11.1

43.2

265.1

41.5

39.6

184.0

235.8

36.4

40.0

159.3

138.9

20.1

8.7

110.1

Chechen Republic

221.4

7.8

22.6

190.9

Stavropol Territory

379.0

115.3

26.0

237.6

Including Nenets Autonomous Area Arkhangelsk Region (excl. Nenets Autonomous Area) Vologda Region Kaliningrad Region Leningrad Region Murmansk Region Novgorod Region Pskov Region Southern Federal District Republic of Adygea

North Caucasian Federal District

Kabardino-Balkar Republic Karachaevo-Cherkessia Republic Republic of North Ossetia-Alania

130

Russian Federation - Meat sector review

All types of farms

Ag enterprise

Household farms

Individual farms

Volga Federal District

6 048.7

3 116.0

375.1

2 557.6

Republic of Bashkortostan

1 268.6

484.2

77.6

706.8

Republic of Mari El

100.1

50.6

1.5

48.0

Republic of Mordovia

298.9

196.7

15.0

87.3

Republic of Tatarstan

1 092.4

722.6

78.9

290.9

Udmurt Republic

363.4

289.0

13.9

60.4

Chuvash Republic

224.6

67.2

6.9

150.4

Perm Territory

263.1

175.1

7.7

80.4

Kirov Region

259.9

222.3

4.0

33.5

Nizhny Novgorod Region

315.5

234.1

18.6

62.8

Orenburg Region

655.4

318.1

39.6

297.7

Penza Region

287.7

106.9

14.0

166.8

Samara Region

212.8

89.0

21.8

102.0

Saratov Region

551.3

101.3

63.1

387.0

Ulyanovsk Region

155.0

58.9

12.7

83.5

1 084.5

540.6

54.7

489.3

Kurgan Region

199.6

54.9

7.7

137.0

Sverdlovsk Region

255.6

183.3

16.5

55.8

Tyumen Region

268.5

139.4

16.3

112.8

11.8

3.3

5.0

3.5

1.0

0.9

0.0

0.1

255.6

135.2

11.3

109.2

360.8

163.0

14.2

183.7

Ural Federal District

Including KhantyMansy Autonomous Area-Yugra Yamalo-Nenets Autonomous Area Tyumen Region (excl. Khanty-Mansy Autonomous AreaChelyabinsk Region

131

All types of farms

Ag enterprise

Household farms

Individual farms

4 281.5

1 724.2

311.4

2 245.9

Republic of Altai

204.0

29.4

56.2

118.3

Republic of Buryatia

399.7

57.4

48.9

293.3

Republic of Tyva

140.5

16.6

9.9

114.0

Republic of Khakassia

168.5

37.8

30.0

100.8

Altai Territory

902.1

462.8

34.9

404.4

Transbaikal Territory

456.2

58.5

45.6

352.0

Krasnoyarsk Region

438.0

238.7

4.0

195.3

Irkutsk Region

279.5

67.8

24.3

187.3

Kemerovo Region

207.4

91.6

14.7

101.1

Novosibirsk Region

548.0

385.7

11.2

151.1

Omsk Region

438.1

227.1

21.8

189.2

Tomsk Region

99.5

50.8

9.8

38.9

461.0

130.3

87.7

242.9

233.6

50.2

63.5

120.0

9.5

5.2

0.9

3.3

Primorsk Territory

59.5

18.3

7.1

34.1

Khabarovsk Territory

27.0

16.4

1.0

9.6

Amur Region

95.1

27.8

6.3

61.0

Magadan Region

3.8

1.2

2.0

0.6

Sakhalin Region

17.9

9.5

2.3

6.1

14.5

1.8

4.5

8.2

0.0

0.0

0.0

0.0

Siberian Federal District

Far Eastern Federal District Republic of Sakha (Yakutia) Kamchatka Territory

Jewish Autonomous Region Chukot Autonomous Area

Source: FSSS of Russian Federation.

132

Russian Federation - Meat sector review

Annex 2 - Main breeds and crosses Broilers Russian poultry production largely uses cross-breed birds. According to the Russian Poultry Union, the following are the leading crosses in the Russian Federation’s broiler production: • R oss 308 (40 percent) • H ubbard (39 percent) • Smena 8 (13 percent) • Others (8 percent) The genetic potential and performance of these Russian and foreign broiler meat crosses is similar. One of the major reasons for this similarity is that domestic crosses are selected based on imported genetics, which have common breeding lines with western suppliers. The most popular broiler crosses in the Russian Federation are as follows: Figure 61: The most popular broiler breeds 40%

Ross 308

8%

Hubbaurd 13%

Smena 8 Others

39%

Source: Russian Poultry Union.

Pigs Owing to the absence of a nation-wide animal identification system in the Russian Federation, pigs and cattle are only registered and bonitated (tagged) by large commercial growers

133

and feedlot operations. About 15-20 percent of pig stocks in commercial farms are registered. The same is true for dairy cattle. In 2010, the Russian pig-breeding sector had 91.100 pigs of 16 breeds and types that were raised in 66 genetic centers and 131 breeding farms. These pigs make at least 6 percent of the total population of sows in all categories of farms and meet the basic industry needs. The numbers of bonitated sows of meat breeds in breeding farms by breed are 11 690 heads of Landrace, 4 409 heads of Duroc, 5 724 heads of Yorkshire and -7 651 heads of Large White breed (with imported genetics). The leading role among pig breeds in the Russian Federation is traditionally occupied by the large, white breed animals (70.27 percent), followed by Landrace (9.8 percent), Yorkshire (4.32 percent), Duroc (3.36 percent), large white (with imported genetics) (6.46 percent), middle white (MW-1) (2.87 percent) and the remaining species hold 2.92 percent. The lowest shares of breed structure belongs to Livny (0.28 percent), large black (0.43 percent), Urzhum (0.3 percent) and Breit (0.19 percent). The most popular pig breeds can be seen in Figure 62. Figure 62: The most popular pig breeds 70.3%

Large white Land race Yorkshire 4.3%

Others 15.6% 9.8%

Source: Agricultural Consulting Center and SibAgro.

In recent years, key performance indicators of sows, including firstlitter sows, of all breeds and types of farms were as follows: • • • •

134

litter: 10.8 heads; preweaning number of piglets in 30 days: 9.9 heads; preweaning litter weight in 30 days: 76.8 kg; one pig weight in 30 days: 7.8 kg, which is comparable with the international Grade A level.

Russian Federation - Meat sector review

The reproductive capacity of sows in breeder farms is: • l itter: 11.2-11.1 heads; • p reweaning number of piglets in 30 days: 10.1-10.0 heads; • preweaning litter weight in 30 days: 81-80, 4 kg; • one pig weight in 30 days: 8.0-7.8 kg. In terms of reproductive qualities, the main domestic “parent” pig breed – large white – is almost as good as the world’s best breeds (Landrace, Yorkshire). However, when looking at fattening and meat quality, the large white breed of domestic breeding has lower performance than foreign analogues. In addition, the genetic features of domestic and imported pig breeds are not fully realized mainly because of organizational, technological, feeding and price factors, not because of the breed itself.

Cattle In 2010, about 3.5 million heads of dairy, dairy-meat and meat cattle were bonitated in the Russian Federation. Cattle herds consist of 19 species and 24 types; the black-and-white breed occupies the dominant position (over 2 million heads or 57.92 percent) and is mostly used for dairy. The second place is taken by Simmental (332.3 thousand heads or 9.58 percent), and the third place belongs to the Kholmogory breed (303.8 thousand heads or 8.76 percent). A total of 319 thousand heads of meat cattle, including 148.1 thousand cows of 14 breeds and types were bonitated in 50 Russian Federation regions. The three breeds of cattle listed above represent about 85 percent of the farmed beef cattle in the Russian Federation. Galloway, Grey Ukrainian, Charolais and Salers breeds are not very popular, giving a higher place to Hereford and Kazakh white breeds. The population of Kalmyk breed cows is also declining (see Table 46 and 47). Figure 63 and 64 illustrate the breed structure of dairy and beef cattle in the Russian Federation. A significant increase in European breeds was registered in 20082010: • L imousine: up 56.0 percent • A berdeen-Angus: up 26.3 percent • Simmental: up 37.4 percent

135

Figure 63: The most popular cattle breeds for dairy and meat 57.9%

Black and white Simmental Kholmogory 9.6%

Others

23,7%

8.8%

Source: Molochnoe i myasnoe skotovodstvo (Meat and Dairy Cattle Breeding Magazine).

Figure 64: The most popular cattle breeds for meat 44,4%

Kalmyk Hereford Kazakh white 15%

Others 22,8% 17.8%

Source: VNIIMS RASHN.

At present, 49 genetic centers and 199 breeding farms carry out the improvement of breeding and productive qualities of beef cattle. Large international genetic companies, such as International Genetics Ltd, or Genesus Genetic, have representatives in the Russian Federation. Progress has been made recently in beef cattle breeding. Many years of work have resulted in a reproductive cross-breed of Kalmyk and Aberdeen-Angus breeds (this project was carried out by the All-Russia Scientific Research Institute Of Meat Cattle Breeding, in the Volgograd Region). This new beef cattle breed is called Russian hornless. It has higher productivity and is well adapted to the steppe zone (a feature common in Kalmyk cattle), and it has the excellent beef qualities inherent to the Aberdeen Angus breed (filamentary, marbled meat). The breed was officially registered in 2007.

136

Russian Federation - Meat sector review

Table 46: Relative number of heads of cattle, dairy and dairy/ meat breeds, percent, 2009-2010 Breed

Total

Incl. cow

2009

2010

2010/09

2009

2010

2010/09

100

100

0

100

100

0

56.93

57.92

0.99

56.74

57.27

0.53

Irmensky

0.09

0.09

0

0.1

0.11

0.01

Leningradsky

0.16

0.14

-0.02

0.18

0.17

-0.01

-

0.08

-

-

0.07

-

Uralsky

0.06

0.09

0.03

0.06

0.09

0.04

Barybinsky

0.16

0.15

-0.01

0.16

0.15

-0.01

Samarsky

0.04

0.03

-0.02

0.05

0.03

-0.02

Krasniyarsky

0.14

0.14

0

0.15

0.15

0

Petrovsky

0.04

0.05

0

0.05

0.05

0

Vologodsky

0.27

0.25

-0.02

0.22

0.22

0

Priobsky

0.24

0.27

0.03

0.23

0.27

0

Netsepinsky

0.06

0.06

0

0.05

0.05

0.04

Simmental

9.78

9.58

--0.2

9.41

9.36

0

Nikolaevsky

-

0.09

-

-

0.09

-0.05

Kholmogory

9

8.76

0.24

9.04

8.65

-

Tatarstansky

4.29

4.53

0.24

4.09

4.05

-0.39

Pechyosky

0.16

0.18

0.02

0.19

0.21

-0.04

Krasno-Pyeostraya

5.25

5.51

0.26

5.13

5.42

0.02

Voronezhsky

0.27

0.26

-0.01

0.24

0.24

0.29

Yeniseysky

0.42

0.42

0

0.46

0.48

0.01

Karskaya Stepnaya

4.77

4.54

-0.23

4.93

4.74

0.02

Total in Russian Federation Black-and-white types:

Moscovsky

137

Total

Breed

Incl. cow

2009

2010

2010/09

2009

2010

2010/09

Kubansky

0.05

0.04

0

0.04

0.04

0

Kuliundinsky

0.63

0.69

0.06

0.64

0.69

0.05

Sibirsky

0.33

0.36

0.03

0.34

0.34

0

Holstin Black and White

4.26

4.64

0.38

4.5

5.2

0.7

Aishirsky

2.92

2.8

-0.12

3.23

3.1

-0.13

Novopadozhsky

0.05

0.05

0

0.05

0.05

0

-

0.03

-0.12

-

0.03

-

Yaroslavsky

2.45

2.33

-

2.4

2.29

-0.11

Mikhailovsky

0.05

0.04

-0.01

0.04

0.04

0

Buraya Shvitskaya

1.71

1.59

-0.12

1.77

1.68

-0.09

Smolenskay

0.09

0.11

0.02

0.08

0.11

0.03

Bestuzhevskaya

1.01

0.96

-0.05

0.88

0.86

-0.02

Sychevskaya

0.65

0.58

-0.07

0.67

0.6

-0.07

-

0.02

-

-

0.03

-

Kostromskaya

0.51

0.47

-0.04

0.52

0.48

-0.04

Holstin Red and White

0.43

0.01

-0.42

0.42

0

-0.42

0.1

0.08

-0.02

0.1

0.07

-0.03

Red Gorbatovskaya

0.06

0.06

0

0.07

0.07

0

Istrobenskaya

0.02

0.02

0

0.03

0.02

-0.01

Suksunskaya

0.06

0.06

0

0.08

0.07

-0.01

Jerseyskaya

0.05

0.04

-0.01

0.05

0.04

-0.01

0.003

0.003

0

0.005

0.005

0

Smena

Vazuzsky

Red Estonskaya

Tagilskaya

Source: Molochnoe i myasnoe skotovodstvo (Meat and Dairy Cattle Breeding Magazine).

