Report Highlights:

Russian beef production is forecast to decline 4 percent as cattle inventories are expected to decrease 1.5 percent to 18.41 million head in 2016. This is due to a shift away from small-holder cattle operations and lack of incentives for large scale operations to increase their herds. In 2016, pork production is forecast to increase 5 percent to 2.78 MMT, while pork imports are expected to decline to 200,000 MT. Pork consumption is forecast to increase in 2016, after falling during the last two years, as improved supplies should lead to pork price stabilization. While 2016 beef imports are expected to reach 735,000 MT, beef consumption in Russia is forecast to continue falling in 2016.

General Information

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

Executive Summary

Cattle and Beef

FAS/Moscow forecasts 2016 year-end cattle inventories to decrease 1.5 percent to 18.41 million head. This is a continuation of the long-term trend of reduction in cattle inventories in Russia. FAS/Moscow has revised the 2015 year-end cattle inventory projection to 18.665 million head (665,000 head more than previous forecast), which is still a 2.5 percent decline compared to 2014. The change reflects the stabilization of feed prices in 2015.

Russian imports of cattle in 2016 are forecast to total 80,000 head, which is 17.65 percent more than the revised 2015 level (i.e. 68,000 head). Despite strong demand for both purebred breeding cattle of dairy and beef breeds, as well as for commercial cattle for beef production, no significant import growth is expected given the overall poor economic outlook, weak ruble and high world prices for bovine cattle in 2016.

FAS/Moscow forecasts 1.3 million metric tons (MMT) of Russian beef production in 2016 - 55,000 MT less than the 1.355 MMT expected in 2015. Despite the overall lack of beef supplies and high prices in the Russian market, domestic producers are not able to increase production due to limited cattle stock and reduced access to long-term credits.

In 2016, FAS/Moscow forecasts beef imports to grow slightly to 735,000 MT – 5 percent higher compared to 2015. Market analysts are reporting that domestic suppliers have enough capacity to meet only 60 percent of the existing demand.

Beef consumption is forecast to reach 2.025 MMT in 2016, which is a 1 percent decline year-on-year. FAS Moscow anticipates the negative long-term trend in beef consumption to continue in 2016 due to poor macroeconomic forecasts showing rising inflation and declining consumer purchasing power.

Swine and Pork

FAS/Moscow anticipates the swine herd to grow to 20.225 million head by the end of 2016, which is a 4 percent increase compared to swine inventories in January 2015. The Russian swine heard at large commercial plants has been growing over the last decade and the trend will most likely continue in 2016.

Live swine imports and exports likely to remain low in 2015 and 2016 due to numerous restrictions related to veterinary issues.

FAS Moscow forecasts pork production to grow 5 percent over the revised 2015 level and reach 2.78 MMT in 2016 Several leading pork producers announced large investments in pork production that are expected to increase production capacity.

FAS/Moscow forecasts pork imports to decline to 200,000 MT in 2016, a significant drop from 2015. Local pork producers will likely increase production further replacing imports, which remain relatively expensive due to the weak ruble and poor economic conditions in the near term. FAS/Moscow modified the 2015 pork import projections to 300,000 MT (CWE), which is still a 42 percent decline year-on-year (previous forecast was 60 percent import reduction). The correction was made mostly due to a decline in world pork prices.

FAS Moscow forecasts total pork consumption to reach 2.979 MMT in 2016 - a moderate 2 percent increase year-on-year. The negative effects of trade interruptions and price volatility in the pork market are expected to recede somewhat in 2016 as domestic producers are slated to supply more reasonably priced pork to the market. Consumer demand is also expected to shift back to pork from poultry once the economy passes the peak of the current crisis.

