Report Highlights:

FAS/Moscow forecasts Russian broiler production to increase to 3.65 million metric tons (MMT) in 2016 as producers are expected to benefit from stable feed prices and reduced imports resulting from favorable exchange rates and restrictive trade policies. 2016 broiler meat imports are anticipated to drop to 100,000 metric tons (MT) from 220,000 MT in 2015. Broiler meat consumption in 2016 is expected to stabilize at 3.705 MMT, slightly lower than 3.735 MMT in 2015. The Russian government has announced further support to the domestic poultry industry, both financially and in seeking new export markets, as the industry faces increased financial risks. FAS/Moscow forecasts moderate growth of Russian poultry exports in 2016 to 45,000 MT.

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 its 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 three percent to 3.65 million metric tons (MMT) in 2016 due to production expansion by major producers; strong grain crop forecasts; and favorable feed prices as a result of wheat export duties introduced by the Government of Russia (GOR). There is, however, a risk of broiler meat market over-saturation despite the continued restrictions placed on certain important foreign suppliers. The risk of over-saturation of the Russian broiler meat market is expected to heighten in 2016 as the market sees growing production and competition among local producers resulting in possible declines in poultry prices for consumers.

FAS/Moscow has revised the 2015 production estimate to 3.55 MMT. Russian consumers are responding to the current economic crisis making demand for poultry meat stable given its competitive price when compared with other meat products. Also, local products continue to replace imports – FAS/Moscow decreased the 2015 import forecast by 100,000 MT anticipating only 220,000 MT of broiler meat shipments in 2015. Overall poultry meat imports are expected to drop by approximately 50 percent compared to the previous year due to the decline in value of the ruble and the closure of the market to many trading partners due to the import embargo undertaken by the GOR in reaction to Western sanctions.

FAS /Moscow forecasts broiler meat consumption in 2016 to stabilize at 3.705 MMT, slightly lower from 3.735 MMT in 2015. Russian government officials report that the economic slowdown is anticipated to recede in 2016. If true, it would most likely lead to consumer demand shifting back to other meat products - primarily pork.

FAS/Moscow forecasts 2016 broiler meat exports to reach 45,000 MT, 10,000 MT more than in 2015. While the Eurasian Economic Union (EAEU) markets (namely Kazakhstan) will likely remain the major destination for Russian broiler meat, exports to the Middle East and Africa may also increase in the following years as Russian producers begin focusing on those markets.

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

Poultry, Meat, Broiler Russia

2014

2015

2016

Jan 2014

Jan 2015

Jan 2016

USDA Official

New Post

USDA Official

New Post

USDA Official

New Post

Production

3,250

3,260

3,400

3,550

0

3,650

Total Imports

450

460

320

220

0

100

Total Supply

3,700

3,720

3,720

3,770

0

3,750

Total Exports

42

44

40

35

0

45

Human Consumption

3,658

3,676

3,680

3,735

0

3,705

Total Dom. Consumption

3,658

3,676

3,680

3,735

0

3,705

Total Use

3,700

3,720

3,720

3,770

0

3,750

Total Distribution

3,700

3,720

3,720

3,770

0

3,750

(1,000 MT)

Broiler Production

FAS/Moscow forecasts broiler meat production to reach 3.65 MMT in 2016, which is 100,000 MT or three percent growth year-on-year. Production growth in Russia is anticipated to slow compared to the nine percent increase estimated in 2015 because the growth of the poultry industry will likely be offset by increasing price competition which will put downward pressure on margins.

Several industry leaders in Russia have announced new investment projects which will expand broiler meat production in 2016. For example, "Agrosila" (in Tatarstan), "GAP Recourse"(in Tambov Region), "Agrokomplex" (in Krasnodarskiy Krai), "Reftinskaya" (Sverdlovsk region), "Miratorg" (in Bryansk) and other producers have announced new projects involving either purchases of production plants and/or modernization projects. The Ministry of Agriculture has published a list of 65 projects totaling 64.9 billion rubles (over 1.1 billion USD) investment in additional poultry production in 2015-2016. As these projects reach finalization, they will increase production capacity by 455,000 MT of poultry meat products.