138

Russian Federation - Meat sector review

Table 47: Number of heads of bonitated meat cattle, 2008-2010 2008 Breed

Number of heads

2009

Share, Number percent of heads

2010

Share, Number percent of heads

Share, percent

All breeds

260 932

100

304 588

100

319 012

100

Kalmyk

121 670

46.63

138 607

45.51

141 570

44.38

Hereford

61 564

23.59

67 630

22.2

72 709

22.79

Incl. Hereford Ural type

-

-

-

-

4 750

1.49

Kazakh white

5 057

17. 90

55 990

18.38

56 743

17.79

AberdeenAngus

5 657

4.55

18 257

5.99

19 941

6.25

Charolais

2 193

1.94

6 401

2.1

6 812

2.14

Simmental beef total

2 834

2.17

6 771

2.22

8 751

2.74

Incl. Bredin type

2 218

0.84

4 113

1.35

6 339

1.99

Limousine

1 172

1.09

4 645

1.53

5 433

1.7

Aubrac

1 093

0.85

2 555

0.84

2 963

0.93

Galloway

987

0.45

1 577

0.52

1 698

0.53

Salers

92

0.42

1 207

0.4

1 392

0.44

Russian hornless

-

0.38

849

0.28

925

0.29

Ukraine grey

-

0.04

99

0.03

75

0.02

Source: VNIIMS RASHN.

139

Annex 3 - Meat production technologies Table 48: Production technologies used for poultry meat production Item

Technology

Large modern operations (>50 000 tonnes/y)

1

Production processes organization

Large modern operations (>50 000 tonnes/y) Medium and small farms of new type (30 000-50 000 tonnes/y)

Small and medium farms of old type Annual capacity less than 30 000 tonnes

140

Description • Vertically integrated operations, which include own feed production, hatching, breeding and grow-out operations, processing, rendering and marketing; • use modern technologies and equipment; • high degree of automation; • implement food safety measures; • use local and foreign consultants; • have support from local and federal governments; • comprise operations in various regions; • integrated with pig production in many cases; • assure quality control.

• Vertically integrated in most case; • use modern technologies and equipment; • observe biosecurity measures; • use local and foreign consultants; • very often have a high degree of automation; • assure quality control.

• Use old equipment and technologies; • have weak food safety control; • do not invest in staff and its training; • have problems with financing; • usually have state shares in equity; • produce too many different products; • cannot handle costs due to lack of knowledge.

Russian Federation - Meat sector review

Item

2

Technology

Description

Floor housing: birds are raised on the floor covered with wood shavings or straw

• Strong food safety control; • higher quality due to less damage to birds; • better welfare; • easier to handle and manage flocks; • low maintenance equipment; • better ventilation and lighting; • additional cost of shavings or straw to collect litter.

Broiler housing technology Cage housing: birds are raised in cages built on several levels

3

4

Grow-out (rearing) technology planning

All-in all-out: houses are built by zones for complete zone cleaning

• Best for disease prevention; • allow better flock management and performance; • provide savings on livability and yield; • require additional investment in housing.

Continuous cycle: no free time between houses cleaning in zones

• No need for additional capital construction; • prevent full cleaning of production areas; • cause disease retransmission; • affect flock performance.

Old technology: Feed mash – crushed grains

• Low cost of equipment and of production process; • high losses of feed; • low feed conversion.

New technology: pelleted heat-treated combined feeds

• Capacity to produce several feed recipes; • good feed conversion; • minimal waste of feed throughout production chain; • consistently ensured quality, higher food safety.

Feed type / feed plant

Local genetics (both Russian and Western breeds) 5

• Higher yields per square meter; • higher food safety risks; • intensive labour and technology; • high maintenance of climate control; • higher rates of damaged birds.

• Good local availability; • high maintenance; • inconsistent performance; • tainted with various diseases.

Genetics Foreign genetics (supplied from abroad)

• Most productive breeds from best genetic centers; • have good service from breed suppliers; • risk of non-delivery for various reasons; • higher hatchability and fertility; • require complicated vaccination programmes.

141

Item

Technology

Prime processing (slaughter and evisceration) 6

8

• High cost savings on labour, packaging, energy, equipment, infrastructure and marketing; • no added value.

Processing Full processing (including cut-up, further processing and packaging)

7

Description

• Added value on basic product; • higher yield; • wide product range; • better marketing prospects; • additional expenses on equipment and staff; • higher technological risks.

Water chilling: birds are immersed in huge tanks filled with ice water

• Higher yields because of retained water; • better product appearance; • shorter chill time; • retained water leaks in packaging; • higher risk of cross contamination; • excessive waste of water.

Air/combined: birds are passed through a chilling hall with com-pressed cold air

• No leaks in packaging; • no cross contamination; • higher energy consumption; • longer chill time; • risk of improper anti-microbial treatment.

Composting outside the farm and further use as a fertilizer

• Minimal cost involved; • potential benefits from fertilizer sales or use; • require big lots of land; • high ecological risk.

Chilling

Litter utilization Processing for biofuels, burning, etc.

• Capital consuming (expensive); • resolve ecological issues; • guaranteed long-term sustainability.

Source: Authors’ compilation based on various sources.

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Russian Federation - Meat sector review

Table 49: Production technologies used for pig meat production Item

Technology

Description

• Irrational use of buildings and structures, lack of their specialization; • unevenness of production; • in most cases, single-phase production technology and seasonal tour farrowing system; Small farms of old • animals are walked out; type • predominance of manual labour; • absence of backup facilities and inability of holding repair works, which wear out equipment and engineering systems; • mechanization of production processes lead to high production cost per animal. • Farms are based on modern concepts and designs;

1

Production processes organization

• depending on capacity, herds are placed and transferred every 14 or 21 days, Small farms of new which doesn’t allow effective utilization type of facilities, it leads to downtime of technological areas; • low biosecurity: house operators often maintain 2-3 areas, contaminating them with pathogens. • All buildings specialized by production purposes; • continuous live production process of homogeneous groups of animals; • two- or three-phase technology of production (farrowing/nursing/grow Modern production feeding); facilities • animals kept in-house; • high degree of automation and mechanization of production processes; • lower production costs and capital investments per head; • high level of biosecurity.

143

Item

2

Technology

Technology of keeping pigs

• Floor in pig house is covered with straw or wood shavings (litter) to absorb manure; “Nesting” • need for large amounts of litter, but this gives good compost; technology • high costs of labour; • no resource-saving equipment.

“Nesting” technology Slotted floor technology

Old technology 3

Technology of manure removal from houses with slotted floor Modern technology

4

144

Feeding technology and diets

Description

• Reduces cost of cleaning by 10-15 times; • stringent requirements for the microclimate (temperature, humidity, air velocity, etc.); • need to build dump yards based on 12-month exposure of manure in each of the lagoons; • high level of process automation, energy use and conservation equipment. • Use of water wash for dung removal, which leads to the formation of a large amount of manure runoff.

• General use of waterless methods of manure removal to ensure the reduction of water consumption for technological purposes by 1.5-2 times*.

• Feeding waste food product, vegetables, potatoes; • high degree of manual labour; • loss of feed due to souring; Old technology • impossibility of accurately delivering feed to animals; • requires feeding center, steaming plant and additional equipment and staff. • Pigs at various ages fed with specialized pelleted feeds; • reduces the chance of poisoning with mycotoxins; Modern technology • reduces waste of feed; • saves labour; • significantly increases the weight gain due to higher conversion, nutrition value and optimal balance of diets.

Russian Federation - Meat sector review

Item

5

Technology

Feeding type

Description

• Cheaper equipment and easier maintenance; • more hygienic; • less stress for animals during feed Dry feeding delivery; • requires clean water in the water troughs; • pigs’ manure becomes drier with no noxious odors. • Easier and more perfect equipment; • more reliable and durable because of no rotating parts or belts; • reduces water consumption and the Wet feeding volume of manure; • rational use of food, water and medicines: vaccination and treatment of pigs is simple and accurate.

Natural insemination 6

• Requires more hogs, bigger production areas and more feed and labour; • increased production costs.

Insemination type • Effective and quick; • increases productivity; • improves quality; Artificial insemination • reduced costs; • maximum use of breeding potential of hogs and sows.

145

Item

Technology

Description

• Russian genetics, evaluation methods and selection of animals are completely outdated; • meat quality does not meet the processors requirements because of high Russian genetics fat percentage; • costly and ineffective because many Russian breeders are forced to have their own herd of pedigree pigs for internal hybridization. 7

Genetics Modern high productive foreign genetics (Denmark, Great Britain, Canada, USA, Germany)

• Reduces (i) the volume of capital investments, particularly in construction and equipment, (ii) operating costs, (iii) energy and water consumption, (iv) feed costs, (v) use of veterinary preparations and (vi) cost of manure disposal; • provide higher quality of end products; • reduce environmental impact; • increase overall economic efficiency of live production operations.

Source: Authors’ compilation based on various sources. * Now the water flushing technology is being improved: manure effluents are separated, the liquid part is disinfected down to “processed water” and reused. However, the problem of high humidity remains unresolved, together with ventilation difficulty (especially in winter) and high-energy costs. Mechanical harvesting adds increased labour costs.

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Table 50: General technologies of cattle meat production Item

1

2

3

Technology

Description

Cattle meat by culling dairy cattle

Meat is obtained from culled dairy cows and calves. It is much more costly to grow bull calves than to dispose of them at early ages.

Specialized beef farming

The animals of meat breeds gain weight faster than dairy cattle. Beef from meat cattle breeds is tastier and has higher yield. Such animals require much less energy than dairy cattle. Disadvantages: monoproductivity and relatively low return on investments.

Stall-barn system

Year-round stall-barn housing extensively uses silage, hay and straw in winter-time, and green chop of green forage chain with concentrates in summer time. It is recommended for farms with minimum grazing areas; therefore, it is more expensive because it requires lots of prepared fodder.

Pen system

Stall-barn system in winter, pens in summer (feeding green chop of green forage chain and silage). This system is used when grazing is not far from land with plentiful grass (e.g. wet meadows along rivers) and if grazing areas are not sufficient or remote.

Grazing-stall system

In the stall period animals are kept in barns and in the pasture period, in artificial or natural pastures.

Grazing system

Preferable for farms that have large areas of natural and improved pastures. Keeping cattle in the wild pastures for 24 hours a day is the most efficient way to avoid animal stress.

Traditional farmanimal method

This is a traditional method for dairy cattle rearing. Its advantage compared with free-stall housing is that individual maintenance of cows provides milk and extends the productive life of the animals. It is used for finishing growing in dairy farms, and there is a high cost of manual labour.

Free-stall method

Compared with traditional housing, this method can significantly reduce labour costs and efficiently use production equipment. This technology is used by some dairy farms, and takes the leading place in meat production. It requires a lot of bedding or big investments in slotted floors.

General principles

Housing system

Housing method

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Item

4

5

6

7

Grazing technology

Technology

Description

Natural grazing

The main advantage of natural grazing is the low cost of feed.

Artificial grazing

Artificial grazing is the use of annual and perennial grasses, clover, etc. These pastures provide forage in early spring, grow rapidly and are more resistant to trampling. Artificial grazing has a positive effect on weight gain, but it is more expensive.

Animal feed use

Winter diet of beef cattle generally includes “slightly dried,” low-moisture silage with combined feed.

Change of animal feed for flattened grains and grain forage

Conditioning is the most efficient way of processing wet grain to feed, which provides high-quality forage. The technology is effective because it allows cheaper feed grain forage by eliminating the cost of drying food and better digestibility.