Cattle

Russia: Cattle Numbers, 1,000 Head

Animal Numbers, Cattle

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

Total Cattle Beg. Stks

19,564

19,564

19,132

19,152

0

18,665

Dairy Cows Beg. Stocks

8,201

8,201

7,952

7,982

0

7,820

Beef Cows Beg. Stocks

460

460

490

490

0

500

Production (Calf Crop)

6,670

6,670

6,500

6,520

0

6,406

Total Imports

74

74

70

68

0

80

Total Supply

26,308

26,308

25,702

25,740

0

25,151

Total Exports

26

27

20

20

0

20

Other Slaughter

6,750

6,750

6,740

6,680

0

6,360

Total Slaughter

6,750

6,750

6,740

6,680

0

6,360

Loss

400

379

392

375

0

361

Ending Inventories

19,132

19,152

18,550

18,665

0

18,410

Total Distribution

26,308

26,308

25,702

25,740

0

25,151

(1,000 HEAD)

Cattle Production

FAS/Moscow forecasts 2016 year-end cattle inventories to decrease 1.5 percent to 18.41 million head. This is a continuation of the long-term trend of reduction in cattle inventories in Russia. According to the Russian Federal Statistics Service (Rosstat), only 42.6 percent of cattle inventories are managed by commercial farms as of July 1, 2015. Backyard farms account for 46.1 percent of cattle herd while small private farms account for 11.3 percent. Agricultural producers, in particular back-yard dairy farmers, are expected to continue slaughtering less productive dairy cattle in response to low farm-gate milk prices. At the same time, modernized commercial dairies have improved productivity and are now gaining better yields from smaller milking herds. As a result, the supply of spent dairy cattle for beef processing plants is decreasing.

Difficulties in obtaining long-term credits, low raw-milk prices, and a decline in consumption have hurt investments in new beef and dairy production projects in 2015 that will constrain herd growth in 2016. However, FAS/Moscow forecasts the cattle herd to decrease at a slower pace than in 2014 and 2015. The Russian government (GOR) continues to support beef and dairy sectors following an accelerated import substitution policy. The Ministry of Agriculture published a list of 166 dairy projects and 53 beef production projects with a planned 34.4 billion rubles (approximately 583 million USD)1 in total investment. The successful execution of these projects, all of which will be receiving subsidies2 from the federal and regional budgets, will partially offset the continued decline of cattle stock at backyard farms.

FAS/Moscow has revised the 2015 year-end cattle inventory projection to 18.665 million head (665,000 head more than previous forecast), which is still a 2.5 percent decline compared to 2014. The change reflects the stabilization of feed prices after GOR enacted grain export tariffs in February 2015 and introduced the floating export duty for grains in July 2015.

Cattle Trade

Russian imports of cattle in 2016 are forecast to total 80,000 head, which is 17.65 percent more than the revised 2015 level (i.e. 68,000 head). Despite strong demand for both purebred breeding cattle of dairy and beef breeds, as well as for commercial cattle for beef production, no significant import growth is expected given the overall poor economic outlook, weak ruble and high world prices for bovine cattle in 2016. However, despite the on-going economic crisis in Russia and increasing world cattle prices, several major dairy and beef producers will continue to increase their herds and improve their livestock genetics - benefiting from the continued support from the GOR. In 2015, the GOR started a new federal program to reimburse up to 20 percent of direct capital investments into dairy and beef projects, and up to 35 percent of direct investments in creation/modernization of cattle breeding centers3. As was previously mentioned, the Ministry of Agriculture published a list of 219 beef and dairy projects that will add an estimated 24,000 MT of beef and 291,120 MT of milk over the next 2 years as part of the intensive import substitution policy encouraged by the GOR. Producers need additional cattle to fulfil the ambitious production growth plans. Therefore, cattle trade is anticipated to continue.

