Report Highlights:

FAS Moscow forecasts 2016 broiler production to reach 3.70 million metric tons (MMT), or 4 percent growth year-on-year. Domestic producers continue expansion at a slower pace compared to 9 percent in 2015. Broiler meat consumption is expected to be 3.76 MMT, a minor 0.4 percent growth from 2015. Growing production costs and price sensitive consumer demand continue to impact margins; sector consolidation and competition between producers may intensify. The weak ruble, restrictive trade policies, and competitive domestic products in 2016 could halve imports to 130,000 MT from 260,000 MT in 2015. Poultry exports to traditional EAEU and new markets in 2016 may grow to 70, 000 MT.

General Information

NOTE: USDA unofficial data excludes Crimean production and exports. However, as of June 2014, the Russian Federal State Statistics Service (Rosstat) began incorporating Crimean production and trade data into their official estimates. Where possible, data reported by FAS/Moscow is exclusive of information attributable to Crimea.

Executive Summary:

FAS/Moscow forecasts broiler production to grow by four percent to 3.7 million metric tons (MMT) in 2016 due to continued production expansion by leading producers and stable demand for broiler meat. The 2015 broiler meat production estimate is 3.55 MMT. There are indications of saturation of the Russian broiler meat market, such us wholesale and consumer price decreases, especially when compared to the inflation levels and price growth for other food items. However, despite the growing production and intensified competition among local producers, the risk of market over-saturation in 2016 has decreased because several expansion projects were put on hold due to the increased cost of borrowed capital, growing operational expenses and declining margins.

FAS /Moscow forecasts broiler meat consumption in 2016 at 3.760 MMT, minor 0.4 percent increase compared to 2015, when domestic consumption grew by 2.2 percent to 3.745 MMT. A growing number of Russian consumers respond to the on-going economic crisis by economizing on food purchases, and the demand for broiler meat remains stable given its competitive price when compared with other meat products. 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.

Trends in other meat markets, primarily turkey and pork, influence the consumer demand for broiler meat. The Ministry of Agriculture reported 34.9 percent annual growth in turkey production in 2015, to 205,000 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. In addition, the average price in Russia for pork half-carcasses dropped by 32.7 percent to 2.03 USD/kg between January and December in 2015. Further decline in pork prices may result in some shift in demand from poultry back to pork, particularly in the meat processing industry.

Local products continue to replace imports – FAS/Moscow forecasts 130,000 MT of broiler meat shipments in 2016, which is a 50 percent decline from 260,000 MT of broiler meat imported in 2015. 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 due to both political and SPS reasons.

FAS/Moscow forecasts 2016 broiler meat exports to reach 70,000 MT. While the Eurasian Economic Union (EAEU) markets (namely Kazakhstan and Kyrgyz Republic) will likely remain the major destination for Russian broiler meat, Russian producers have received access to new markets in Middle East and further exports to new markets may increase in 2016. However, sanitary issues may impede these exports.

Broiler Production

Russia: Broiler Production, Supply and Demand, 1,000 MT (ready-to-cook)

Poultry, Meat, Broiler

2014

2015

2016

Market Begin Year

Jan 2014

Jan 2015

Jan 2016

Russia

USDA Official

New Post

USDA Official

New Post

USDA Official

New Post

Production

3,260

3,260

3,550

3,550

3,650

3,700

Total Imports

460

460

260

260

130

130

Total Supply

3,720

3,720

3,810

3,810

3,780

3,830

Total Exports

44

50

35

65

45

70

Human Consumption

3,676

3,670

3,775

3,745

3,735

3,760

Other Use, Losses

0

0

0

0

0

0

Total Dom. Consumption

3,676

3,670

3,775

3,745

3,735

3,760

Total Use

3,720

3,720

3,810

3,810

3,780

3,830

Ending Stocks

0

0

0

0

0

0

Total Distribution

3,720

3,720

3,810

3,810

3,780

3,830

(MIL HEAD) ,(1000 MT)

(MIL HEAD) ,(1000 MT)

FAS/Moscow forecasts broiler meat production to reach 3.70 MMT in 2016, which is 145,000 MT or four percent growth year-on-year. The pace of production growth is anticipated to slow compared to an almost nine percent annual increase in 2015. In 2015 poultry producers experienced downward pressure on margins due to accelerated inflation and the ruble's depreciation, which had a direct impact on production costs. Margins in the poultry sector are expected to further decrease in 2016. Producers' expenses for genetics, equipment, feed additives, veterinary drugs, vaccines, transportation and utilities have been growing. At the same time, opportunities for sales price increases are limited; elasticity of demand for poultry has increased during the crisis as purchasing power of consumers weakened.