Artificial insemination

This method is modern and inexpensive (no need for bulls or additional labour), has a higher guaranteed result when compared with mating and means that calving occurs uniformly throughout the year. Embryo implantation is even more productive as it allows control of the proportion of bulls and cows.

Natural insemination

Natural insemination is less effective and controllable. It requires keeping breeding bulls, additional space, feed, labour and other expenses.

Dairy cattle

Ayshirsky, Holstein, Yaroslavl, Taghil and other low meat quality breeds.

Meat and dairy cattle

Simmental, Bestuzhev, Kostroma, Shvitsky and other breeds. Meat quality is satisfactory.

Special meat cattle breeds

Aberdeen-Angus, Hereford, Limousine, Charolais, Kazakh Whitehead and other breeds. Meat quality is high.

Feeding

Insemination

Genetics

Source: Authors’ compilation based on various sources.

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Annex 4 - Applicable state standards in the Russian Federation Feed Table 51: Applicable state standards for feed Designation

Title

GOST R 54954-2012

Feeds. Feeds and fodder additives for domestic animals. Terms and definitions.

GOST R 52254-2004

Mixed feeds for fodder cattle. Index nomenclature.

GOST R 52255-2004

Mixed feeds for pigs. Index nomenclature.

GOST R 51899-2002

Granulated mixed feeds. General specifications.

GOST R 51851-2001

Mixed feeds for poultry. Index nomenclature.

GOST 18691-88

Artificially dried grass feeds. Specifications.

GOST 23513-79

Feeds in cakes pellets. Specifications.

GOST 18221-99

Mixed full-ration feeds for poultry. Specifications.

GOST R 51550-2000

Mixed feeds-concentrates for pigs. General specifications.

GOST 9268-90

Mixed feeds-concentrates for fodder cattle. Specifications.

GOST R 51166-98

Mixed feeds for fur-bearing animals, rabbits and nutrias. Specifications.

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Meat Table 52: Applicable state standards for meat Designation

GOST R 50848-96

Title

Cattle. The criteria for raising and feeding young livestock for the production of meat foodstuffs for children. Requirements. Standard technological process.

GOST R 52702-2006

Chicken meat (carcasses of chickens, broiler chickens and their parts). Specifications.

GOST R 52703-2006

Chicken meat. Trade descriptions.

GOST R 54366-2011

Chilled meat by-products blocks. Specifications.

GOST 31639-2012

Cooked sausage items of poultry meat. General specifications.

GOST R 53516-2009

Cooked sausage items of poultry meat. General specifications.

GOST 4025-95

Domestic meat mincers. Specifications.

GOST R 54357-2011

Duck meat (carcasses and their parts). Trade descriptions.

GOST R 54376-2011

Duck meat (carcasses and their parts). Specifications.

GOST 12.2.135-95

Equipment for processing meat and poultry farming products. Safety requirements: precautions, sanitation and ecology.

GOST R 53476-2009

Food processing machinery. Cutting machines for meat. Specifications.

GOST R 53848-2010

Frozen cooked mussel meat. Specifications.

GOST R 52674-2006

Frozen in blocks meat and meat by-products for production of babies’ nutritional foods. Specifications.

GOST R 54704-2011

Frozen meat blocks. General specifications.

GOST 4814-57 GOST R 54675-2011

Frozen meat in blocks. Specifications. Geese meat (carcasses and their parts). Specifications.

GOST 23126-78

Horses for meat for export. Specifications.

GOST 30146-95

Machines and equipment for the production of sausage products and meat semi-finished products. General specifications.

GOST 28107-89

Machines for mixing minced meat. Main parameters, technical requirements and test methods.

GOST 31799-2012

Meat and meat by-products, frozen in blocks, for production of children’s nutritional foods. Technical specifications.

GOST R 52704-2006

Meat and vegetable preserves from poultry meat for babies’nutrition. Specifications.

GOST R 52479-2005

Meat cooked sausage products for children’s food. General specifications.

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Designation

GOST R 52427-2005 GOST 28532-90 GOST 31490-2012

Title

Meat industry. Food products. Terms and definitions. Meat mincers. General specifications. Meat poultry mechanical separation. Specifications.

GOST R 52601-2006

Meat. Dressing of beef into cuts. Specifications.

GOST R 54367-2011

Meat. Dressing of lamb and goat into cuts. Specifications.

GOST 31778-2012 GOST 10.76-74

Meat. Dressing of pork into cuts. Specifications. Meat. Horse flesh for export. Technical requirements.

GOST R 54048-2010

Meat. Pork for children’s nutrition. Specifications.

GOST R 52418-2005

Mechanically separated chicken meat for children’s food. Specifications.

GOST 3739-89 GOST 21784-76

Packed meat. Specifications. Poultry meat (carcasses of hens, ducks, geese, turkeys, guineafowls). Technical requirements.

GOST R 52306-2005

Poultry meat (carcasses of chickens, broiler-chickens and their cut parts) for children’s nutrition. Specifications.

GOST R 54356-2011

Poultry meat and by-products of semi-prepared foods. Acceptance regulations.

GOST R 54349-2011

Poultry meat and by-products. Acceptance regulations.

GOST R 53163-2008

Poultry meat of mechanical separation. Specifications.

GOST 28693-90

Production equipment for meat and poultry processing industry. Sanitary requirements.

GOST 18158-72

Production of meat products. Terms and definitions.

GOST R 52428-2005

Products of the meat industry. Classification.

GOST R 54673-2011

Quail meat (carcasses). Specifications.

GOST R 54673-2011

Quail meat (carcasses). Specifications.

GOST 27747-88 GOST R 54672-2011

Rabbit meat. Specifications. Raw-smoked and raw-jerked sausage products from poultry meat. General specifications.

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Designation

Title

GOST R 52818-2007

Sausage cooked goods from poultry meat for children’s nutrition. General specifications.

GOST R 52986-2008

Meat. Dressing of pork into cuts. Specification.

GOST R 54520-2011

Meat. Dressing of veal into cuts. Specifications.

GOST 27095-86 GOST 9792-73 GOST R 54754-2011 GOST R 51187-98

Meat. Horse meat and young horse meat in half-carcasses and quarters. Specifications. Sausage products and products of pork, mutton, beef and meat of other kinds of slaughter animals and poultry. Acceptance rules and sampling method. Semi-prepared boneless meat products in pieces for children’s nutrition. Specifications. Semi-prepared ground meat products, stuffed dumplings, comminuted meat for children’s nutrition. General specifications.

GOST R 52675-2006

Semi-prepared meat and meat-contained products. General specification.

GOST 31465-2012

Semi-prepared poultry meat for children’s nutrition. General specifications.

GOST R 53517-2009

Semi-prepared poultry meat for children’s nutrition. General specifications.

GOST R 53008-2008

Semi-prepared poultry meat and poultry offal. General specifications.

GOST R 53588-2009

Semi-smoked meat sausages. Specifications.

GOST R 53852-2010

Semi-smoked sausages of poultry meat. General specifications.

GOST 29123-91

Symbols of controls of equipment for meat and bird processing industries. Designations.

GOST 28534-90

Tracks for meat industry. Main parameters, dimensions and specifications.

GOST 31472-2012

Turkey meat (carcasses and parts). Trade description.

GOST R 53670-2009

Turkey meat (carcasses and their parts). General specifications.

GOST 31472-2012

Turkey meat (carcasses and their parts). General specifications.

GOST R 53670-2009

Turkey meat for children’s nutrition. Specifications.

GOST R 53458-2009

Turkey meat (carcasses and their parts). General specifications.

GOST R 52820-2007

Turkey meat for children’s nutrition. Specifications.

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Annex 5 - Profitability of poultry, pork, and beef production in various administrative subjects of the Russian Federation Tables 53, 54 and 55 show the profitability of poultry, pork and beef production, including processing, in agricultural organizations in the administrative subjects of the Russian Federation (without state subsidies) in 2010.

Poultry Table 53: Profitability of poultry in the administrative subjects of the Russian Federation, 2010 Profitability (loss), percent Profitability

Number of subjects

Administrative unit

55

Up to 10

27

Bashkotostan, Udmurtskaja, Kabardino-Balkanskaja, Kabardevo-Cherkesskaja, Karelija, Marij El, Mordovia,Hakasija, Chuvashkaja, Zabajkalsky, Krasnodarsky, Krasnoyarsky, Stavropolsky, Habarovsky, Belhorodskaya, Volgogradskaya, Belgorod, Volgograd, Kemerovo, Murmansk, Novgorod, Novgorod, Orenburg, Orel, Samara, Sverdlovsk, Tula, Ulyanovsk, Chelyabinsk

10-1-20

17

Adygea, Altai, Perm, Primorsky, Bryansk, Vladimir, Vologda, Voronezh, Irkutsk, Kaliningrad, Kaluga, Leningrad, Novosibirsk, Rostov, Ryazan, Tyumen, Yaroslavl

Over 20

11

Komi, Tatarstan,Amur, Kurgan, Kursk, Lipetsk, Moscow, Omsk, Penza, Tver, Tomsk

Loss

21

-

Up to 10

8

Dagestan, Sakha (Yakutia), the Chechen Arkhangelsk, Kostroma, Pskov, Saratov, Tambov

10.1-20

5

Kamchatka Astrakhan, Kirov

Over 40

5

Buryatia,Smolensk,Khanty-Mansiysk, Chukotka Saint Petersburg

153

Pork Table 54: Profitability of pork in the administrative subjects of the Russian Federation, 2010 Number of subjects

The subjects

Profitability

51

-

Up to 10

14

Buryatia, Kabardino-Balkaria, Karachay-Cherkessia, Chuvash Kraj: Perm, Primorsky, Khabarovsk Astrakhan, Voronezh, Ivanovo, Kostroma, Kurgan, Murmansk, Ryazan

10.1-20

11

Adygea, Bashkortostan, Mordovia, Udmurtia Altai, Kamchatka, Krasnoyarsk and Stavropol Vologda, Kemerovo, Kursk

20.1-30

12

Bryansk, Kaluga, Kirov, Moscow, Novgorod, Novosibirsk, Pskov, Sverdlovsk, Tverskaya. Tula, Tyumen Evrejskaja

Over 30

14

Mari El, Tuva Belgorod, Volgograd, Irkutsk, Kaliningrad, Leningrad, Lipetsk, Orel, Omsk, Penza, Tambov, Tomsk, Chelyabinsk

Loss

26

-

Up to 20

16

Karelia, Komi, North Ossetia, Tatarstan, Khakassia Transbaikalia, Krasnodar Amur, Arkhangelsk, Vladimir, Nizhny Novgorod, Orenburg, Rostov, Sakhalin, Ulyanovsk, Yaroslavl

20.1-40

3

Samara, Smolensk Khanty-Mansiysk

Over 40

7

Altai, Dagestan, Kalmykia,Saratov Chukotka, Yamal-Nenets Saint Petersburg

Profitability (loss), percent

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Beef Table 55: Profitability of beef in the administrative subjects of the Russian Federation, 2010 Profitability (loss), percent

Number of subjects

The subjects

2

Kalmykia, Karachay-Cherkessia

Loss

78

-

Up to 20

14

Altai, Bashkortostan, Buryatia, Dagestan, Sakha (Yakutia), Udmurt,Altai, Transbaikalia, Krasnoyarsk, Primorsky,Orel, Kirov, Novosibirsk, Chelyabinsk

20.1-30

16

Kabardino-Balkaria, Mari El, Mordovia, Tatarstan,,Chuvashia, Krasnodar, Perm Volgograd, Voronezh, Irkutsk, Kurgan, Omsk, Orenburg, Penza, Saratov, Ulyanovsk

27

North Ossetia-Alania, Tuva, Khakassia Stavropol,Arkhangelsk, Astrakhan, Belgorod, Bryansk, Vologda, Ivanovo, Kaluga, Kemerovo, Kostroma, Kursk, Nizhny Novgorod, Novgorod, Pskov, Rostov, Ryazan, Samara, Sverdlovsk, Smolensk, Tambov, Tver, Tomsk, Tula, Tyumen

21

Adygea, Ingushetia, Karelia, Komi Kamchatka, Khabarovsk, Amur, Vladimir, Kaliningrad, Leningrad, Lipetsk, Magadan, Moscow, Murmansk, Sakhalin, Yaroslavl Khanty-Mansiysk, Chukotka, Yamal-Nenets Evrejskaja Saint Petersburg

