According to the Russian Union of Feed Producers, in 2011, the Russian feed market increased by 10 percent to 18 million metric tons, compared with 16.4 million metric tons in 2010.* Russia’s feed market has been steadily growing since the early 2000s with an average growth rate of about 10 per year. There has been one exception; in 2009, as a result of the global recession, the increase was only 5 percent to 6 percent. Nonetheless, over the past three years the Russian feed market has increased by more than 27 percent.
At the same time, there are challenges facing the industry in the forms of technology and production costs. Despite these, Russian analysts are confident that feed production will increase significantly in the years ahead.
During Soviet times, the annual volume of feed production in Russia was estimated at about 50 million metric tons. However, after the collapse of the USSR, production volume sharply declined, reaching its lowest point in the history of the country at 8.7 million metric tons in 1998. Since that time the industry has started to develop, mainly thanks to the development of domestic poultry production, which is still booming.
Russia’s share of imports and exports remains negligible, not exceeding 1.5 percent to 2 percent and 0.05 percent, respectively, of the whole market.
Of the country’s total feed production, about 60 percent was for poultry feed, 25 percent was for pig feed, 13 percent was for cattle feed, while the remaining 3 percent was for other types of feed (horses, fish and rabbits).
Concentration of production
The majority of feed production in Russia is concentrated in the Central Federal District. In 2010, its share of total feed production in the country amounted to 37.5 percent (more than 6 million metric tons). Second place is occupied by the Siberian Federal District with a share of 19 percent (more than 3 million metric tons), while the Volga Federal District is third with 11.7 percent (1.9 million metric tons).
At the same time, the Belgorod region, a region in the Central Part of Russia, remains the leading Russian region in terms of annual feed production. Last year, total volume of production at the region’s enterprises amounted to 1.5 million metric tons of feed, which is three times higher than in 1990. Among the other leaders of feed production in Russia is the neighboring Belgorod Voronezh region and some others.
According to Valery Afanasiev, president of the Russian Union of Feed Producers, one of the major trends that is currently observed in the domestic feed market is its ongoing consolidation and integration with other segments of the local farming industry.
“The number of independent industry producers remains very small,” Afanasiev says. “The majority of Russian feed producers are unable to survive in the current business environment without integration with the farmers. In this regard, the majority of new feed mills are currently built within large-scale livestock and poultry farms. In addition to official production figures, there is also a need to take into account the ‘shadow’ segment of the industry, which is estimated at additional 4-8 million metric tons of feed per year.”
The "shadow" sector of the Russian feed industry is mainly comprised of unregistered feed enterprises, which offer quite a wide range, from feed mixtures to high-quality feed. In addition to production, the shadow sector also remains a large consumer of raw materials for feed production.
An excessive share of raw grain materials in feed remains another major feature of the Russian feed market. In EU countries, the share of raw grain materials is not more than 45 percent of total feed production. In Russia, this figure is estimated to be 70 percent to 75 percent. In addition, the share of meal and oil cakes in Russian feed is 334 times lower than in EU countries. This leads to a high dependence of Russia’s feed industry on the grain market.
Despite its relatively high growth rates, a number of challenges are seriously hampering the development of the Russian feed industry. One challenge is the low technological infrastructure of the majority of the industry’s enterprises due to a lack of funds. This prevents modernization as well as a lack of scientific basis for the industry.
As previously mentioned, a lack of raw materials also remains one of the most pressing problems for the Russian feed industry. According to the Russian Research Institute of Feeds, the demand for leguminous crops in Russia is estimated at 5 million metric tons, while the demand for oil cake and meal is estimated at 6 million metric tons. Most local experts believe that in order to solve this problem, there needs to be a change in the structure of planted areas, which is expected to be achieved through the introduction of a state regulatory system of sowing.
Experts also believe that the majority of Russian feed producers have become dependent on foreign suppliers of protein raw materials as well as vitamins, enzymes, amino acids and other drugs.
High production costs
In addition, further development of the industry is prevented by high production costs, in particular, electricity and gas. The situation is aggravated by the fact that the cost of electricity to produce 1 metric ton of feed in Russia is almost twice as high as it is in the EU or the U.S. In addition, tariffs for railway transportation are also steadily increasing.
Still, according to Tatyana Rybalova, an analyst of the Russian National Union of Milk Producers, despite numerous problems, feed production still remains a profitable business in Russia.
According to Rybalova, this is reflected by the accelerating expansion of foreigners into the industry, which takes place through the acquisition of existing local feed producers or the construction of their own plants from scratch.
Among non-Russian producers, the company with the most stable position in the Russian feed market is U.S.-based Cargill, which operates three plants with a total capacity of about 300,000 metric tons of feed per year. However, this is still significantly lower than the production volumes of Russian meat giant Miratorg, the leader in the market, which has an annual feed production estimated to be about 1 million metric tons per year.
Currently about 500 enterprises are involved in the production of feed in Russia. A significant number of these enterprises are small, and according to analysts’ forecasts, during the next few years many of them will leave the market or be acquired by larger players as the consolidation process in the Russian feed market continues.
Most Russian analysts believe that future development of the Russian feed market will mainly depend on the rate of implementation of existing state programs in the Russian poultry, pig and cattle industries. Successful implementation of these programs will contribute to an estimated five-fold increase in the market by 2020. This increase will be mainly achieved through an increase in domestic production while imports will remain at the same level.
*The Watt World Feed Panorama calculates production totals differently than the Russian Union of Feed Producers and offers slightly adjusted numbers.