How Russian Breasts Fight American Legs

01.02.2010 — Analysis

Since the beginning of the New Year imports of poultry meat from the US have been all but suspended. The official reason given by the authorities is the non-compliance of the products to the sanitary norms for meat production as enforced since 1 January 2010. For instance the solution used for the treatment of birds contained chlorine in unacceptable concentrations.

The American counterpart's reaction was quick. A bipartite consultation was held on 19 January in Moscow with a purpose to discuss conditions under which American producers will be able to continue supplying to Russia. The American counterpart expressed their readiness to bring their produce in line with the Russian standards. The reconstruction will take time, however, various estimates give it 2 to 3 months.

The "chlorine barrier" is not the last and, obviously, not the most radical protectionist measure from the Russian Government. By 2012 quotas for import of poultry meat and by-products will be reduced by 30% from the current 780 thousand tons. This will affect fresh, chilled and frozen products. The American export will be cut down more than any other - from 600 thousand tons to 409.2 thousand. European quotas will be reduced from 144.3 thousand tons to 101.75 thousand. Russian poultry farms have been set the goal to cover the ensuing gap. Vladimir Putin, the Chairman of the Government, stated that, "even in the foreseeable future, I think 4-5 years at most, we will be able to provide for 100% of the domestic market demand and take a worthy position in the global market."

Uneven plumage is not a bold patch

According to Rosstat in 2008 3.022 million tons of poultry meat was produced in Russia, which demonstrated a 14% growth to 2007. The six regions of the Urals Federal District make about 300 thousand tons. No doubt that the Urals has a long way to go to catch up with the Russian leading market for the poultry meat, the Central Federal District. The Belgorod, Moscow, Kursk, Tambov oblasts produce over a million tons of products in live weight. The dynamic of the development of poultry farming in the Urals, however, even despite the northern permafrost territories, is amongst the best in Russia. In 2008 the volumes of production of poultry meat have grown by 17% compared to 2007. Only the Far East Federal District indicators are higher and this District had started practically from zero. And, yet again, those in the regions of the central belt of Russia.

The Sverdlovsk and Chelyabinsk Oblasts take the lead in the Urals. They produce more than 80%. Most of it is in the South Urals. Here the production volumes of chicken meat grow by 15-30% annually. "There is a tree times increase in poultry meat production since 2004. In 2009 the region procured 153 thousand tons of these products. By 2012 we are planning to reach the 200 thousand tons plank," Vladimir Korchaghin, the Head of the Poultry Farming Development Administration of the Ministry for Agriculture of the Chelyabinsk Oblast, told RusBusinessNews.

The increase of production volumes has become possible thanks to the systematic budget support of the sector during the 5 previous years. Money from federal and local coffers was predominantly spent on subsidising purchases of equipment and payments of interest rates. This stimulated private investors to make long term investments into the development of poultry farms. As a result 9 poultry farming facilities - reproducers and broiler plants - have been reconstructed, modernized and built from scratch since 2004

The current volumes of production give about 45 kilos of poultry meat per capita in the Chelyabinsk Oblast while the WHO standard is 18 kilos. The South Urals poultry farms ship their products to the Moscow, Samara, Sverdlovsk, Tyumen, Omsk, Novosibirsk Oblasts. According to the data provided by the Ministry of Agriculture, the local products take no more than 75% in the region's domestic market. The remaining 25% is supplied from other regions or imported. Foreign products are represented at markets, predominantly. Processing plants also depend on imported products.

"Companies importing chicken meat work in the market establishing and developing old connections, we cannot make them cease trading. They often use dumping techniques offering products much cheaper than carcasses produced in the Chelyabinsk Oblast. For instance small wholesale companies buy the products for 20-30 roubles per kilogram and sell at 50-60 roubles. Our chilled chicken is priced at 70-90 roubles at 50-68 roubles cost," Mr Korchaghin pointed out. The expert explains low prices for imported products by the fact that only cheap thighs and parts of carcasses which are fit for nothing but being turned into mince are shipped to Russia. "Breast is the most valuable part of the chicken, biologically, which is why this product, as a rule, is sold locally and is always in demand. This is why in the internal Russian market this niche is taken by local companies, Americans leave this product at home," says Mr Korchaghin.

Regions in receipt of meat subsidies are also more dependent on the market. First of all these are Ugra and Yamal. According to Rosstat in 2008 only 100 tons of chicken meat was produced in the former and none in the latter. The AIC Administration of Ugra informed RusBusinessNews that some agro companies in the Khanty-Mansiysk Autonomous Okrug farm chickens, though virtually all of them specialise in producing and selling eggs. Volumes of meat production at these companies do not exceed 50 tons per year. This mean the Okrug produces only a few percent of the meat it needs. About 90% is shipped form the other subjects of the Urals Federal District (mainly in the Chelyabinsk and the Tyumen Oblasts where poultry farms owned by the KhMAO Government are located) and imported. "So far the meat shipped into Ugra was noticeably cheaper than the locally produced as the costs in the conditions of the North are high beyond competition," point out specialists form the administration. The region brings in exclusively frozen chicken, the market of chilled meat is practically non-existing.

RusBusinessNews has calculated that in general terms, on the basis of the consumption standard established by WHO and the Rosstat data, the volume of poultry meat required for own use is currently produced within the Urals; more to the point, reserves can be established and trade with neighbour regions developed. Thus, in 2008, given the minimum self-provision standard of 257.4 thousand tons, the Urals Federal District has produced 294.1 thousand tons.

Stability for Reproduction's Sake

No doubt that an integrated governmental strategy is required for a smooth development of poultry farming. Following an assignment from Prime Minister Vladimir Putin, Russia's Ministry for Agriculture has commenced the development of the national poultry farming development program to 2020.

RusBusinessNews was told at the Ministry's press service that the document envisages several key areas. The first one is the development of the breeding base. According to the data available to the Ministry for Agriculture, 15% of poultry meat in Russia is produced from imported eggs. A network of pedigree breeding centres is planned to be established in the future. The next important area is the development of fodder base and production of fodder vitamins. In addition to that, the program will provide for balanced measures of customs and tariffs regulation, and the development of other poultry farming areas - in particular, processing of eggs and production of duck and turkey meat.

The main thing, though, is that the RF Ministry for Agriculture is going to support projects in poultry farming. According to experts' opinion, it is the favourable investment climate that will ensure the long-term stable development of the industry. The Chelyabinsk Oblast is a vivid example thereof. In the course of the five years of support local poultry farms managed to push the produce of other regions out of store shelves and reduce its market share from 60 to 25%. However, the last one and half years, against the backdrop of budget support reduction and the increase of interest on loans, a part of commenced and contemplated investment projects has been suspended. The existing companies will undoubtedly be capable of increasing production volumes by 10-15% per year. However, the development potential in the industry is significantly greater. Relevant ministries of the subjects of the Federation have confirmed to RusBusinessNews that virtually every region has one to ten suspended or collapsed investment projects in poultry farming.

Building one slaughter hall from scratch would take 1 to 1.5 years, by various estimates. Therefore, in case Russian authorities and regional governments are not late in implementing the poultry farming development program, the country has real chances to become 100% "chicken-independent", and even start shipping for export, by 2012.

Yevghenia Yeryomina