Profitability

30.1-40

Over 40

155

Annex 6 - Leading meat brands Company: JSC Prioskolye Name: Prioskolye Products: chicken carcass, semi-finished products of broiler meat, offal and frozen products from poultry Name: Picnic with Prioskolye Products: semi-finished products of broiler chickens in marinades and spices and sausages for frying Name: Al Safa Products: certified halal products permanently monitored by representatives of the Council of Muftis of the Russian Federation Name: Odnazhdy v derevne Products: top quality chicken Name: Odnazhdy v derevne Products: high-quality, ecologically clean chicken meat and products Company: GROUP CHERKIZOVO Name: Petelinka Products: chilled poultry carcasses and cuts; pork, beef and barbecue in marinade Name: Kurinoje Tzarstvo Products: chilled and frozen poultry meat, pork and beef Name: Mosselprom Products: ecologically clean chilled and frozen poultry meat and convenience food Name: Vasiljevka Products: chilled poultry in the mid-price segment Name: Domashnaja Kurochka Products: eco-products in the premium segment of chilled poultry Company: BEZRK-Belgrankorm Name: Yasnyje Zori Products: leg with the bone and boneless, quarter, hip, thigh, breast, wings, breast and sub-products Name: Kurinnyj Korol Products: original, new recipes of broiler meat

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Company: Miratorg Name: Miratorg Products: chilled pork meat and semi-finished products Company: GC Agro-Belogorye Name: Daljnyje Dali Products: fresh and semi-finished meat products Name: Agro-Belogorye Products: cuts chilled and frozen, vacuum packed Company: OJSC OMPK Name: Ostankino Sub-brands: Slivochnyje, SOSISKA.RU Products: cooked, smoked and semi-smoked sausages, ham, cutlets, chilled meat, frozen meat and others Company: Cherkizovsky Name: Cherkizovsky Products: cooked, smoked and semi-smoked sausages, ham, cutlets, chilled meat, frozen meat and others Company: Zarizino Name: Zarizino Products: cooked, smoked and semi-smoked sausages, ham, cutlets, chilled meat, frozen meat and others Company: Mikoyan Name: Mikoyan Products: cooked, smoked and semi-smoked sausages, ham, cutlets, chilled meat, frozen meat, half-finished beef meat products and groundmeat Company: Dimov Name: Dimov Products: cooked, smoked and semi-smoked sausages, ham, cutlets, chilled meat, frozen meat and others

157

Annex 7 - Major agroholdings and meat producers in the Russian Federation Miratorg Agroholding www.miratorg.ru Agricultural and industrial holding Miratorg was founded in 1995 in the Russian Federation as a trading company. In 2005 it became the largest importer of meat. Since 2003, with the introduction of quotas on meat imports, the company developed a new strategy called “from field to fork.” Currently, Miratorg is the largest producer of pork in the country. With over 16 000 clients, Miratorg is present in 15 regions and provides employment to more than 7 000 people. Vertical integration allows Miratorg to leverage costs and risks on various commodity markets, maintain stable margins, minimize raw materials’ price fluctuations and ensure timely supplies and quality control at all production stages. In 2012, the company opened a new processing plant in Kaliningrad, Concordia, which would process poultry and other meats for McDonald’s and its own brands. Since 2009, Miratorg also ran the brand of frozen vegetables named Four Seasons. In 2010, the company started the construction of green-field broiler complex in Bryansk Region with an annual capacity of 100 000 tonnes. As a result of restructuring in 2008-2010 into an agricultural and industrial holding, Miratorg consolidated 100 percent shares of its subsidiaries. At the end of 2012, the holding company planned to consolidate LLC Concordia, LLC Prokhorovsky Feed Mill, LLC Novoyakovlevsky and LLC Pristensky. Miratorg is actively developing its own production of fodder and grain to be able to fully meet the needs of its current and future operations. Starting in May 2011, the combined capacity of two feed plants reached 630 000 tonnes a year. In 2012, a third feed mill with an annual capacity of 360 000 tonnes began to operate. This mill is equipped with machinery from Brock (USA, elevator) and Ottevanger (Netherlands, mill).

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Production of pork is the core business of Miratorg. Today the agroholding owns 12 automated pig farms working on Big Dutchman (Germany) and Roxell (Belgium) equipment. Genetic material is supplied by PIC (United Kingdom), Hermitage (Ireland) and Dan Bred (Denmark). In terms of effectiveness, the holding’s pig farms are producing close to the world’s leading manufacturers and are far ahead of the Russian average. A slaughterhouse and a primary pork processing plant in Korocha (Belgorod Region) were launched in 2008. It is the biggest and most modern enterprise in the Russian Federation in this sector. The list of equipment suppliers includes Banss and Multivac (Germany), York (Denmark), Cryovac (the USA), Mondini (Italy) and Marel (Iceland). In 2011, this complex was approved for exports to the EU. Food distribution is the final link in the business model of the holding. In 2010 through its own retail chain, Miratorg sold 338 tonnes of meat, 64 percent of which was its own production. Thanks to its distribution network, Miratorg markets 600-1 000 tonnes of meat products daily. In the first half of 2011, sales of Miratorg increased by 18.5 percent when compared with the sales during the same period of the previous year. Such growth is backed up by the active development of the distribution network and an aggressive marketing policy.

Cherkizovo Group www.cherkizovo-group.ru Cherkizovo Group is a vertically integrated agribusiness company with a full production cycle, from feed production to processing meat products and distribution. The company was established in 2005 as the result of merger between Agro-Industrial Holding Cherkizovsky (involved in meat production and processing) and Agro-Industrial Holding Mikhaylovsky (poultry production).

159

The company’s activities comprise: • s even full-cycle poultry production facilities, with a total capacity of 400 000 tonnes live weight p.a.; • f ourteen modern pork production facilities with a total capacity of 180 000 tonnes live weight p.a.; • s ix meat processing plants with a total capacity of 190 000 tonnes p.a.; • six fodder plants with a total capacity of 1.4 million tonnes p.a.; • g rain storage facilities with a total storage capacity exceeding 500 000 tonnes; and • a land bank exceeding 100 000 hectares. In 2011, Cherkizovo: • a cquired 100 percent of Mosselprom, whose operations include poultry, pork, feed production and grain businesses; • s tarted construction of the Elets agro-industrial complex in the Lipetsk Region, with an annual meat capacity of 400 000 tonnes (poultry and pork) due in 2014; • r enovated the Otechestvenniy Product meat processing plant, which increased its capacity to 400 tonnes per month; • o pened a poultry breeding facility, Komarovka, at its Penza cluster. The facility consists of 34 birdhouses, which have a combined capacity of almost 1.1 million broilers. And a second line at the poultry breeding facility at its Bryansk cluster consists of 26 birdhouses, which have a combined capacity of almost 880 000 broilers; • l aunched the largest hatchery in the Russian Federation at its Penza cluster, capable of 105 million eggs per year; • l aunched a large hatchery at its Bryansk cluster capable of producing 43 million eggs per year. After a second line is

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launched, the total annual capacity of the hatchery will be 66 million eggs; • s tarted production at its greenfield pork farms in Tambov, Voronezh and Lipetsk by launching three breeding facilities; • o pened a new poultry slaughter plant with an hourly capacity of 8 000 heads at its Penza cluster.

BEZRK - Belgrankorm www.jasnzori.ru Agroholding BEZRK-Belgrankorm was established in 1998 as a feed mill factory. Over the past decade, the company has expanded and diversified, and now has a strong focus on modern equipment and innovative technologies. Belgrankorm’s integrated poultry operations comprise four hatcheries, 11 broiler-growing farms and three slaughterhouses – all overseen by a specialized poultry management department. A closed production cycle delivers its products to the domestic market, through the Yasnye Zori and Selskie traditsii brands. Its main assets are concentrated in the Belgorod Region. For nine months in 2010 BEZRK-Belgrankorm produced 132.9 thousand tonnes of poultry meat, 18.3 thousand tonnes of pork, 16.7 thousand tonnes of milk and 369 tonnes of feed. The company sales reached RUR 14.7 billion in first three quarters of 2010. The main shareholder is Alexander Orlov. Since spring 2008, 13.23 percent of BEZRK-Belgrankorm is owned by the International Finance Corporation.

Belaya Ptica CJSC www.belaya-ptica.ru CJSC Belaya Ptica is an active participant of the national project “Development of agriculture” in which the company has already invested RUR 4 429 million. The holding’s enterprises operate along the full production chain. A closed-loop system and quality control at every stage of production, from food processing to distribution, ensures a consistently high quality product.

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The holding operates in Belgorod Region. In 2010, it consisted of 16 companies: a grain production company; a feed production plant with a capacity of up to 240 000 tonnes per year; three eggs reproducers with a capacity of about 59 million eggs per year; a hatchery, which supplies 69 million chicks per year; eight poultry farms for raising broiler chickens, with a total production of 100 thousand tonnes per year of live poultry; and integrated slaughtering and processing systems of poultry with a capacity of 10.5 thousand heads per hour. The company’s turnover in 2010 amounted to RUR 5.6 billion, which is about 8 percent higher than the previous year. In 2010, the production of animal feed increased to 210 thousand tonnes per year, hatching eggs to 57 million units per year, day-old chick to 51 million units a year, live poultry to 104 thousand tonnes per year and meat products to 82 thousand tonnes per year. Investments in production in 2009 amounted to RUR 4 429 million. In 2010 no investments were made. In 2011, the production of animal feed increased to 224 thousand tonnes a year, hatching eggs to 59 million units a year, day-old chick to 53 million animals a year, live poultry to 108 thousand tonnes per year and meat products to 88 thousand tonnes per year.

SC Agro-Belogorye LLC www.agrobel.ru LLC SC Agro-Belogorye was established in July 2007. The group is composed of 30 companies that include nine pig farms, which have a capacity of 70 thousand tonnes of pigs for slaughter in live weight per year; six grain production companies; two animal feed plants; an enterprise for the production of milk; some supporting companies such as trading houses; and transport enterprises. The holding operates in the Belgorod Region. In 2010 it had revenues of RUR 20.1 billion (according to Forbes). The group employs about 5 000 people. In 2010, it produced about 100 000 tonnes of live weight meat. In 2011, the group sold 105.6 thousand tonnes of pigs for slaughter. Totals in 2011 were 5.5 percent higher than 2010. The total capacity of the group’s feed mills is of 282 000 tonnes of feed per year.

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Rusagro Group of Companies www.rusagrogroup.ru The Rusagro Group of Companies is an agricultural holding working in two main areas: sugar and agriculture. The company is positioned among the top three leaders of the Russian sugar market. Rusagro’s first company was created in 1995. After 2000, the company began developing new markets: grain, oilseed and others. In November 2004, Rusagro decided to expand the business and create large pig farms in the southeastern part of the Belgorod Region. Today Rusagro owns seven sugar plants in the Tambov and Belgorod Regions; a fat plant in Yekaterinburg; a pig farm called OAO Belgorod Bacon; grain elevators; eight regional sales subsidiaries; and the management company. The company mainly operates in the Moscow Region. Production efficiency is achieved through the use of their own feed supply. In 2010 income from pig meat sales was RUR 4.57 billion. In 2009, the companies belonging to the group produced 900 thousand tonnes of sugar, 33 thousand tonnes of margarine, 53 thousand tonnes of mayonnaise and more than 35 thousand tonnes of meat. The agroholding produces 13 percent of the sugar in the Russian Federation (as per end of 2009).

Prioskolye CJSC www.prioskol.ru The company was founded in 2003. CJSC Prioskolye includes poultry farms, processing and feed production plants and trading houses. The revenues of the holding in 2009 amounted to RUR 15.5 billion. In 2010 they were RUR 18.9 billion (according to Forbes). CJSC Prioskolye has 16 poultry farms with an overall capacity of 300 thousand tonnes of poultry meat in live weight per year and eight poultry farms with a capacity of 12 thousand tonnes of poultry per year that are being introduced. At the end of 2010 Prioskolye had 25-27 percent of the chicken market in the Siberian and Far Eastern Federal Districts. In the Novooskolsky area, the company has a plant for the production of animal protein feed with a capacity of 16 thousand tonnes per year; it is the only one in the Russian Federation capable of working in a continuous cycle. The company also owns an industrial waste processing plant.