FAS/Moscow decreased the 2015 cattle import projection to 68,000 head, which is 8 percent lower year-on-year, mostly due to the depreciation of the ruble, volatility of exchange rates, and difficulties with financing new cattle purchases. In the beginning of 2015, banks reportedly offered long term-loans at 25-28 percent and the GOR had to spend some time adjusting the support programs and budgets to the new realities in the financial market. Private companies faced financial constraints and delayed new long-term investments because of oil price uncertainty and high ruble volatility. Thus, imports of purebred cattle from January - May 2015 were 47 percent lower than during the same period in 2014. The import of beef cattle for slaughter increased by 15 percent from January - May 2015. This is linked to the implementation of the large beef production project ABH “Miratorg" in Central Federal District (Bryansk, Orel, Kaluga). The major suppliers of cattle to Russia during the first 4 months of 2015 were Australia (37,511 head) and the EU (5,780 head). The United States and Canada did not export cattle to Russia during this time period.

Between January and May 2015, Russia exported 12,268 head of live cattle, including 10,945 non-purebred slaughter cattle shipped to Azerbaijan (HS Code 010229). Other destinations for Russian cattle are Kazakhstan, Belarus, Uzbekistan and Mongolia. Taking into account strong Russian industry efforts to search for new export markets, FAS/Moscow forecasts 20,000 head of live cattle to be exported in 2015 and in 2016.

Beef

Russia: Beef and Veal Production, Supply & Distribution (1,000 MT CWE)

Meat, Beef and Veal

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

Slaughter (Reference)

6,750

6,750

6,740

6,680

0

6,360

Production

1,370

1,370

13,70

1,355

0

1,300

Total Imports

919

928

750

700

0

735

Total Supply

2,289

2,298

2,120

2,055

0

2,035

Total Exports

10

10

8

8

0

10

Human Dom. Consumption

2,279

2,288

2,112

2,047

0

2,025

Other Use, Losses

0

0

0

0

0

0

Total Dom. Consumption

2,279

2,288

2,112

2,047

0

2,025

Ending Stocks

0

0

0

0

0

0

Total Distribution

2,289

2,298

2,120

2,055

0

2,035

(1,000 HEAD; 1,000 MT CWE)

Beef Production

FAS/Moscow forecasts 1.3 million metric tons (MMT) of Russian beef production in 2016 - 55,000 MT less than the 1.355 MMT expected in 2015. Despite the overall lack of beef supplies and high prices in the Russian market, domestic producers are not able to increase production due to limited cattle stock and reduced access to long-term credits.

Beef production has been declining in Russia over the last 25 years. In 1990, the cattle herd (dual-purpose beef and dairy breeds) exceeded 60 million head and the share of beef in total meat production accounted for 50 percent (compare to 40 percent share for pork, and 10 percent for poultry)5. The dairy/beef sector was previously heavily subsidized by the Soviet government. According to Rosstat, over the last 25 years, the cattle herd has declined to 19.15 million head. FAS/Moscow estimates beef will account for approximately 19 percent of total meat production in 2015, (compare to 34 percent share for pork and 47 percent for poultry).

Industry experts agree that major issue for Russia's beef production sector is limited access to affordable long-term credits. GOR officials have recognized that import substitution for beef will require a longer period of time and significantly higher investments to replicate the success of local pork and poultry producers. Minister of Agriculture Alexander Tkachyov recently noted that self-sufficiency in beef and dairy can only take place after continued strong government support of the sector over the next decade.

Contrary to the negative trend in the dairy sector, specialized beef-cattle projects are showing positive results and the use of beef cattle for beef production is expanding. According to Ministry of Agriculture officials, total investments of 10.2 billion rubles in 53 specialized beef projects will result in an additional 24,000 MT of beef production in 2015. ABH “Miratorg" is continuing the development of major beef cattle projects in Bryansk, Kaliningrad, Orel and Kaluga regions. Annual planned capacity of the new Miratorg processing plant in Bryansk is 130,000 MT of beef and beef products and the company expects to supply 40,000 MT of beef to the market by the end of 2015. “Zarechnoye" is planning to increase beef production in the Voronezh region by more than 10,000 MT (live weight) in 2015. Large-scale beef cattle projects are also being implemented in the Leningrad Region (“Sputnik"; “Losevo"), Krasnodarsky Krai (ZAO “Agrokomlex"); Orenburg Region (“Orenbeef" implemented as a pilot project of Italian “Cremonini Group") and in Kalmykia.