Demand for poultry (as well as other meat products) usually declines during the Orthodox fasting in March and April, grows during barbeque season in May, remains stable in summer months, and, finally, peaks before the New Year holidays. Leading companies, which have modernized poultry plants and have their own feed production units, earn better than average margins. These producers have some flexibility in choosing pricing strategies and can sell their products at lower prices than can smaller companies. Major players reacted to changes in consumer demand and implemented pricing policies aimed at selling the excess stocks in 2015. Thus, the largest companies caused repeated short-term wholesale price fluctuations in 2015, and their influence will grow in 2016.

Industry experts expect the consolidation process in the poultry industry to intensify in the second half of 2016. Large producers may consider buying smaller companies struggling with low poultry prices. Major companies that previously focused exclusively on crop production may begin to purchase poultry production businesses. The Central Bank of Russia (CBR) expects a gradual improvement of the financial state of domestic producers in the second half of 2016; however, in January 2016 CBR kept the key rate at 11 percent after a month in which ruble dropped to a record lows (83.59 Rub per USD on 22 January, 2016), and interest rates for ruble loans remain at record high levels (26-28 percent). If the economic situation further deteriorates, less efficient producers are more likely to go bankrupt as potential buyers experience difficulties with borrowing funds for closing mergers and acquisitions deals.

Earlier in 2015, the Ministry of Agriculture has published a list of 65 projects totaling 64.9 billion rubles (approximately 1.1 billion USD) investment in additional poultry production in 2015-2016, which could increase production capacity as much as 455,000 MT (live weight) in that time. In 2016 several industry leaders, including “GAP Recourse" (in Tambov Region), “Miratorg" (in Bryansk), and “Produkty Pitania" (in Kaliningrad), confirmed that they will continue investment projects and expand broiler meat production in 2016. At the same time, the risk of market over-saturation has decreased because some broiler expansion projects were put on hold or cancelled due to financial reasons.

In 2015, the Ministry of Agriculture extended poultry production support programs. Subsidies for partial compensation of interest for investment and short-term loans remain the primary support measures for the poultry industry. The Ministry of Agriculture also intends to continue its breeding stock development support program by reimbursement direct expenses for the construction and modernization of breeding centers. The federal budget allocated 237 billion rubles for support of agricultural producers in 2016, the same amount as in 2015. However, it is unclear if the Government of Russia (GOR) will have the budget to implement these support plans.

The sharp fall in the price of oil has forced the Russian government to consider steep spending cuts, as the current budget is based on projected revenues from oil exports at a price of $50 per barrel, while Benchmark Brent crude slid below $30 per barrel already by mid-January 2016. The GOR abandoned three-year budgeting and adopted a budget for only 2016 because of current market volatility.

The Ministry of Agriculture drafted Amendments to the State Program of Development of Agriculture. According to the draft Amendments, total federal budget spending for agriculture may be cut by 10 percent to 215 billion Rubles in 2016. The budget cut may impact the volume of subsidies for poultry producers because the Ministry suggested the reduction of funds for the sub-program of livestock and poultry sectors development from 40 billion rubles to 34.3 billion rubles. The draft Amendments also revise strategic meat and poultry production goals from current 14.45 MMT to 14.40 MMT of total meat production in 2020.

Feed grain crops will most likely remain a positive factor in poultry industry performance in 2016. FAS/Moscow improved its forecasted total grain crop for next year to 103 MMT based on Rosstat's recent preliminary crop production data. At the same time, prices for forage grains increased by 150-400 rubles (2-5.3 USD) per MT in January 2016 due to continued depreciation of ruble. Instability of the ruble to dollar exchange rate is expected to continue throughout 2016. However, industry experts believe that GOR will continue its export policy aimed at reducing the negative effects of ruble volatility and keeping domestic feed prices at low levels.

