Growth in Russia’s poultry sector forecast to slow

Russian broiler production in 2016 is set to reach 3.70 million metric tons (mmt) in 2016, according to a recent GAIN report from the Moscow office of the USDA Foreign Agricultural Service (FAS).

Russian broiler production in 2016 is set to reach 3.70 million metric tons (mmt) in 2016, according to a recent GAIN report from the Moscow office of the USDA Foreign Agricultural Service (FAS). This represents a 4 percent increase year-on-year but a slower pace of expansion than the 9 percent growth achieved over the previous 12 months.

Output by leading producers is expected to continue to expand in 2016, and domestic demand for broiler meat is stable. Production in 2015 is estimated at 3.55 mmt. FAS Moscow highlights indications that the Russian broiler meat market is becoming saturated, as evidenced by decreases in wholesale and consumer prices. Despite the growth in production and intensified competition among local producers, the risk of market over-saturation has lessened as several expansion projects have been put on hold due to the increased cost of borrowed capital, growing operational expenses and declining margins.

In 2016, Russia’s broiler meat consumption is expected to be 3.7 mmt, just 0.4 percent more than 2015. FAS Moscow reports that margins are being impacted by rising costs of production and price-sensitivity in demand, leading to greater consolidation in the sector and competition between producers.

Broiler meat prices are not expected to increase in 2016, so poultry will most likely remain the meat of choice both for struggling Russian households and for the meat processing industry, according to FAS Moscow.

The Ministry of Agriculture reported 34.9 percent annual growth in turkey production in 2015, to 205,000 metric tons (mt) live weight. Turkey competes with other meats for its share of declining meat consumption, and the growing popularity of turkey constrains stronger growth in demand for broiler meat in 2016. Pork prices in Russia fell markedly in 2015 and expected further declines could shift some demand from poultry back to pork.

FAS Moscow comments that Russia’s leading companies have modernized their poultry plants and have their own feed production units. This helps them to earn better-than-average margins and be more flexible in pricing than their smaller competitors but these activities can lead to repeated short-term wholesale price fluctuations.

Consolidation in the poultry industry is expected to intensify in the second half of 2016 as large producers consider acquiring smaller companies that are struggling with low poultry prices. Major companies that previously focused exclusively on crop production may begin to show interest in buying poultry businesses.

The Central Bank of Russia (CBR) expects a gradual improvement of the financial state of domestic producers in the second half of 2016.

In 2015, the Ministry of Agriculture published a list of 65 projects in the poultry sector totaling RUB64.9 billion (US$1.1 billion), which could increase production capacity as much as 455,000 mt liveweight by the end of this year. While industry leaders GAP Recourse, Miratorg and Produkty Pitania have confirmed that they will continue investment projects in broiler meat production this year, others have been put on hold or cancelled for financial reasons.

The Ministry of Agriculture also extended poultry production support programs last year but the sharp fall in crude oil prices have forced the government in Russia, as elsewhere, to consider steep spending cuts. For agriculture, spending may be cut as much as 10 percent.

Feed grain crops will most likely remain a positive factor in poultry industry performance in 2016.

Further consolidation in the sector increases biological risks, FAS Moscow notes. According to Rosptitzesouz (Russian Union of Poultry Producers), 10 companies account for 40 percent of the Russian broiler meat market production, and most of the country’s poultry is produced in 10 regions. As a result, outbreaks of avian diseases in the regions where large commercial poultry operations are located could impact the current production forecast. Cases of highly pathogenic avian influenza were recorded in 4 regions of Russia in 2015, all in wild birds.

Russia imports less, exports more poultry meat

Local products continue to replace imports, according to FAS Moscow. For the first 11 months of 2015, Russia imported 233,700mt broiler meat, 43 percent less than the same period of 2014. Top sources were Belarus (118,000 mt), followed by Brazil (82,300 mt), both of which increased their traded volumes with Russia from the previous year. Other suppliers were Turkey, Argentina, Kazakhstan and Ukraine.

Overall, Russian poultry meat imports are expected to drop due to the reduced value of the ruble, anticipated growth of domestic production, and the closure of the market to many trading partners for political and SPS reasons.

Russian exports of broiler meat increased over the same period – by 12.1 percent to 64,400mt. Almost half of this volume was destined for Kazakhstan. Ukraine, Kyrgyz Republic, Belarus and Abkhazia also received Russian chicken last year.

FAS Moscow forecasts that the weak ruble, restrictive trade policies, and competitive domestic products in 2016 could halve imports to 130,000mt from the estimated 260,000mt in 2015. Poultry exports to traditional Eurasian Economic Unionand new markets – for example, in the Middle East - may increase to as much as 70,000mt in 2016. However, sanitary issues may impede these exports, according to the report.

Broiler meat consumption

FAS Moscow forecasts Russian broiler meat consumption at 3.760 mmt, just 0.4 percent more than the 3.745 mmt estimated for 2015. The slowdown, which compares with 2.2 percent the previous year, is attributed to a decline in Russian gross domestic product (GDP) and hence disposable incomes.

Consumption of beef dropped significantly in 2015 with demand shifting to affordable sources of proteins, primarily poultry meat. This trend is expected to continue in 2016.

News from Russian poultry companies

In December of 2015, it was reported that Russian pork and sugar company, Ros Agro, was set to enter the poultry sector by purchasing Uralbroiler. Later, the company (previously known as Rusagro) announced it was unable to agree with the seller on the terms of the transaction and that the contract had been terminated, with all purchased assets returned to the seller.

The country’s largest meat and feed producer, Cherkizovo Group, announced recently the operational launch of a hatchery that will produce turkeys specially for the Russian market. The first batch of 30,000 Grade Maker hatching eggs from France have been imported from France and set in the company’s Tambov Turkey hatchery. With the eggs due to hatch this month, the first consignment of the special turkey meat is expected to be delivered to retail outlets and HoReCa in the fall. 

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