FAS/Moscow decreased the 2015 beef production forecast to 1.355 MMT due to falling demand for beef products and after reviewing half-year production data. Russian consumers are responding to the current economic crisis by shifting preferences to less expensive food items. Consequently, consumption of beef, the most expensive protein source, is expected to drop by 10 percent year-on-year – a larger reduction than was previously expected. Rosstat reported a 1 percent decline in beef production during the first half of 2015 as well as a 1.6 percent drop in cattle inventories as of July 1, 2015.

Beef Trade

In June 2015, the GOR extended a ban on a variety of agricultural products (including HS codes 0201, 0202, and 0210) from the United States, Canada, the European Union, Australia and Norway until August 6th 2016. In addition, the GOR issued a decree extending the ban for Albania, Montenegro, Iceland, Liechtenstein, and Ukraine6 in August 2015.

Russian beef imports have fallen by more than 30 percent between January 2014 and July 2015 due to a number of factors including trade interruptions, price volatility in the meat market, ruble depreciation and, finally, declining demand for beef in the stressed economy. In 2016, FAS/Moscow forecasts beef imports to grow slightly to 735,000 MT – 5 percent higher compared to 2015. Market analysts are reporting that domestic suppliers have enough capacity to meet only 60 percent of the existing demand. FAS/Moscow estimates that imports account for 40 percent of beef and veal consumed in Russia and forecasts stable demand for products from non-restricted suppliers in 2016. Exporters from Latin America and Belarus will likely maintain similar volumes of beef shipments to Russia in 2016.

Beef accounted for approximately 55 percent of all Russian meat imports in the first half of 2015 (compare to 32 percent for pork and 13 percent for broiler meat). Between January and May 2015, Russia imported 157,025 MT (PWE) of beef, mostly from Brazil (57,765 MT; 34.9 percent decline YTD), Belarus (52,137 MT ; 12.6 percent decline YTD); Paraguay (33,039 MT;10.3 percent decline YTD) and Ukraine (8,265 MT 123% increase YTD). Brazil, Belarus and Paraguay jointly accounted for more than 90 percent of total beef shipments to Russia from January - May 2015. Brazil and Belarus will likely remain the biggest beef exporters to Russia in 2016 – particularly during the ongoing food import ban - with growing beef shipments coming from Belarus.

Roughly 75 percent of all Russian beef imports during the first 5 months of 2015 was frozen beef (HS Code 0202), of which 57,142 MT (52 percent) were supplied by Brazil and 33,039 MT (30 percent) by Paraguay. According to “EMEAT" market research agency, 32.8 percent of Tariff Rate Quotas (TRQ) for frozen beef (HS Code 0202) have been utilized through the end of July 2015 compare to only 9.7 percent of TRQs used for chilled beef (HS Code 0201). Belarus and Ukraine have been the major suppliers of chilled beef from January - May 2015 as Russia imported 39,597 MT of chilled beef from Belarus and 3,337 MT from Ukraine.

FAS/Moscow forecasts Russian beef exports to reach 8,000 MT (CWE) in 2015 and 10,000 MT in 2016. According to Russian customs data, Russia exported 7,420 MT (PWE) of beef in 2014, mostly to Kazakhstan, Belarus, Georgia and Azerbaijan. Some growth is expected in premium beef exports as major producers are actively searching for new markets. For example, the veterinary authorities the United Arab Emirates officially approved ABH “Miratorg" as a beef exporter in August 2015. Considering rather soft demand for premium beef in the domestic market, exports of these products will likely be growing in future.

Beef Consumption

Beef consumption is forecast to reach 2.025 MMT in 2016, which is a 1 percent decline year-on-year. FAS Moscow anticipates the negative long-term trend in beef consumption to continue in 2016 due to poor macroeconomic forecasts showing rising inflation and declining consumer purchasing power. Beef prices will likely remain high in 2016 due to the lack of supply of domestic product and increasing retail prices for imported beef due to the ruble depreciation.