GOR initially enacted wheat export tariffs in February 2015, but later replaced them with a floating export duty on wheat in July 2015 and amended the export duty in October 2015. This policy resulted in stabilization of feed prices and contributed to positive poultry (and pork) production dynamics in 2015.

Further consolidation in the sector increases biological risks. According to Rosptitzesouz (Russian Union of Poultry Producers), 10 companies account for 40 percent of the Russian broiler meat market production. The lion's share of 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. According to information on the official web site of the Federal Service of Veterinary and Phytosanitary Surveillance (Rosselkhoznadzor), cases of Highly Pathogenic Avian Influenza were registered in four Russian regions in 2015: Astrakhan, Tyva, Novosibirsk oblast and Zabaikalsky Krai. However, all cases were in wild birds only.

Consumption

FAS/Moscow forecasts 3.760 MMT 2016 broiler meat consumption, which is minor 0.4 percent increase compared to 2015 broiler meat consumption estimate of 3.745 MMT (2.2 percent growth in 2015).

According to ROSSTAT, Russian gross domestic product (GDP) declined 3.7 percent, retail turnover dropped by 10 percent, and real disposable income declined by 4 percent in 2015. The Central Bank of Russia expects continued GDP decline in 2016 between -0.5 and -1.0 percent. Multiple research polls indicate that more Russian consumers have to economize on food purchases. For example, a recent Russian Public Opinion Research Center (VCIOM) poll showed that 34 percent of respondents started to buy cheaper goods in December 2015 (vs 22 percent in January 2015). Further, 18 percent of respondents claimed to have been buying cheaper goods for six months.

Meat consumption trends reflect changes in consumers' behavior resulting from reduction of disposable incomes. Consumption of beef in 2015 dropped significantly – sources vary the degree of change from 10 to 14 percent – and further decline in 2016 is anticipated. Consumer demand shifted from beef to more affordable sources of proteins, primarily poultry meat.

Broiler meat will most likely continue to be the meat of choice for struggling Russian households in 2016, as it remains competitively priced compared to red meats. According to Rosstat, retail prices for whole broilers varied between 140.15 rubles and 133.73 rubles per kilogram in 2015 with a general downward trend. Retail price for chicken leg quarters dropped from 157.1 rubles to 156.9 rubles per kilogram between January and December 2015. This price is very low in comparison to 362-359 rubles per kilogram of boneless pork and 420-456 rubles per kilogram of beef.

Trends in other meat markets, primarily turkey and pork, constrain stronger growth in consumer demand for broiler meat. The Ministry of Agriculture reported 34.9 percent annual growth in turkey production in 2015, to 205,000 MT (live weight). According to the National Meat Association, per capita consumption of turkey in Russia grew from 0.2 kg in 2005 to 1.5 kg in 2015. Several producers are planning to increase turkey production in 2016: “Eurodon" (Rostov Region), “Damate" (Penza Region), “Gafuri Poultry Complex" (Baskortostan), and “Cherkizovo" (Tambov Region). The growing share of turkey in meat consumption will continue impact the demand for broilers in 2016.

According to the Ministry of Agriculture, pork prices decreased by 3.3 percent between January 2015 and 2016. The market research agency EMEAT estimates ruble price decline for pork half carcasses at 12.9-12.4 percent, reporting dollar pork price decline at 32.7 percent in 2015. If the world trend of low pork prices persists in 2016, some shift in demand from poultry to pork is possible, particularly from meat processors.

Trade

FAS/Moscow forecasts 130,000 MT of broiler imports in 2016, which is a 50 percent decrease from the 260,000 MT of imports estimated in 2015. Imports dropped in 2015 by 200,000 compared to the previous year due to growth in domestic production, a weak ruble, and continued market access restrictions placed on foreign suppliers. All three above-mentioned trends will remain in the market in 2016, resulting in a further decrease in imports.

In 2015, the GOR extended a ban on a variety of agricultural products (including poultry, HS code 0207) from the United States, Canada, the European Union, Australia, and Norway until August 6, 2016. In August 2015 Prime Minister Medvedev also signed a decree that expanded the list of countries that fall under restrictions to include Albania, Montenegro, Iceland and Liechtenstein.

