Sverdlovsk poultry industry – a win or a loss in the elimination game?

28.06.2013 — Analysis

Poultry keepers do not have much time to solve the problems that keep piling up. They are threatened with being ripped off by numerous competitors, WTO "ghosts", economic and natural disasters. The Sverdlovsk regional authorities are willing and ready to lend their shoulder to agrarians.

The winning formula does not seem to be a knotty problem in poultry farming – it is modernization. Smart investment brings good returns. The Chelyabinsk Region is a convincing example; it has outperformed the Middle Urals, producing twice as much poultry meat. At first, the South Ural poultry farmers secured their position, ranking third in poultry production in Russia, and leaped to the second line at the end of the previous year. The closed cycle they are using – from the forage resources to the high-level processing of products – helps to minimize the dependence of their business on external factors. The launching of a first-order breeding stock facility will allow the poultry farmers to stop importing parent flocks from other countries, which is number one problem of nearly the entire poultry farming in Russia.

In the meantime, the poultry keepers of the Sverdlovsk Region have to deal with a number of more pressing issues. What are they going to do to feed the flock? Feed cost is the largest single item in poultry production. The last year’s failed harvest resulted in a 2.5-fold increase in the prices for poultry feed, while the market "knocked" 20% off the price for chicken meat. The regional government took up immediate measures – broiler farms received subsidies at the rate of 4 rubles for one kilogram of a chicken’s live weight. Over five "resuscitation" months in 2013 the budgetary allocations amounted to 196.15 million rubles, though such measures cannot be seen as a cure-all solution.

In the Middle Urals, compound feed is produced by four companies and at three production facilities operating and owned by integrated poultry farms that satisfy their requirements only by 20%. Generally, even in fat years only 70 thousand tons out of 558 thousand tons of corn required by poultry farms were purchased from local agricultural producers! 88% of corn comes from outside producers. The dependence on external supplies of protein-rich feed reached one hundred percent.

Solving one problem will create another one. Where will the feed be stored? The feed mills can accommodate 203.5 thousand tons of corn and small grains, 32 thousand tons of grain-protein feeds and 14 thousand tons of ready-to-use products. The region will never have feed security if it does not increase storage capacities.

The feed delivery is another problem. Most of the feed producers have neither transportation vehicles nor rental possibilities; the extortionary railway rates put another spoke in wheel. This is another hindrance impeding the switchover to total mixed rations and eroding the profitability of operating businesses.

The optimum solution is a heavy-duty truck fleet operated by feed mills. It will help to save transport expenses, reduce shipping and handling losses, maintain quality of products. The Bogdanovich Feed Mill, OJSC, the Sverdlovsk Integrated Factory of Bread Products, OJSC, the Sverdlovskaya Integrated Poultry Factory, OJSC intend to acquire special-purpose motor vehicles.

The father in, the deeper. All integrated poultry farms need profound upgrading – the equipment is worn out by 55-65% on average. The main production facilities have been operating for 30-35 years.

When upgraded, the Reftinskaya Integrated Poultry Factory, OJSC, will be able to double its total poultry meat production by 2016 - from 45.6 to 80 thousand tons of live weight. Recently, the factory launched a new hatchery accommodating 44.5 million chickens. The four-tier cage facility for 163 thousand broilers will be soon put into operation. The slaughter, poultry dressing and deep processing equipment is being upgraded. In 2013, the investment in upgrading will amount to 1.1 billion rubles, with two thirds raised as borrowed capital.

The Reftinskaya Poultry Factory is concerned about building up its own feed resources. There are three options. Two of them entail expansion of the existing production facilities where one of the owners is the Sverdlovsk Region. They are the Bogdanovich Feed Mill, OJSC, and the Sverdlovsk Integrated Factory of Bread Products, OJSC. The long haul distance comes as a downside added up by the poultry meat producers’ inability to apply flexible control and adjustment of the quantities and composition of compound feeds. The third option is building of its own feed mill, but it needs sizeable investment. The poultry factory is ready to embark on the project if it is approved and supported by the regional government.

The Cabinet of Ministers resents haste, and all the participants of the chain are like links that cannot be removed without affecting the other links. "Feed resources are the key aspect of the further growth of the poultry factory and product cost reduction. However, today the Reftinskaya factory accounts for more than 50% of the sales of the Bogdanovichi Feed Mill, which is, by the way, the largest producer in our region (47.9% of the total output). If the business plans of the Bogdanovich enterprise can be revised and aimed at gradual substitution of consumers, I will lend support to the project of building a feed mill on the Reftinskaya factory grounds," Denis Pasler, the Prime Minister of the Middle Urals, said.

The Sverdlovskaya Integrated Poultry Factory sees its future quite clearly. The factory ranks among Russia’s five largest companies in the poultry sector, producing 70% of the total quantity of hen eggs in the region – about 860 million a year. However, the equipment that has operated 2-3 service lives needs replacement. Last year, the old cages accommodating 36 thousand chickens were replaced with eight-tier cages equipped with the latest air conditioning system and accommodating 145 thousand chicks. The problem relating to the environmentally challenging facilities is being solved gradually – half of them have been "moved" outside the populated settlements. It will take 5-7 years to complete the process.