The share of beef in total meat consumption has been constantly declining since 1990. Beef in total meat consumption has declined from 50 percent in 1990 to 20 percent projected in 2016 (compare to 34 percent share for pork and 46 percent for poultry).

The ongoing financial crisis in Russia is having a major impact on Russia's cattle and beef sector. As reported by Rosstat, Russia's gross domestic product (GDP) contracted 4.6 percent in the second quarter of 2015 compared to a year earlier. During the first half of 2015, retail turnover dropped by 9.2 percent year-o-year, fixed investments declined 8.5 percent year-on-year, and real wages dropped 8.8 percent from January –July 2015. On an annualized basis, the headline inflation rate rose to 15.6 percent year-on-year in July 2015.

As a result, there has been a significant drop in consumption of all meat products – from 2-6 percent according to different market analysis. Russian consumers respond to economic crises by shifting to less expensive food products. Beef is the most expensive commodity in the meat category, so consumers are switching to more poultry and pork. FAS/Moscow lowered the beef consumption forecast in 2015 to show a 10 percent decline versus the previous forecast decline of 7 percent. At the same time, FAS/Moscow modified the 2015 pork consumption forecast from a 9 percent decline to only a 3 percent decline, reflecting consumers switching to cheaper pork.

According to meat market research agency EMEAT, the average wholesale ruble price for imported beef (excluding imports from Belarus) increased by 32.2 percent between January and July 2015. Russia imports roughly 40 percent of total beef consumed and prices for imported beef are a significant driver of retail prices. The ruble depreciation10 has had a bigger impact on beef prices than on pork because Russia is less dependent on pork imports coupled with an overall decline in world pork prices in the first half of 2015. Rosstat data shows that as of July 1, 2015, the average retail price for bone-in beef grew by 22.6 percent year-on-year from 252.25 Rub/Kg to 309.26 Rub/Kg. The price for boneless beef increased 19.77 percent, from 374.68 Rub/Kg to 448.75 Rub/Kg.

This is significantly higher than the average retail price growth seen for pork products. As of July 1, 2015, the average retail price for bone-in pork increased by 9.84 percent from 252.84 Rub/Kg to 277.27 Rub/Kg while the average retail price for boneless pork rose 9.11 percent from 334.57 Rub/Kg to 365.04 Rub/Kg.

Swine

Russia: Swine Numbers, 1,000 Head

Animal Numbers, Swine

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

Total Beginning Stocks

19,081

19,081

19,413

19,405

0

20,125

Sow Beginning Stocks

2,355

2,355

2,375

2,400

0

2,420

Production (Pig Crop)

37,000

37,000

37,300

38,650

0

39,750

Total Imports

8

8

1

1

0

1

Total Supply

56,089

56,089

56,714

58,056

0

59,876

Total Exports

0

0

0

0

0

0

Sow Slaughter

0

0

0

0

0

0

Other Slaughter

34,750

34,750

35,300

35,800

0

37,400

Total Slaughter

34,750

34,750

35,300

35,800

0

37,400

Loss

1,926

1,934

2,014

2,131

0

2,251

Ending Inventories

19,413

19,405

19,400

20,125

0

20,225

Total Distribution

56,089

56,089

56,714

58,056

0

59,876

(1000 HEAD)

Swine, Production

FAS/Moscow anticipates the swine herd to grow to 20.225 million head by the end of 2016, which is a 4 percent increase compared to swine inventories in January 2015. The Russian swine heard at large commercial plants has been growing over the last decade and the trend will most likely continue in 2016.

The Ministry of Agriculture published a list of 79 projects with total investment reaching 124.1 billion rubles for pork production. Several industry leaders including, but not limited to, ABH “Miratorg", “Cherkizovo", Group “Prodo", “Omsky Bacon", “Promagro" announced big expansion plansthat are expected to increase pork production capacity by 330,000 MT (live weight) in 2016.