163

PRODO Group www.prodo.ru PRODO Group was founded in 2004. PRODO Management Ltd is the management company of all the holding’s enterprises. Another company was created, PRODO commerce LLC, to interact with suppliers, local distributors and retailers. PRODO Group unites more than 20 manufacturing facilities located throughout 11 regions of the Russian Federation. It employs over 22 000 people. The portfolio of PRODO Group includes the brands Troyekurova, BonBekon, Daria, Rococo and Dobryj Produkt. In 2010, the group produced 146.4 thousand tonnes of poultry meat in carcass weight, 77.4 thousand tonnes of pork and 116.3 thousand tonnes of processed meat.

AKGUP Promyshlennyj The company was founded in November 1993 in Altayskij Kray and is among the country’s largest commercial cattle producers. In 2008, the company received the status of a breeding farm; it reproduces Simmental breeds. In January 2010, the number of cattle on the farm was more than 10 thousand heads. In 2010, AKGUP Promyshlennyj sold 5 228 tonnes of meat, and the average weight per head was 483 kg. Ninety-seven percent of its cattle were sold as luxury quality. In 2010, the number of employees was 476 people.

Agrocomplex JSC This company was founded in 1993. Today the company has more than 30 structures, including ten farms, ten poultry farms, feed mills, milling plant, shops, two oil-mills, two dairies and two meatprocessing plants. Powerful auxiliary structures include railway craft, service station, biological laboratories and two elevators. Associates of the company are located in Vyselkovsky, Pavlovsk, Korenovskii, Ust-Labinsk, Slavic and Starominsky areas of Krasnodar Krai, Krasnodar. Today, Agricultural Complex is one of the most famous and successful agricultural enterprises in southern Russia. The company is involved in agriculture, animal husbandry and processing of agricultural products. The company annually produces about 4.5 thousand tonnes of meat in live weight of cattle. In 2012, the net income of the company amounted to RUR 1 685 178 thousand.

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AgroHolding Krasnyj Vostok www.krvostok.ru Agricultural holding Krasnyj Vostok was established in 2003 on the basis of 68 agricultural enterprises in six districts of the Republic of Tatarstan. The company is involved in the industrial production of high-quality milk, breeding of highly productive cattle, crop production and the processing and storage of grain. During the last seven years the company invested RUR 25 billion in its agricultural activity. The revenues in 2010 amounted to RUR 2 203 325 thousand, and its net income was RUR 2 624 thousand. The company, according to the rating of the Russian Academy of Agricultural Sciences, is recognized as a leader of milk production in the Russian Federation. Today the total population of breeding stock of the company is 88 000 animals, including 28 000 milk cows. Every day, the company produces 350 tonnes of milk. Each year, the company produces about 280 000 tonnes of grains with an average yield of 43 centners per ha. At the end of 2010, the company employed 1 105 people.

OJSC Agrofirma Mtsensk www.agrofm.narod.ru OJSC Agrofirma Mtsensk was created in December 1998. Mtsensk owns cattle-breeding complexes with 3 600 cattle places. The company’s two main business directions are the production of crops and livestock. The company also has machine, technological and grain processing stations with a trading network. At the beginning of 2011, the company had 4 919 heads of cattle, including 455 dairy cows. In 2010, the sales of beef (in live weight) amounted to 2 878 tonnes. The average daily gain of cattle was 1 079 g. In 2011, the total number of livestock increased to 5 147 heads. The meat produced in live weight was 2.4 thousand tonnes. Production of grains and legumes in 2010 was 40 097 tonnes with an average yield of 3.9 tonnes/ha.

Agricultural Company Belorechenskie www.belor.ru Belorechenskoe was founded in 1967. It was a small poultry farm with an average annual population of 64 thousand hens and

165

4 910 thousand eggs. The company has 139 employees. Since 1967, the enterprise has undergone many structural and institutional reforms. In February 1993, the company converted to the agricultural joint stock company Belorechenskoe. Now it produces eggs, egg powder and pasteurized eggs. The company has breeding farms and hatcheries and is actively involved in crop production (corn, potatoes, onions, carrots, beets, cabbages, mushrooms, berries, forage crops, seedlings), livestock products manufacturing (milk, cattle meat), dairy production and marketing of sausages and meat products. Also, the company manages waste with Californian worms, effectively uses environmentally friendly fertilizers or vermicompost, and practices experimental engineering. Belorechenskoe has 2.4 million birds and produces 545.4 million chicken eggs and 12 million quail eggs yearly. The company’s cattle herd has 11 300 heads, including 5 150 dairy cows that produce 28 000 tonnes of milk and milk products. The company produces 3 000 tonnes of meat products and sausages and 3.500 tonnes of chicken and beef meat. In addition, the company produces 25 000 tonnes of vegetables and potatoes.

OJSC Ostankino Meat Processing Plant (OMPK) www.ompk.ru OJSC OMPK is the leading manufacturer of processed meat and convenience foods in central Russia. The company was founded in 1954. It owns 17 trading houses, 26 stores in Moscow and one of the most modern pig farms in the country. OJSC OMPK operates in Moscow and Regions of Central Russia (Lipetsk, Voronezh, Ryazan, Belgorod, Yaroslavl, Nizhny Novgorod, Smolensk, Tver, Ivanovo, Bryansk, Kursk). The company’s processing facilities can process 500 tonnes of products per day of more than 100 varieties of processed meat. All production facilities are equipped with the latest German and Austrian equipment. At the end of 2011, Ostankino Meat Processing Plant had maintained its leading position among the manufacturers of sausage and meat products. Sales in 2011 amounted to 156 000 tonnes. In 2010 the company produced slightly less, 151 000 tonnes. The number of employees is 3 310 people. In 2012 the company registered a net profit of RUR 485 036 thousand.

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Russian Federation - Meat sector review

ABI PRODUCT www.abigroup.ru The company was founded in 1995. ABI PRODUCT produces about 280 kinds of sausages, deli meats, frozen foods and ready meals. The company’s portfolio includes the brands Starodvorskie kolbasy, Zarechenskie kolbasy, Medvezhje Ushko, Blagolepnyje and Tsaredvore. Products are manufactured in the following meat processing plants (among some others): Starodvorskie has a designed capacity of 175 tonnes per day; Pokom has a designed capacity of 190 tonnes per day; and Mjasnaja galereja has a designed capacity of 150 tonnes per day. ABI PRODUCT sells its products through independent distributors and retailers in 43 regions of Russian Federation. The company also provides direct distribution of its products through its regional logistics centers in Vladimir, Moscow, Kaliningrad, Krasnodar, Ivanovo, Kostroma and Yaroslavl. ABI PRODUCT employs over 4 000 people. In 2010, the company registered a net income of RUR 138 898 thousand.

JSC Mikoyan Meat Processing Plant www.mikoyan.ru Mikoyan Meat is the oldest meat processing enterprise in the country. The company was mentioned for the first time in 1798. In 1998, Mikoyan became part of the agricultural holding Exima. The product range includes more than 700 names. The company operates in Moscow and the Moscow Region, Saint Petersburg, Rostov, Samara, Perm, Chelyabinsk and Novosibirsk. In 2010, the share of the Mikoyan Meat Processing Plant in Moscow and the Moscow Region was about 15 percent in real terms. In 2010, JSC Mikoyan Meat Processing Plant produced around 79 000 tonnes of meat production and registered a net profit of RUR 147 518 thousand.

167

Annex 8 - Recent investments in the poultry sector

Implementing company (holding)

Region

Investment, million USD

Starting year

Project at full capacity

1

Industrial turkey complex for 240 000 tonnes of live weight per year (stage 1: 90 thousand tonnes). Stage 1includes hatchery and processing facilities, feed mill with grain storage and manure disposal system.

LLC Evrodon

Rostov Region

800

2010

2012-13

2

Livestock production systems for poultry meat (poultry slaughter and processing plant, hatchery, feed, 128 breeders, 336 chicken houses, rendering plant, residential housing). Project capacity: 230 thousand tonnes/year. Complex start-up is planned for 2013.

Cherkizovo Group

Lipetsk Region

600

2011

2019

3

Broiler complex in Tatischevsk District of Saratov Region (broiler houses, hatchery, feed mill, slaughter and processing plant, cold store). Capacity: 31.5 thousand tonnes/year.

RE-EM-FORM s.r.o. (Czech Republic)

Saratov Region

357

2010

-

4

Broiler complex with annual capacity of 100 000 tonnes. The complex was built on the premises of Inzhavinskaya Poultry Farm and will comprise broiler houses in six rearing zones, processing plant, grain elevator, rendering plant, cold stores.

CJSC Izhavinskaya Poultry Farm (as a part of Prioskol’e)

Tambov Region

283

2010

2012

Name and brief project description

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Russian Federation - Meat sector review

Name and brief project description

Implementing company (holding)

Region

Additional poultry farms with capacity of 50 000 tonnes of poultry per year. 5 Modernization of poultry farms in the Argayashsky Area to increase the volume of poultry meat production by 21 tonnes/year.

Investment, million USD

190 Uralbroiler Group of Companies

Starting year

Project at full capacity

-

Chelyabinsk Region

46.7

2010

6

Additional broiler housing in Novgorod Region with a total capacity of 22.500 tonnes/year.

Belgrankorm

Novgoro-d Region

166

2010

-

7

Breeder operation of ten houses brought the total company’s broiler meat output to 80 000 tonnes in 2012.

LLC LISKoBroiler

Voronezh Region

150

2009

2015

8

Vertically integrated turkey complex with an annual capacity of 15 000 tonnes/year, including hatchery, breeders, rearing, processing plant, packaging, feed mill and grain storage. The project is expandable to 60 000 tonnes of turkey meat/year.

LLC Russian Dairy Company (Rusmoloko)

Penza Region

150

2011

2012

9

Broiler complex for 50 000 tonnes of poultry/year.

Sitno Company

Chelyabinsk Region

140

2010

2011

10

Renovation and construction of new poultry farms in the Yetkulsk Area: infrastructure, broiler houses, feed mill.

LLC Bektysh

Chelyabinsk Region

116.7

-

-

169

Name and brief project description

Implementing company (holding)

Region

Investment, million USD

Starting year

Project at full capacity

11

Construction of a new poultry processing plants in Blagodarny was scheduled for August 2010. Plant capacity is 80 000 tonnes per year.

CJSC Stavropolsky broiler – in 2011 acquired by GAP Resource

Stavropol Region

60

2009

2010

12

Reconstruction of the Vertunovsky breeder operation of the Vassilievskya poultry farm with the production capacity of 60 million hatching eggs/year.

Cherkizovo Group

Penza Region

53

2009

2010

13

Renovation and installation of new equipment for breeder farms Pskov and Borovichi (Novgorod Region) and broiler houses Pervomayskaya, Novgorod and Valdai farms. The total capacity will increase by 36 tonnes of broiler meat/year.

Rubezh Group of Companies

Novgorod and Pskov Regions

First stage 123.3

2009

2012

Source: Authors’ presentation based on information obtained from market operators, companies’ announcements, development programmes, etc.

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Russian Federation - Meat sector review

Annex 9 - Broiler meat production (Far East Russian Federation): investment model assumptions, results and sensitivity Table 56: Investment cost to set up a large- scale broiler production farm, in 2012 prices Investment cost, in RUR million

Percent

699

64

Equipment for broilers

91

8

Slaughter (building)

33

3

Slaughtering equipment

75

7

Incubator building

11

1

Incubator equipment

43

4

145

13

1 098

100

Fixed assets Poultry house

Other Total

Source: Authors’ calculations based on available business plans.

171

The following main assumptions about input prices and productivity were used to calculate investment efficiency in a large-scale broiler production farm: • o ne hatching egg costs RUR 13.23 (expected to increase by 6 percent annually); • o ne incubation egg costs RUR 4.11 (expected to increase by 6 percent annually); • e gg hatchability for the first four years of the project was assumed to be 75 percent and 80 percent in the following years; • livability (rate of survival) of broilers was set at 93 percent; • t arget weight of the broiler in the first ten years of the project is two kilograms and 2.2 kilograms in the following years; • a verage cost of feed is RUR 12.48 per kg (expected to increase by 17.5 percent yearly); • f eed conversion rate is 2.1 kg of feed per 1 kg of weight in the first year, 2.0 kg in the second year and 1.9 in the following years; • o perational costs such as gas, electricity, work force and others account for RUR 44-49 per kg. Considering those assumptions, the production cost of poultry meat should reach RUR 78 per kg. This cost increases by RUR 7.11 per kg including the delivery cost. The following are assumptions about outputs and prices: • o utput of meat is expected to reach 78 percent per head, approximately 1.56-1.73 kg of meat per broiler; • a verage poultry meat sales price of RUR 123 per one kg provides the company with a gross income of RUR 45 per one kg of broiler meat. The sales price is expected to grow by 12 percent per year; • t otal quantity of meat farms will be able to supply will gradually increase until it reaches 12 500 tonnes of meat per year in the eighth project year.