On January 1, 2016, Ukraine implemented the full-scale Deep and Comprehensive Free Trade Agreement (DCFTA); effective the same date, Russia cancelled its FTA with Ukraine and banned imports of a number agricultural products, including poultry. In reaction to political tensions, Russia also banned imports of a number of agricultural products including poultry meat from Turkey starting January 1, 2016.

Belarus and Brazil will likely remain the top poultry meat suppliers to Russia in 2016. However, price trends and low levels of TRQ utilization indicate that opportunities are limited even for non-restricted exporters because the market is close to saturation with competitively priced domestic products. Only 22.6 percent of poultry Tariff Rate Quotas have been utilized through the end of November 2015. In January 2016 the Russian meat market information agency “EMEAT" reported the following average prices per kg of broiler products (domestic vs imported): chicken quarters 98.4 rubles vs 98.2 rubles; chicken breasts 172.9 rubles vs 171.9 rubles; chicken legs 109.3 rubles vs 109.8 rubles. “EMEAT" also reports that average dollar price for broiler carcass declined in Russia by 23.4 percent between January 2015 and January 2016. Price pressures resulting from exchange rates will remain very important in trade with Russia, and so a drop in value of the Brazilian peso may contribute to higher-than-expected imports from Brazil in the coming year.

The Federal Customs Service of Russia (FCS of Russia) reported that January to October Belarus and Brazil together accounted for approximately 85 percent of all Russian broiler imports. Belarus shipped 111,745 MT of broiler meat to Russia in January-October, 2015, which is a 14 percent increase year-on-year. Brazil reports 90,534 MT broiler meat exports to Russia in 2015, which is 27.54 percent decline year-on-year. Other notable suppliers of broiler meat to Russia in January-November of 2015 were Turkey (20,599 MT) and Argentina (7,842 MT). Despite the increase in imports from Belarus and Turkey in January-November 2015, total broiler imports were approximately 42 percent lower than during the same period in 2014.

FAS/Moscow forecasts 2016 broiler meat exports to reach 70,000 MT. The EAEU market will remain the major destination for broiler exports from Russia in 2016. Russia will continue to increase broiler meat shipments to Kazakhstan, Kyrgyzstan and Armenia, benefiting from trade preferences under EAEU agreements and currency rates, which are favorable for Russian suppliers in comparison with other world exporters.

Russia shipped 31,181 MT of broiler meat, or 48 percent of its total poultry exports, to Kazakhstan in January-November 2015. Broiler meat exports to Kyrgyzstan increased almost five-fold from 1,000 MT in 11 months of 2014 to 5,619 MT in January-November 2015.

FCS of Russia reports a significant increase of broiler meat exports to Ukraine in January-November 2015, to 12,711 MT from just 2 MT shipped in 2014. (State Customs Committee of the Ukraine reports only 20 MT of broiler imports from Russia in January-November 2015, which may be related to the fact that most of broiler exports from Russia are destined to those eastern regions of Ukraine, which have not reported trade data to Kyiv in 2015). However, it is unclear if Russia continues active trade in Ukraine in 2016 since on-going political tensions between the countries has led to changes in the trade regime. Despite this uncertainty, FAS/Moscow expects overall Russian exports to grow slightly due to greater trade with Africa and the Middle East.

The leading Russian broiler meat producers intensified market expansion activities focusing on the Middle East and African countries in 2015. Several leading companies have registered “halal" brands targeted for Middle Eastern markets. GOR supported business initiatives aimed at export development. The Ministry of Agriculture launched an intergovernmental working group that focuses on support measures and coordinates efforts to expand agricultural exports. The Russian veterinary and phytosanitary surveillance service “Rosselkhoznadzor" has shifted its priority from finding new suppliers of meat products to the country to activities to open new markets for Russian producers. In September 2015 the Russian Ministry of Economic Development (MED) signed an agreement with the leading meat producer “Miratorg" to coordinate actions proactively to develop export market potential.

Joint efforts of the business community and authorities have brought some results; for example, nine Russian poultry plants as of February 2016 have received the right to ship poultry to United Arab Emirates. There is also progress in opening the Iranian market for Russian meat: Iranian authorities approved “Miratorg" for beef shipment, which a positive sign for potential poultry meat exporters. Industry experts believe that Russia can annually supply 20,000–30,000 MT of “halal" broiler meat to the Middle East in 2016-2017.