The intensive growth of large-scale agricultural establishments will offset the significant decline in swine inventories of backyard and small private farms, which is primarily attributable to continued efforts to control African Swine Fever (ASF). For example, as of January 1, 2013, Rosstat reported 183,200 hogs owned by backyard farmers in Krasnodarsky Krai, and 56,000 hogs owned by backyard farmers in Belgorod region. As of July 1, 2015, there are only 100 hogs in Belgorod region and 1,400 hogs in Krasnodarsky Krai. Backyard farm herds in both regions were depopulated due to ASF. Backyard pig farms in other regions where ASF is present most likely saw similar dramatic declines as well.

Industrial swine producers, represented by the National Union of Pork Producers (NUPP), initiated amendments to the “Law on Private Backyard Farms" and the “Law on Veterinary " aimed to strengthen the requirements for small-scale private swine farming. The amendments, if passed, will result in an intensive decline of the non-commercial swineherd, even in ASF “clean" regions.

According to Rosstat, the growth of the commercial swine herd has been registered in all federal districts with total swine inventories growing by 5.4 percent in the first half of 2015. Russian pork producers have benefited from the stabilization in feed prices and continued trade restrictions applied to many traditional exporters. As a result, they have been able to increase the supply of domestically-produced meat to the market while increasing the swine herd. FAS/Moscow has increased 2015 year-end inventory projections to 20.125 million head, 4 percent higher than the previous year.

Swine, Trade

The food import ban imposed by the GOR in August 2014, and extended until August 2016, does not include cattle or live swine. In addition, bovine and pig semen are not affected by the food import ban. However, VPSS has imposed restrictions on several traditional suppliers of live swine to Russia in February 2014 ostensibly due to sanitary and animal health reasons. Shipments of live swine from the EU and Belarus have been restricted due to ASF and from the United States and Canada because of PED detections. As a result, live swine imports dramatically declined from 88,869 head in 2013 to just 7,606 head in 2014. During the first half of 2015, only 295 head were imported from Norway, according to Russian customs data. Most large commercial producers in Russia use breeding animals raised on local breeding farms, including from operations owned by international companies. There is concern among many market analysts that the interruption in hog imports will impact production efficiency in the upcoming years. According to industry contacts, producers are more interested in having purebred breeding hog shipments restored than imports of slaughter animals.

Pork

Pork Production, Supply & Distribution (1,000 MT CWE)

Meat, Swine

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

Slaughter (Reference)

34,750

34,750

35,300

35,800

0

37,400

Production

2,510

2,510

2,560

2,630

0

2,780

Total Imports

515

515

200

300

0

200

Total Supply

3,025

3,025

2,760

2,930

0

2,980

Total Exports

1

1

1

1

0

1

Human Dom. Consumption

3,024

3,024

2,759

2,929

0

2,979

Other Use, Losses

0

0

0

0

0

0

Total Dom. Consumption

3,024

3,024

2,759

2,929

0

2,979

Total Distribution

3,025

3,025

2,760

2,930

0

2,980

(1000 HEAD; 1000 MT CWE)

Pork Production

FAS Moscow forecasts pork production to grow 5 percent over the revised 2015 level and reach 2.78 MMT in 2016. As was previously mentioned, several leading pork producers announced large investments in pork production that are expected to increase capacity by 330,000 MT (live weight) in 2016. Taking into account the production decline of backyard and small private farms, total pork production is expected to reach 150,000 MT (CWE) in 2016. FAS Moscow increased the 2015 pork production estimate to 2.6 MMT, or 4.7 percent growth year-on year due to stabilized feed prices and better than expected demand for pork meat.

Russian pork production is increasing in many parts of the country with the fastest growth being reported in the Central Federal District. GOR officials have made many press statements highlighting continued support for large commercial producers that are capable to expand production due to operational experience, internal financial funds and highly qualified staff. The officials also noted that large operations apply better management practices mitigating the risks related to ASF. NUPP expects to see further production consolidation in the future with up to 80 percent of all pork meat coming from the top 20 largest companies by 2020. NUPP also anticipates that up to 80 percent of all new facilities will be located in the European part of Russia - Central, Northwestern and Volga Federal Districts – as these are the most densely populated areas in the country.