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Table 57: Sensitivity analysis of investments in broiler meat production NPV sensitivity (billion RUR) Feed cost fluctuations, RUR/kg

Average meat price, RUR/kg

9.984

11.232

12.48

13.728

15

87

-1.10

-1.35

-1.61

-1.86

-2.32

111

0.30

0.05

-0.20

-0.46

-0.92

123

1.03

0.78

0.53

0.27

-0.19

135

1.76

1.51

1.26

1.00

0.54

148

2.49

2.24

1.99

1.73

1.27

14 %

16 %

18 %

Input cost (feed) inflation

Output prices inflation

20 %

22 %

8%

-0.15

-0.31

-0.44

-0.68

-0.89

10%

0.32

0.16

0.02

-0.21

-0.42

12%

0.82

0.66

0.53

0.29

0.08

14%

1.36

1.20

1.07

0.83

0.62

16%

1.94

1.78

1.65

1.41

1.20

Average feed conversion rate, kg of feed per kg of meat

Average meat price, RUR/kg

2.02

1.92

1.82

1.75

1.62

87

-1.74

-1.61

-1.47

-1.34

-1.21

111

-0.33

-0.20

-0.07

0.06

0.19

123

0.39

0.53

0.66

0.79

0.92

135

1.12

1.26

1.39

1.52

1.65

148

1.85

1.99

2.12

2.25

2.38

IRR sensitivity (Percentage) Average feed conversion rate, kg of feed per kg of meat

Average meat price, RUR/kg

2.02

1.92

1.82

1.75

87

Negative

Negative

Negative

Negative

1.62 0

111

6

8

9

10

12

123

14

15

17

18

19

135

21

22

23

24

25

148

26

27

28

29

30

Payback period sensitivity (Years) Average feed conversion rate, kg of feed per kg of meat

Average meat price, RUR/kg

2.02

1.92

1.82

1.75

87

-

-

-

-

1.62 -

111

11

10

10

9

9

123

8

8

8

8

7

135

7

7

7

7

7

148

6

6

6

6

6

Source: Authors’ calculations.

173

Annex 10 - Recent investments in the pork sector

Implementing company (holding)

Region

Investment, million USD

Starting year

Project at full capacity

1

Construction of a swine complex for one million pigs (90 000 tonnes of pig meat/ year).

GK Rusagro

Belgorod Region

433.3

2009

2016

2

Construction of a swine complex in Zherdevsky and Sampursky Districts for one million pigs/ year, including breeder farms.

LLC Tambov bacon

Tambov Region

320

2010

2014

3

Construction of a slaughter and processing plant with a capacity of 100 tonnes per day (consisting of three pig farms and three rearing farms for 330 000 pigs).

LLC AltayAltay Region myasoprom

233.3

2011

2013

4

Construction of a pigbreeding complex with capacity of 50 000 tonnes of pig meat per year in five districts of the region.

LLC Resurs

Tambov Region

230.5

2011

2012

5

Commissioning in Pristensk Area for the first phase of a rearing farm for 20 000 pigs: 50 000 tonnes of pork/ year.

Agroindustrial holding Miratorg

Kursk Region

210

2010

2018

Name and brief project description

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Russian Federation - Meat sector review

Name and brief project description

Implementing company (holding)

Region

Investment, million USD

Starting year

Project at full capacity

JSC Bryansk Meat Processing Factory

Bryansk Region

116.7

2010

-

Investor - LLC UniversStroyluxe

Kursk Region

116.7

2010

2011

6

Construction in Vygonich Area of two pig farms of 300 000 heads, or 33-35 000 tonnes/ year. The complex will include four commercial farms with 2.5 000 pigs each, a breeding farm for 1.8 000 pigs, a feed mill with a production capacity of 30 tonnes/ hour and a selectionhybrid center.

7

Construction of pig farm in the Fatezhsk Area for 112 000 heads/year with a complete production cycle, including slaughter, prime processing and a feed mill. Target capacity: 50 000 tonnes of pork.

8

Construction of swine complex for 250 000 pigs in Yetkulsky, Chebarkulsky and Nyazeptrovsk Districts. Payback period is expected not to exceed five years.

Romkor Corporation

Chelyabinsk Region

> 100

2010

2015

9

Construction of the pig farm Glebovsky for 52 000 pigs. The complex will also include a feed mill and other manufacturing.

Dmitrova gora (Agropromkomplektatsiya)

Tver Region

100

2010

2013

10

Construction of the pig farm East-Siberian, for 12.900 tonnes of meat in live weight/ year. Project payback period is estimated to be eight years.

CJSC Siberian agrogroup

Buryat Republic

100

2011

2013

175

Name and brief project description

Implementing company (holding)

Region

Investment, million USD

Starting year

Project at full capacity

CJSC Siberian agrogroup

Buryat Republic

86.6

2011

-

11

Construction of a pig farm for 70 000 heads in Zaigraivsk District. Production capacity is 13 000 tonnes of pork meat in live weight/ year; the payback period is eight years.

12

Increasing the capacity of pig farm in order to reach the level of 27 000 heads/year, or 37.5 000 tonnes of meat in live weight.

Uralsky (affiliate of CJSC Siberian agrogroup)

Sverdlovsk Region

50-66.7

2011

2012

13

Opening of a new pig complex for 5250 pigs in Budanovka Village in Zolotukhinsky Area with a capacity of 14 500 tonnes/year.

OJSC Global Eco

Kursk Region

64

2011

2012

14

Finalizing the fifth pig farm Troparevo that has a capacity 55 000 pigs/year.

JSC Ostankino Meat Processing

Moscow Region

15

-

2009

15

Construction of pig complex in Bogdanovich and Kamyshlovo Areas: two independent farms, each of which includes a reproducer, rearing and feed grow. Construction started in 2007. Capacity: 25 000 tonnes of meat/year.

CJSC Pig farm Uralsky (affiliate of CJSC Siberian agrogroup)

Sverdlovsk Region

143.3

2007

2009

176

Russian Federation - Meat sector review

Implementing company (holding)

Region

Investment, million USD

Starting year

Project at full capacity

16

Construction of two pig complexes in Karachai District. The complexes can hold 63 000 pigs and 2 530 sows and the slaughterhouse has a capacity of 20 tonnes/ shift.

LLC Bryansk Meat Processing Complex» (TsarMyaso Group)

Bryansk Region

-

2007

2012

17

Completion of the pig farm Zhuravskii, and 1 200 gilts were delivered to reproducer.

Agroindustrial holding Miratorg

Belgorod Region

56.7

-

2009

18

Completion of the last, fourth area of the pig complex in Millerovo District, which has a capacity of 11 000 tonnes of pork/year.

GC Russian Agroindustrial Trust

Rostov Region

53.3

2008

2011

Name and brief project description

Source: Authors’ presentation based on information obtained from market operators, companies’ announcements, development programmes, etc.

177

Annex 11 - Recent investments in the beef sector

Implementing company (holding)

Region

Investment, million USD

Starting year

Project at full capacity

1

Phase one of beef production and processing project completed in 2010. Payback period is 15 years. In December 2011, four new farms in Trubchevsk and Pochep Areas were populated with 14 000 Aberdeen-Angus breeding cattle. The total volume of six cattle farms accounts to 20 000 heads. By 2014, Agro-industrial the project will comprise 37 holding Miratorg farms with 274 000 animals, 112 000 of which will be the breeders. Feedlots will allow breeding up to 37 000 animals. Production capacity of the project is 48 000 tonnes of meat/ year. Slaughter and primary processing facilities will be built in 2013-2014. The project requires 150 000 hectares of land.

Bryansk Region

800

2009

2014

2

Construction of the first of a set of five rearing complexes for 5 860 heads of beef cattle.

Agro-holding Marble Meat of Kalmykia

Republic of Kalmykia

133

2011

3

Construction of a farm for beef production for 4 000 cows or 2 000 tonnes of beef.

JSC Maximovsky Meat Processing Complex

Tambov Region

66.1

2010

Name and brief project description

178

2013

Russian Federation - Meat sector review

Name and brief project description

4

Construction of a dairy and meat complex for 600 heads of cattle in Goreloe. In 2012 there was an annual production of 4 000 tonnes of milk and 180 tonnes of meat.

5

A beef cattle breeding farm, started in 2007 in the Kaluga on 3 000 hectares, produced 1.1 thousand heads in 2012 and 2 500 heads in 2013. The total population is projected to reach 2 – 25 000 bulls in 2016. The project uses Hereford and Simmental breeds, mainly from Germany and Russian Federation.

6

Expansion of marbled beef project in Hlevensky District.

7

Establishment of new beef cattle farms in Pytalovo Area.

8

1.4 000 heads of Aberdeen Angus and Hereford breeders from the United States were delivered at the end of 2010 to the farm Stevenson Sputnik. 1.8 thousand head were delivered to LLC Breeding Farm Angus-Shestakovo in fall 2011.

Implementing company (holding)

Region

Investment, million USD

Starting year

Project at full capacity

CJSC Agrocomplex TAmbovsky

Tambov Region

33.3

2011

2013

LLC Nesterovka

Kaluga Region

EUR 4 million

2007

2013

LLC Allbeef

Lipetsk Region

No data

2010

2011

LLC Gerefordcenter

Pskov Region

Around 20

2011

2013

LLC StevensonVoronezh Sputnik and LLC Region Angus

38

2010

2012

Source: Authors’ presentation based on information obtained from market operators, companies’ announcements, development programmes, etc.

179

180

1 115

510

2 187.82

1 051714

1287349

816.96

Export (value, thousand USD)

Export (quantity, tonne)

Export (price, USD/tonne)

Import (value, thousand USD)

Import (quantity, tonne)

Import (price, USD/tonne)

2007

1 099.98

1 217 587

1 339 318

2 015.56

2 813

5 671

2008

1 122.04

948 459

1 064212

1 046.74

5 896

6 172

2009

Calendar year

1326.51

650 432

862 807

925.12

186 55

172 58

2010

1417.68

403 524

572 068

748.83

18806

140 82

2011

141 7.68

403 524

572 068

748.83

18806

140 82

12/2011

1505.27

469 561

706 814

718.35

153 86

110 53

12/2012

Year to date

6.18

16.37

23.55

-4.07

-18.18

-21.51

Percent change

Calendar Year: 2007-2011, Year to Date: 12/2011 & 12/2012

Commodity: 0207, Meat and Edible Offal of Poultry (Chickens, Ducks, Geese, Turkeys And Guineas), Fresh, Chilled or Frozen

The Russian Federation’s Yearly Statistics

Table 58: Foreign trade statistics: poultry, yearly, 2007-2012

Annex 12 - Foreign meat trade

Poultry

0

2 161

3 123

22 463

1 261

Ukraine

Hungary

Argentina

Belgium

Denmark

3 751

49 694

France

Finland

71 621

245 694

Brazil

Germany

634 887

1 051 714

2007

United States

World

Partner country

Import

3 390

3 749

15 018

6 321

3 630

0

58 179

95 688

294 935

835 895

1 339 318

2008

1 075

7 423

6 192

6 744

5 482

0

59 967

97 486

131 719

733 133

1 064 212

2009

Calendar year

5 145

25 697

11 890

9 811

14 907

165

40 329

123 868

257 693

331 208

862 807

2010

3 922

4 723

5 116

6 824

7 143

11 417

31 736

32 442

150 010

307 044

572 068

2011

3 922

4 723

5 116

6 824

7 143

11 417

31 736

32 442

150 010

307 044

572 068

12/2011

7 392

979

9 057

19 477

10 580

68 937

35 466

10 334

156 008

338 312

706 814

12/2012

Year to date

88.49

-79.26

77.04

185.41

48.12

503.8

11.75

-68.15

4

10.18

23.55

Percent change

Value in thousand USD

Russian Federation - Meat sector review

181

182

0

0

0

0

0

0

0

0

Abkhazia

China

Tajikistan

Azerbaijan

Svalbard & Jan Mayen

Panama

Norway

Belize

0

0

0

0

13

6

0

650

120

0

5 671

2008

0

0

0

0

0

199

0

2 486

1 428

679

6 172

2009

Calendar year

Source: Customs Committee of the Russian Federation and GTIS.