At the same time, Russian exporters were not fully able to benefit from the potential the weak ruble promised in the Asian markets because other key exporters offered better prices. Thus, as reported by FCS of Russia, broiler exports to Hong-Kong dropped by 78 percent from 22,819 MT to 4,921 MT in January-November 2015. Exports to Thailand and Vietnam also declined by approximately 1,000 MT (minus 72 percent year-on-year) and 2,300 MT (minus 44 percent year-on-year) respectively.

Even with the reduction of exports to Asia and other markets, the increase in exports to the Middle East and EAEU countries is likely to result in a moderate increase in total export numbers. However, there are reports that Russian poultry producers are facing sanitary issues in exporting to Asia and the Middle East.

Russia: Monthly Industrial Production of Poultry Meat and Sub-products All Establishments, MT, Product Weight

2011

2012

2013

2014

2015

Jan

239,199

265,418

291,755

304,336

347,493

Feb

229,521

268,417

278,558

295,619

335,032

March

258,182

290,958

298,192

318,354

369,696

April

241,401

280,095

301,791

337,239

365,415

May

251,519

282,294

294,987

327,616

359,096

June

237,355

260,235

276,173

306,967

340,366

July

233,354

284,569

293,795

316,318

350,135

Aug

240,295

277,740

281,769

316,412

347,639

Sept

241,885

272,306

289,114

325,619

357,192

Oct

258,404

284,067

304,823

338,530

379,225

Nov

263,090

288,425

296,723

336,464

370,168

Dec

279,943

306,582

332,032

361,474

N/A

Includes data attributable to some products which are not reported in the PSD

Russia: Import Volume of Broiler Meat, 2010 – 2014 & Year To Date: 11/2014 & 11/2015, MT (020711, 020712, 020713, 020714, 160232)

2011

2012

2013

2014

Jan-Nov-2014

Jan-Nov-2015

% Change Jan-Nov 2014/2015

World

463,423

560,958

535,429

465,142

399,435

233,699

-42.61%

Brazil

64,446

61,847

48,367

117,785

79,145

82,325

4.02%

United States

239,306

262,882

266,236

137,713

137,713

0

-100.00%

Turkey

52

341

0

16,040

12,166

20,599

69.32%

Argentina

4,745

14,026

8,221

21,699

16,505

7,842

-52.49%

EU-28

72,482

76,997

64,946

45,437

45,418

170

-99.63%

Ukraine

5,171

30,440

39,691

7,036

6,947

1,098

-84.19%

* Belarus

73,434

102,929

103,739

112,516

106,184

118,000***

11.13%

**Kazakstan

10

1,419

2,620

5,925

3,125

3,677

17.67%

All Others

3,777

10,077

1,609

991

504

318

-36.90%

Source: Federal Customs Service of Russia; *Belstat; **Eurasian Economic Commission (HS Code 0207) *** FAS/Moscow Estimate

Includes data attributable to some products which are not reported in the PSD

Russia: Export Volume of Broiler Meat, 2010 – 2014 & Year to Date: 11/2014 & 11/2015, MT (020711, 020712, 020713, 020714, 160232)

2011

2012

2013

2014

Jan-Nov-2014

Jan-Nov-2015

% Change Jan-Nov 2014/2015

World

38,403

42,225

55,631

62,490

57,456

64,421

12.12%

Kazakhstan

18,406*

25,538*

30,218

23,659

21,263

31,181

46.64%

Ukraine

0

140

14

2

7

12,711

N/A

Kyrgyzstan

3

288

371

1,135

1,000

5,619

461.90%

Hong Kong

11,128

10,741

14,683

24,236

22,819

4,921

-78.43%

Vietnam

6,424

2,650

1,421

5,216

5,114

2,840

-44.47%

Belarus

895**

936**

658

2,308

2,231

2,199

-1.43%

Abkhazia

929

1,314

1,256

1,341

1,226

1,175

-4.16%

Liberia

0

54

1,459

946

841

1,360

61.71%

Thailand

0

325

2,447

1,834

1,474

405

-72.52%

All Others

618

239

3,104

1,813

1,744

2,010

15.25%

Source: Federal Customs Service of Russia; *Eurasian Economic Commission (HS Code 0207); **Belstat

Includes data attributable to some products which are not reported in the PSD