Pork Trade

FAS/Moscow forecasts pork imports to decline to 200,000 MT in 2016, a significant drop from 2015. Local pork producers will likely increase production further replacing imports, which remain relatively expensive due to the weak ruble and poor economic conditions in the near term.

As noted above, pork (HS Codes 0203 and 0210) was included in the food import ban currently in place until August 2016. Additionally, pork trade is limited due numerous SPS restrictions imposed by Rosselkhoznadzor. As of August 1, 2015, roughly 25 percent of pork TRQs have been utilized. The Russian Federal Customs Service reported a reduction of more than 50 percent in pork imports from January – May 2015 compared to the same period in 2014. Only 4 countries have continued to ship pork to Russia, which are comparable or better in volumes than in previous years: Brazil (53,613 MT; - 5.26 % YTD), Ukraine (10,680 MT; +1665% YTD), Chile (4,690 MT; +7.97 % YTD) and Serbia (3,047 MT; +35.7 % YTD).

According to GOR data, 75 percent of Russia's pork imports from January –May 2015 were HS Code 020329 – “Meat of Swine, Nesoi, Frozen" and 10 percent were HS Code 020321 – “Carcasses and Half-Carcasses of Swine Frozen". Ukraine has significantly increased exports of HS 020311 “Carcasses and Half-Carcasses of Swine Fresh, Chilled" to Russia shipping 10,680 MT during the first 5 months of 2015 (1,665 percent increase YTD). These shipments account for virtually all fresh/chilled pork imported by Russia during that time period. FAS/Moscow modified the 2015 pork import projections to 300,000 MT (CWE), which is still a 42 percent decline year-on-year (previous forecast was 60 percent import reduction). The correction was made mostly due to a decline in world pork prices. According to “E-Meat", on August, 5, 2015, the price for half-carcasses imported from Brazil (CIF, St. Petersburg) was 156.9 Rub/Kg (2.60 USD/Kg) which is less than 172.4 Rub/Kg (2.86 USD/Kg) – the average wholesale price for domestically produced half-carcasses.

FAS/Moscow forecasts Russian pork exports to reach 1,000 MT (CWE) in 2015 with the same levels projected in 2016. According to GOR data, Russia exported 891 MT (PWE) of pork in 2014, mostly to Kazakhstan and Belarus. The domestic pork industry, which is strongly supported by the GOR, is actively seeking new markets for Russian pork. A series of articles in public media and statements made by GOR officials promise more intense efforts to opening pork trade with Asian markets in future.

Pork Consumption

FAS Moscow forecasts total pork consumption to reach 2.979 MMT in 2016 - a moderate 2 percent increase year-on-year. The negative effects of trade interruptions and price volatility in the pork market are expected to recede somewhat in 2016 as domestic producers are slated to supply more reasonably priced pork to the market. Consumer demand is also expected to shift back to pork from poultry once the economy passes the peak of the current crisis. FAS/Moscow modified the previous 2015 pork consumption forecast to 2.929, which is still more than a 3 percent decline from 2014 levels. The change reflects improvements in pork supplies followed by the stabilization of pork prices.

In 2015, pork prices in Russia have been more stable compared to 2014 when shipments from traditional foreign suppliers were blocked due to the August 2014 food import ban, ASF in the European Union and Porcine Epidemic Diarrhea in the United States. As a result, the total supply of pork meat dropped by more than 250,000 MT (CWE) raising pork prices in Russia to historically high levels in October 2014.

During the first half of 2015, global pork prices dropped by 40 percent and competitively-priced imported pork from non-restricted suppliers is also available in the market. Thus, according to Rosstat, average consumer prices for bone-in pork in July 2015 were 0.22 percent lower than in January 2015.