24

Viet Nam

1 115

0

2007

Hong Kong

World

Partner country

Export

0

0

0

0

0

264

45

1 823

4 814

6 083

17 258

2010

0

0

1

38

87

204

257

1 948

4 661

6 886

14 082

2011

0

0

1

38

87

204

257

1 948

4 661

6 886

14 082

12/2011

0

0

0

0

0

3

0

3 224

1 540

5 491

11 053

12/2012

Year to date

-100

-100

-100

-100

-100

-98.39

-100

65.49

-66.97

-20.25

-21.51

Percent change

Value in thousand USD

0

01/2009 02/2009 03/2009 04/2009 05/2009 06/2009 07/2009 08/2009 09/2009 10/2009 11/2009 12/2009 01/2010 02/2010 03/2010 04/2010 05/2010 06/2010 07/2010 08/2010 09/2010 10/2010 11/2010 12/2010 01/2011 02/2011 03/2011 04/2011 05/2011 06/2011 07/2011 08/2011 09/2011 10/2011 11/2011 12/2011 01/2012 02/2012 03/2012 04/2012 05/2012 06/2012 07/2012 08/2012 09/2012 10/2012 11/2012 12/2012

0 01/2009 02/2009 03/2009 04/2009 05/2009 06/2009 07/2009 08/2009 09/2009 10/2009 11/2009 12/2009 01/2010 02/2010 03/2010 04/2010 05/2010 06/2010 07/2010 08/2010 09/2010 10/2010 11/2010 12/2010 01/2011 02/2011 03/2011 04/2011 05/2011 06/2011 07/2011 08/2011 09/2011 10/2011 11/2011 12/2011 01/2012 02/2012 03/2012 04/2012 05/2012 06/2012 07/2012 08/2012 09/2012 10/2012 11/2012 12/2012

Russian Federation - Meat sector review

Figure 65: Foreign trade statistics: poultry imports, monthly, 2009-2012 300 000 1 800

250 000 1 600

200 000 1 400

1 200

150 000 1 000

100 000 800

600

50 000 400

200

Import value, thousand USD (left axis)

Export value, thousand USD (left axis) Import quantity, tonnes (left axis)

3 500

3 000

500

Export quantity, tonnes (left axis) 0

Import price, USD/ tonne (right axis)

Source: Customs Committee of the Russian Federation and GTIS.

Figure 66: Foreign trade statistics: poultry export, monthly, 2008-2012

2 500

2 500 2 000

2 000 1 500

1 500

1 000 1 000

500

0

Export price, USD/ tonne (right axis)

Source: Customs Committee of the Russian Federation and GTIS.

183

184

2 436

671 739

Import (quantity, tonne)

Import (price, USD/ tonne)

1 636 651

Import (value, thousand USD)

2 148

90

Export (quantity, tonne)

Export (price, USD/ tonne)

194

Export (value, thousand USD)

2007

2 782

790 955

2 200 464

3 232

60

194

2008

2 927

635 670

1 860 679

3 123

162

505

2009

Calendar year

Calendar Year: 2007-2011, Year to Date: 12/2011 & 12/2012

Commodity: 0203, Meat of Swine (Pork), Fresh, Chilled or Frozen

The Russian Federation’s Yearly Statistics

3 001

640 626

1 923 034

2 677

120

320

2010

Table 59: Foreign trade statistics: pork meat, yearly, 2007-2012

3 211

656 590

2 108 704

6 170

46

287

2011

3 211

656 590

2 108 704

6 170

46

287

12/2011

3 341

720 241

2 406 649

4 619

33

151

12/2012

Year to date

4.04

9.69

14.13

-25.13

-29.62

-47.3

Percent change

Pork

39 426

Belgium

23 686

0

Ukraine

Ireland

37 611

180 388

United States

France

218 595

Denmark

73 199

159 079

Canada

Spain

97 329

698 861

Brazil

Germany

1 636 651

2007

World

Partner country

Import

34 775

45 559

0

88 437

102 549

435 878

178 763

260 368

189 302

697 029

2 200 464

2008

71

40 977

0

70 784

82 705

298 996

195 117

105 416

232 696

769 404

1 860 679

2009

Calendar year

22 444

44 157

1 971

86 559

96 121

177 738

222 913

178 006

316 234

712 722

1 923 034

2010

46 155

51 311

57 132

96 631

173 554

186 676

260 034

339 333

353 079

429 934

21 08 704

2011

46 155

51 311

57 132

96 631

173 554

186 676

260 034

339 333

353 079

429 934

2 108 704

12/2011

48 648

44 539

89 978

67 615

203 959

292 692

213 490

565 785

302 686

392 951

2 406 649

12/2012

Year to date

5.4

-13.2

57.49

-30.03

17.52

56.79

-17.9

66.73

-14.27

-8.6

14.13

Percent change

Value in thousand USD

Russian Federation - Meat sector review

185

186

0

0

Abkhazia

Kazakhstan

0.086

0

0.086

2008

30.885

0

30.885

2009

Calendar year

Source: Customs Committee of the Russian Federation and GTIS.

0

2007

World

Partner country

Export

25.985

4.289

30.274

2010

0

0

0

2011

0

0

0

12/2011

0

3.569

3.569

12/2012

Year to date

n/a

n/a

n/a

Percent change

Value in thousand USD

60 80 20 0

01/2009 02/2009 03/2009 04/2009 05/2009 06/2009 07/2009 08/2009 09/2009 10/2009 11/2009 12/2009 01/2010 02/2010 03/2010 04/2010 05/2010 06/2010 07/2010 08/2010 09/2010 10/2010 11/2010 12/2010 01/2011 02/2011 03/2011 04/2011 05/2011 06/2011 07/2011 08/2011 09/2011 10/2011 11/2011 12/2011 01/2012 02/2012 03/2012 04/2012 05/2012 06/2012 07/2012 08/2012 09/2012 10/2012 11/2012 12/2012

0 01/2009 02/2009 03/2009 04/2009 05/2009 06/2009 07/2009 08/2009 09/2009 10/2009 11/2009 12/2009 01/2010 02/2010 03/2010 04/2010 05/2010 06/2010 07/2010 08/2010 09/2010 10/2010 11/2010 12/2010 01/2011 02/2011 03/2011 04/2011 05/2011 06/2011 07/2011 08/2011 09/2011 10/2011 11/2011 12/2011 01/2012 02/2012 03/2012 04/2012 05/2012 06/2012 07/2012 08/2012 09/2012 10/2012 11/2012 12/2012

Russian Federation - Meat sector review

Figure 67: Foreign trade statistics: pork meat imports, monthly, 2009-2012 300 000 4 000

250 000 3 500

200 000 3 000

2 500

150 000 2 000

100 000 1 500

50 000 1 000

500

Import value thousand USD (left axis)

Export value thousand USD (left axis) Import price USD/tonne (right axis)

200 180 160 140 120 100 80

Export price USD/tonne (right axis) 0

Import quantity tonne (left axis)

Source: Customs Committee of the Russian Federation and GTIS.

Figure 68: Foreign trade statistics: pork meat exports, monthly, 2009-2012 12 000

10 000

8 000

6 000

4 000

2 000

0

Export quantity tonnes (left axis)

Source: Customs Committee of the Russian Federation and GTIS.

187

188

712 812

2 383.1

Import (price, USD/tonne)

1 698 705.944

2 836.5

11

31.471

Import (quantity, tonne)

Import (value, thousand (USD)

Export (price, USD/tonne)

Export (quantity, tonne)

Export (value, thousand USD)

2007

4 335.23

86

371.659

2009

3 252.09

791 159 3 517.48

62 4077

2 572 922.413 2 195 178.435

2 495.57

90

224.08

2008

Calendar year

Calendar Year: 2007-2011, Year to Date: 12/2011 & 12/2012

Commodity: 0202, Meat of Bovine Animals, Frozen

The Russian Federation’s Yearly Statistics

3 419.07

606 083

2 072 237.098

2 617.51

2

4.366

2010

2011

3 913.28

566 545

2 217 048.923

5 185.27

28

147.426

Table 60: Foreign trade statistics: bovine meat frozen, yearly, 2007-2012

3 913.28

566 545

2 217 048,92

5 185.27

28

147,426

12/2011

4 418.83

584 615

2 583 316.18

7 308.71

16

115.022

12/2012

Year to date

12.92

3.19

16.52

40.95

-44.65

-21.98

Percent change

Beef

7 608.095

Italy

92 926.361

14 427.712

Germany

Ukraine

259 401.483

Argentina

0

Mexico

157 187.371

Paraguay

0

8 219.121

Australia

United States

50 290.68

1 074 881.155

Brazil

Uruguay

1 698 705.944

2007

World

Partner country

Import

62 108.311

27 091.809

23 882.894

212 176.375

0

71 853.878

269 676.366

227 217.011

262 859.416

1 344 138.619

2 572 922.413

2008

59 111.227

3 096.221

6 332.394

470 031.225

0

1 1622.925

16 1321.84

59 786.534

226 239.527

1 173 074.819

2 195 178.435

2009

Calendar year

43 208.884

42 775.113

55 370.667

113 489.252

10 541.157

87 875.951

210 740.807

148 384.445

262 139.18

972 393.667

2 072 237.098

2010

34 933.609

39 466.235

41 463.002

56 549.995

88 242.631

163 669.743

182 910.782

239 471.504

288 561.237

920 217.661

2 217 048.923

2011

34933.609

39 466.235

41 463.002

56 549.995

88 242.631

163 669.743

182 910.782

239 471.504

288 561.237

920 217.661

2 217 048.92

12/2011

24952.126

22 836.044

15 436.093

36 822.137

118 188.193

220 022.267

546 990.862

122 937.282

277 565.953

109 6487.5

2 583 316.18

12/2012

Year to date

-28.57

-42,14

-62.77

-34,89

33.94

34.43

199.05

-48.66

-3.81

19.16

16.52

Percent change

Value in thousand USD

Russian Federation - Meat sector review

189

190

0

0

0

Denmark

Georgia

Germany

0

0

Netherlands

Poland

72.298

70.816

0.233

18.414

0

0

2 397

0

0

0

224.08

2008

62.051

0

0

105 317

0

139.68

0

0

0

0

371.659

2009

Calendar year

Source: Customs Committee of the Russian Federation and GTIS.

0

Korea, South

31.471

0

Belize

Kazakhstan

0

Panama

31.471

0

2007

South Ossetia

World

Partner country

Export

0

0

0

4 366

0

0

0

0

0

0

4 366

2010

0

0

0

0

0

0

0

0.194

0.589

146.643

147.426

2011

0

0

0

0

0

0

0

0.194

0.589

146.643

147.426

12/2011

0

0

0

0

14.708

0

0

0

0

55.685

115.022

12/2012

Year to date

n/a

n/a

n/a

n/a

n/a

n/a

n/a

-100

-100

-62.03

-21.98

Percent change

Value in thousand USD

Russian Federation - Meat sector review

Figure 69: Foreign trade statistics: bovine meat frozen imports, monthly, 2009-2012 5 000

350 000

4 500

300 000

4 000

250 000

3 500

200 000

3 000

150 000

2 000 1 500

100 000

1 000

50 000

500 01/2009 02/2009 03/2009 04/2009 05/2009 06/2009 07/2009 08/2009 09/2009 10/2009 11/2009 12/2009 01/2010 02/2010 03/2010 04/2010 05/2010 06/2010 07/2010 08/2010 09/2010 10/2010 11/2010 12/2010 01/2011 02/2011 03/2011 04/2011 05/2011 06/2011 07/2011 08/2011 09/2011 10/2011 11/2011 12/2011 01/2012 02/2012 03/2012 04/2012 05/2012 06/2012 07/2012 08/2012 09/2012 10/2012 11/2012 12/2012

0

Import value thousand USD (right axis)

Import quantity tonnes (right axis)

0

Import price USD/tonne (left axis)

Source: Customs Committee of the Russian Federation and GTIS.