The Sredneuralskaya Poultry Factory, LLC, is building a new hatchery with the estimated output of 20 million eggs. The hatchery will allow the factory to increase the hatching rate and discontinue outsourcing in egg hatching, which will result in annual cost reduction by 30 million rubles. The additional profit from sales of day-old chicks will total 4-6 million rubles a year. The factory is revamping three buildings accommodating broilers. As a result, the poultry meat production will increase by 1,620 tons estimated in live weight, while the chicken meat cost will decrease by 6-7 rubles for a kilogram of dressed weight. Besides, the factory is building another two broiler buildings, which means an increase of 1,300 tons in the annual chicken meat output. The construction is scheduled for completion this year. Head of the government D. Pasler point out that priority must be given to building of waste treatment facilities – the factory will have the expert examination of the project completed by the end of this summer. The Prime Minister commissioned detailed examination and discussion of the development strategy of the Sredneuralskaya factory with representatives of the Ministry for Administration of the State Property of the Sverdlovsk Region, the Ministry of Agricultural and Food Industry.

The Kirovgradskaya Integrated Poultry Factory, a member of the Severnaya Agrofirm, OJSC, is going through difficult times. Lately, the factory has had to deal with a conflict situation stirred up by the employees, instead of focusing on the upgrading process. Yuri Korendyuk, the legendary director, who captained the factory from 1985 to 2007, compared the situation with the stormy 1990s: "The employees wanted more money. The dilemma was either we are going to increase the salary and lose the factory in a year or one year and a half or we will keep working, accepting the unchanged lower wages and resulting difficulties. The employees organized a revolutionary group. Part of the employees supported me and through their efforts we survived and did not lose the factory".

The "in-fighting" plays into the hands of poultry keepers from neighboring regions. "There is strong competition between our factory and the Chelyabinsk poultry producers,” Nikolai Kosenko, the deputy director of the Kirovgradskaya Poultry Factory, explains. “Previously, we sold our poultry for 82 rubles. Today, the Chelyabinsk producers are offering their poultry for 66 rubles, and our product cost is 70 rubles. The production facilities must be renovated and upgraded to remain competitive."

The regional authorities have got involved in settlement of the conflict. The officials of the Ministry of Agricultural and Food Industry think that the poultry factory has good future prospects. The investment in technological upgrading has amounted to 100 million rubles by the moment. Gas pipelines have been laid to all the hen houses; half of the facilities have been switched over to gas heating.

The Sverdlovsky Breed Poultry Plant, OJSC, deserves special attention. It is Russia’s only selection and genetics center working with egg cross breeding; it accounts for 10% of the world laying hen market. The plant supplies pedigree chicks to poultry factories and farms operating in the egg sector of Russia, Ukraine, Kazakhstan, Mongolia and other countries. Recently, the plant has launched a hatchery accommodating 10 million eggs annually. The plant "caught the eye" of a German company that intends to use it for direct sales of its crosses on the Russian market and in neighboring countries. Previously, parent flocks selected by Germans were supplied only from Germany; therefore, the imported products were much more expensive, let alone the difficulties related to preservation of pedigree stock during transportation. To solve the problem H&N International, the German leader in the egg industry, is forging cooperation with the Sverdlovsky Breed Poultry Plant.

The World Trade Organization and the Customs Union are putting a spoke in the wheel of the advancing poultry industry. The Customs Union opened the floodgates to the Russian market for post-Soviet countries that sell their poultry products at dumping prices. WTO shut off the investment air supply to poultry keepers – the Russian government authorities promised that in 2015 they will stop compensating interest rates on loans, thus having undermined the technical re-equipment plans. The industry deprived of the government support may drop on knees, yielding to the flow of imported inexpensive chicken meat.

The interest-free loans given to poultry producers of the Sverdlovsk Region can be a life saver in the current situation; they would help poultry producers to purchase feeds and would compensate the cost of imported grain-protein feeds. The producers pin their hopes on decreased railway rates.

In their turn, the regional authorities count on the closed production cycle essential for independence of the producers.

Another and more ambitious goal for the poultry industry of the Middle Urals is development of high-level processing of poultry meat to increase both the price of poultry products and the demand for them. The producers will have much better opportunities for sales. At present, retailers are barely interested in the products of local producers who do not meet their requirements to dressed and ready-to-cook products. "How are we going to survive when 30% of the products supplied to stores are semi-prepared and prepared foods?" poultry producers complain. The retailers are also not easy to please with whole chickens.

The regional authorities asked retailers to reconsider their attitude and develop sound cooperation with agrarians. "We are not talking about market advantages given to local producers; give them an opportunity to come into your store and introduce their product range. At least, give consumers an opportunity to choose," Denis Pasler said at the meeting with participation of representatives of federal retail networks.

There is nothing shameful in lobbying interests of your local poultry producers; it’s a noble cause. Certainly, the quality must be guaranteed and the prices must be reasonable. Then, the choice is left to the consumer.

Lyudmila SOLODKOVA