Policy

Russian Ministry of Agriculture officials have stated that the budget allocated for supporting agricultural producers in 2016 will remain at 237 billion rubles (3.95 billion USD), the same as in 2015. The main programs in the meat and livestock production sectors are anticipated to remain unchanged. However, the amounts distributed under each program may change. Currently, the most important financial support GOR provides to meat producers (poultry, pork and beef) is compensation of interest rates for long-term (investment) and short-term (operational) loans. Eligible beneficiaries receive subsides from both federal and regional budgets. There is a requirement that only those companies participating in “matching" regional programs may apply for federal subsidies. In other words, regional governments have to allocate funds for “matching" federal programs. This form of support is currently taking place in 2015 but with some changes compared to previous years.

Starting in 2015, funds for beef and dairy projects are allocated under two new specific sub-programs: "Development of Dairy Cattle Industry and Milk Production" and the “Development of Beef Cattle". In 2015, the GOR Budget allocated 11.8 billion rubles13 for the dairy program and 5.1 billion rubles for the beef program to “partially compensate bank interests associated with long-term loans for investment in construction or modernization of production facilities". The goal is to separate the funds for beef/dairy cattle support from poultry and swine and to improve program efficiency and overall control over the distribution of the funds.

Russian producers that are eligible for subsidies first must pay bank interest before receiving government subsidies which will only be provide upon the submission of bank payment confirmation to the regional authorities that administrate the subsidy program. Industry sources have reported long delays (up to 6 months) in subsidy payments in 2013 and in the first half of 2014. The delays occurred mostly due to issues with the administration of the federal program. Some companies had to stop business operations and slaughter their cattle as they experienced major cash flow interruptions or increasing debts resulting from non-payments of the subsidies. Due to this operational problem, the GOR did not consider any new projects for financing in 2013, which had a negative impact on the cattle herd dynamics in 2014. Recently, the administration of the program has reportedly seen some improvements as the federal government avoided delayed payments and significantly improved transaction discipline in 2015. To help the producers cope with the volatility in the financial market in 2015, the GOR decided to subsidize that part of the interest rate, which is equivalent to the Central Bank's key rate.

In 2015, the GOR introduced a new form of support for dairy and beef cattle projects - reimbursement of direct capital investments. According to Russian Ministry of Agriculture officials, 4 billion rubles will be directed for this purpose in the dairy sector in 2015, 7 billion rubles in 2016, and 8 billion rubles in 2017. The subsidies under this program will be paid directly to companies as soon as the construction or modernization of the production facilities is completed.

According to officials from the Ministry of Agriculture, dairy producers are eligible to receive support under both programs – interest rate reimbursements and the compensation of the direct capital investments - which combined may cover up to 70 percent of the costs associated with construction or modernization of dairy farms. Many factors may influence funds distribution so it is not clear what will be the final distribution amount under the new program in 2015. If successful, the new program will likely contribute to cattle herd stabilization and improvements in beef production.

In 2015, the GOR introduced a new sub-program “Support of Animal Breeding, Selection and Seed Breeding" to improve the administration of breeding stock support. Under this new sub-program, the GOR allocated 4.223 billion rubles for purebred livestock production (covers dairy, pork and poultry, but not beef); 380 million rubles for purebred beef cattle, and 100 million rubles for genetic centers. (RS1520 Rules for Allocation of Subsidies for Purebred Livestock Breeding). Funds have been allocated for breeding stock maintenance and compensation of direct expenses for the modernization and construction of new breeding centers.

The GOR has continued supporting dairy producers in 2015 by providing subsidies per 1 liter of milk sold. For this purpose, the GOR allocated 8.133 billion rubles in 2015 with payments being administrated by regional authorities. According to industry contacts, the “per 1 liter of milk" support is anticipated to continue in 2016, which may contribute to a better dairy herd dynamic. An important policy, which is also anticipated to continue in 2016, is the ability of Russian agricultural producers - including cattle and swine breeders as well as pork and beef producers - to be eligible for a zero tax rate on profits.