Figure 70: Foreign trade statistics: bovine meat frozen exports, monthly, 2009-2012

160 140 120 100 80 60 40 0

01/2009 02/2009 03/2009 04/2009 05/2009 06/2009 07/2009 08/2009 09/2009 10/2009 11/2009 12/2009 01/2010 02/2010 03/2010 04/2010 05/2010 06/2010 07/2010 08/2010 09/2010 10/2010 11/2010 12/2010 01/2011 02/2011 03/2011 04/2011 05/2011 06/2011 07/2011 08/2011 09/2011 10/2011 11/2011 12/2011 01/2012 02/2012 03/2012 04/2012 05/2012 06/2012 07/2012 08/2012 09/2012 10/2012 11/2012 12/2012

20

Export value thousand USD (left axis)

Export quantity tonnes (left axis)

10 000 9 000 8 000 7 000 6 000 5 000 4 000 3 000 2 000 1 000 0

Export price USD/tonne (right axis)

Source: Customs Committee of the Russian Federation and GTIS.

191

192

21 133

3 352.9

Import (quantity,tonne)

Import (price, USD/ tonne)

0

Export (price, USD tonne)

70 858.4

0

Export (quantity, tonne)

Import (value, thousand USD)

0

Export (value, thousand USD)

2007

4 506.54

19 571

88 196.63

1 954.55

0

0.086

2008

Calendar Year: 2007-2011, Year to Date: 12/2011 & 12/2012

4 951.23

11 765

58 250.53

6 881.68

4

30.885

2009

Calendar year

Commodity: 0201, Meat of Bovine Animals, Fresh or Chilled

The Russian Federation’s Yearly Statistics

4 969.1

19 748

98 128.18

6 806.2

4

30.274

2010

0

0

0

2011

5 596.8

35 732

199 983.47

Table 61: Foreign trade statistics: bovine meat fresh or chilled, yearly, 2007-2012

5 596.8

35 732

199 983.47

0

0

0

12/2011

5 309.16

41 165

218 550.3

4 406.57

1

3.569

12/2012

Year to date

-5.14

15.2

9.28

n/a

n/a

n/a

Percent change

Brazil

33.784

30.346

0

Denmark

Austria

0

Moldova

3 811.043

Australia

0

24 225.95

Ukraine

Poland

24 225.95

Germany

0

38 661.11

Lithuania

United States

70 858.4

2007

World

Partner country

Import

292.383

5.046

1 428.414

0

1 026.115

2 889.336

8 849.542

0

27 422.13

45 958.15

88 196.63

2008

2009

79.511

10.26

0

43.757

81.797

1 504.434

9 531.085

150.488

15 103.15

31 433.39

58 250.53

Calendar year

304.917

377.369

0

1 274.492

6 300.07

63 83.922

14 389.18

663.748

25 213.08

42 116.19

98 128.18

2010

2 188.181

2 287.889

4 202.246

8 473.478

12 902.914

13 101.351

13 615.255

22 987.652

36 224.399

80 600.207

199 983.47

2011

2 188.181

2 287.889

4 202.246

8 473.478

12 902.914

13 101.351

13 615.255

22 987.652

36 224.399

80 600.207

199 983.47

12/2011

13 805.499

770.685

7 289.031

8 230.08

2 3164.72

16 935.466

18 257.393

40 542.403

14 058.928

68 361.823

218 550.3

12/2012

Year to date

530.91

-66.31

73.46

-2.87

79.53

29.27

34.1

76.37

-61.19

-15.18

9.28

Percent change

Value in thousand USD

Russian Federation - Meat sector review

193

194

0

0

0

0

0

0

0

0

64

Svalbard & Jan Mayen

Panama

Belize

Norway

Azerbaijan

Belgium

Denmark

Georgia

Germany

84

0

0

0

0

0

0

0

0

0

194

2008

0

17

91

58

0

0

0

0

0

61

505

2009

Calendar year

Source: Customs Committee of the Russian Federation and GTIS.

0

194

2007

Abkhazia

World

Partner country

Export

147

0

0

0

0

3

0

0

0

48

320

2010

0

0

0

0

0

0

1

3

7

276

287

2011

0

0

0

0

0

0

1

3

7

276

287

12/2011

0

0

0

0

0

0

0

0

0

73

151

12/2012

Year to date

n/a

n/a

n/a

n/a

n/a

-100

-100

-100

-100

-73.64

-47.3

Percent change

Value in thousand USD

Russian Federation - Meat sector review

Figure 71: Foreign trade statistics: bovine meat fresh or chilled imports, monthly, 2009-2012 7 000

25 000

6 000

20 000

5 000 15 000

4 000 3 000

10 000

2 000

5 000

1 000 01/2009 02/2009 03/2009 04/2009 05/2009 06/2009 07/2009 08/2009 09/2009 10/2009 11/2009 12/2009 01/2010 02/2010 03/2010 04/2010 05/2010 06/2010 07/2010 08/2010 09/2010 10/2010 11/2010 12/2010 01/2011 02/2011 03/2011 04/2011 05/2011 06/2011 07/2011 08/2011 09/2011 10/2011 11/2011 12/2011 01/2012 02/2012 03/2012 04/2012 05/2012 06/2012 07/2012 08/2012 09/2012 10/2012 11/2012 12/2012

0

Import value thousand USD (left axis)

Import quantity tonnes (left axis)

0

Import price USD/tonnes (right axis)

Source: Customs Committee of the Russian Federation and GTIS.

Figure 72: Foreign trade statistics: bovine meat fresh or chilled exports, monthly, 2009-2012 30

8 000

25

7 000 6 000

20

5 000

15

4 000 3 000

10

2 000

0

01/2009 02/2009 03/2009 04/2009 05/2009 06/2009 07/2009 08/2009 09/2009 10/2009 11/2009 12/2009 01/2010 02/2010 03/2010 04/2010 05/2010 06/2010 07/2010 08/2010 09/2010 10/2010 11/2010 12/2010 01/2011 02/2011 03/2011 04/2011 05/2011 06/2011 07/2011 08/2011 09/2011 10/2011 11/2011 12/2011 01/2012 02/2012 03/2012 04/2012 05/2012 06/2012 07/2012 08/2012 09/2012 10/2012 11/2012 12/2012

5

Export value thousand USD (left axis)

Export price USD/tonne (right axis)

1 000 0

Export quantity tonnes (left axis)

Source: Customs Committee of the Russian Federation and GTIS.

195

196

307 163

1 075.1

Import (price, USD/tonne)

330 232.581

1 208.26

62

74.446

Import (quantity, tonne)

Import (value, thousand USD)

Export (price, USD/tonne)

Export (quantity, tonne)

Export (value, thousand USD)

2007

1 311.93

321 352

421 592.642

1 325.39

156

206.518

2008

1 358.8

297 762

404 600.368

1 362.68

227

309.485

2009

Calendar year

Calendar Year: 2007-2011, Year to Date: 12/2011 & 12/2012

1 389.72

291 833

405 565.234

1 019.85

148

151.166

2010

1 514.07

291 005

440 603.146

1 385.81

874

1 211.449

2011

1 514.07

291 005

440 603.146

1 385.81

874

1 211.449

1 681.16

273 458

459 726.872

1 519.26

1 944

2 954.048

12/2012

Year to date 12/2011

Commodity: 0206, Edible Offal of Bovine Animals, Swine, Sheep, Goats, Horses, etc. Fresh, Chilled or Frozen

The Russian Federation’s Yearly Statistics

Table 62: Foreign trade statistics: edible offal, yearly, 2007-2012

11.04

-6.03

4.34

9.63

122.43

143.84

Percent change

Offal

28 939.877

31 776.832

21 311.185

22 207.306

13 323.389

21 697.424

8 602.611

United States

Denmark

Spain

Australia

Canada

France

Italy

3 507.372

40 940.604

Argentina

Austria

47 961.085

330 232.581

2007

Germany

World

Partner country

Import

6 787.624

14 539.731

25 631.807

15 031.173

28 488.923

34 153.477

17 711.199

74 406.175

44 447.592

85 031.813

421 592.642

2008

7 371.114

9 158.255

20 775.056

17 314.534

17 959.482

20 078.982

16 124.033

70 262.589

68 155.057

94 082.841

404 600.368

2009

Calendar year

10 621.983

11 470.625

17 180.58

19 005.38

20 564.965

25 924.618

17 092.545

61 495.913

51 469.896

85 470.854

405 565.234

2010

16 227.321

17 027.217

18 204.489

18 892.108

24 045.793

31 626.347

34 825.021

49 288.394

54 485.621

75 125.3

440 603.146

2011

16 227.321

17 027.217

18 204.489

18 892.108

24 045.793

31 626.347

34 825.021

49 288.394

54 485.621

751 25.3

440 603.146

12/2011

14 739.109

18 570.169

16 848.929

23 361.818

23 350.687

47 307.158

29 146.671

62 317.588

72 836.826

60 241.875

459 726.872

12/2012

Year to date

-9.17

9.06

-7.45

23.66

-2.89

49.58

-16.31

26.43

33.68

-19.81

4.34

Percent change

Value in thousand USD

Russian Federation - Meat sector review

197

198

0

0

0

0

Svalbard & Jan Mayen

Thailand

Unidentified Country

United States

0

29.794

0

0

0

0

0

0

0

0

0

0

0

206.518

2008

14.274

0

0

42.689

71.08

1.426

0

0

0

0

309.485

2009

Calendar year

Source: Customs Committee of the Russian Federation and GTIS.

Poland

Netherlands

Lithuania

32.998

0

Vietnam

Italy

0

74.446

2007

Hong Kong

World

Partner country

Export

0

0

7.614

0

0

0

0

0

30.291

0

151.166

2010

0

0

0

0

0

0

0

2.893

27.026

1 181.53

1 211.449

2011

0

0

0

0

0

0

0

2.893

27.026

1 181.53

1 211.449

12/2011

0

0

0

0

0

5.598

20.254

0

0

2 927.272

2 954.048

12/2012

Year to date

n/a

n/a

n/a

n/a

n/a

n/a

n/a

-100

-100

147.75

143.84

Percent change

Value in thousand USD

0

01/2009 02/2009 03/2009 04/2009 05/2009 06/2009 07/2009 08/2009 09/2009 10/2009 11/2009 12/2009 01/2010 02/2010 03/2010 04/2010 05/2010 06/2010 07/2010 08/2010 09/2010 10/2010 11/2010 12/2010 01/2011 02/2011 03/2011 04/2011 05/2011 06/2011 07/2011 08/2011 09/2011 10/2011 11/2011 12/2011 01/2012 02/2012 03/2012 04/2012 05/2012 06/2012 07/2012 08/2012 09/2012 10/2012 11/2012 12/2012

0 01/2009 02/2009 03/2009 04/2009 05/2009 06/2009 07/2009 08/2009 09/2009 10/2009 11/2009 12/2009 01/2010 02/2010 03/2010 04/2010 05/2010 06/2010 07/2010 08/2010 09/2010 10/2010 11/2010 12/2010 01/2011 02/2011 03/2011 04/2011 05/2011 06/2011 07/2011 08/2011 09/2011 10/2011 11/2011 12/2011 01/2012 02/2012 03/2012 04/2012 05/2012 06/2012 07/2012 08/2012 09/2012 10/2012 11/2012 12/2012

Russian Federation - Meat sector review

Figure 73: Foreign trade statistics: edible offal imports, monthly, 2009-2012 60 000 2 000

50 000 1 800

1 600

40 000 1 400

30 000 1 200

1 000

20 000 800

600

10 000 400

Import value thousand USD (left axis)

Export value thousand USD (left axis) Import quantity tonnes(left axis)

600

500

400

300

200

100

Export price USD/tonne (right axis)

0

200

Import price USD/tonnes (right axis)

Source: Customs Committee of the Russian Federation and GTIS.

Figure 74: Foreign trade statistics: edible offal exports, monthly, 2009-2012

4 500

4 000

3 500

3 000

2 500

2 000

1 500

1 000

500

0

Export quantity tonnes (left axis)

Source: Customs Committee of the Russian Federation and GTIS.

199

Russian Federation – Meat sector review

Russian Federation Meat sector review

FAO Investment Centre

Russian Federation: Meat sector review Report No. 15 - July 2014

Report No. 15

Please address questions and comments to: Investment Centre Division Food and Agriculture Organization of the United Nations (FAO) Viale delle Terme di Caracalla – 00153 Rome, Italy [email protected] http://www.fao.org/investment/en

I3533E/1/11.13

COUNTRy HIGHLIGHTS