Despite the current economic crisis in Russia, all three major broiler meat producing companies in Belgorod oblast (the leading broiler meat producing region in Russia) increased production in the first half of 2015. Prioskolye, the largest Russian broiler meat producer (445,000 MT in 2014) was able to maintain its production volume (one percent increase from Jan-May 2015); Belgrankorm increased production by 22,000 MT (32.6 percent) compared to the first 5 months of 2014, while Belaya Ptitsa, the third largest producer in Belgorod, increased production by 10,000 MT or 18.6 percent.

Another expected positive in the market is a drop in price volatility in the domestic feed market. Effective July 2015, the Government of Russia (GOR) introduced another floating export duty on wheat, which replaced the expiring June 2015 export tariffs. This tariff and the earlier export tariffs are designed to prevent volatility in domestic grain prices. Leading poultry producers in Russia are also utilizing flexible feed strategies such as investing in grain and feed production assets and using financial instruments to mitigate pricing risks.

Stabilization of feed prices contributed to positive production dynamics in 2015. Grain is an export commodity in Russia and prices in 2014-2015 were influenced by the balance between supply and demand and the volatility of the Russian ruble. The ruble to USD Exchange rate increased from 40 rubles per 1 USD in October 2014, to almost 70 rubles per 1 USD in January 2015 making exports of wheat very attractive. As a result, domestic grain market prices peaked in January 2015. In order to stabilize the domestic grain market, the GOR enacted export tariffs for wheat in the amount of 15 percent of the customs value, plus 7.5 euros, but no less than 35 euros, for 1 MT from February 1, 2015, through June 30, 2015. As a result of these tariffs, the domestic grain prices have been dropping since February resulting in lower than the three-year average dollar grain prices in European Russia.

However, despite this increase in plant production and stabilization of feed costs, the market is still expected to experience slower growth in 2016 in comparison to the previous few years. The demand for poultry meat as a better priced alternative to red meats is likely to stabilize at 2015 levels. Meat processors are not expected to increase the share of poultry components in their products in 2016 as they did in 2014 and 2015. Russian government officials have reported that the purchasing power of Russian consumers is expected to stabilize in 2016 which may result in some consumer demand shifting back to pork.

The relationship between Russian broiler producers and grocery retail stores, which is consolidated and represented by large Russian and international players (Magnit, X5 Retail Group, Dixie, O'Key, Lenta, Auchan, Metro Cash & Carry, Billa, and Spar), play another key role in the poultry market. The top 10 largest grocery retailers' account for approximately 20 percent of the Russian broiler meat retail market and discounters and hypermarkets remain important distribution channels for broiler meat. Relations between producers and retailers are among the key factors impacting industry performance in 2015.

When the economy began to slow in the second half of 2014, retailers increased their requirements on suppliers by demanding limited assortment, increased number of deliveries, and restrictions on wholesale price growth for suppliers. These new requirements on suppliers along with declining consumer demand have had a negative impact on producers' margins in 2015 and contributed to increased default risks. According to industry contacts, delays in payments from clients (both retailers and meat processing plants) have recently increased resulting in net cash deficits and growing short-term financial obligations. Producers face cash-gap issues as a result of short-term high interest bank loans (20–25 percent) and increased operational costs (utilities, energy, raw materials, veterinary supplies, etc…).

Agricultural producers, including broiler meat producers, have been lobbying for changes to current legislation aimed at balancing the market powers that exists between suppliers and retailers. On May 19, 2015, the Russian State Duma passed the first hearing on amendments to the Law on Trade. These amendments, which are still under consideration by the Duma, will have a serious impact on Russian retailers as they include a reduction in the amount of allowable marketing fees, shortening the payment window to suppliers for goods, and imposing fines to retailers for violating regulations ranging from 2 - 5 million rubles ($33,000–$82,000).

Russian Ministry of Agriculture officials has stated that the budget allocated for support of agricultural producers in 2016 will remain at 237 billion rubles ($3.95 billion), the same as in 2015. Earlier, the Ministry extended poultry production support programs until 2018. Among the main support measures are the subsidies for partial compensation of interest for investment and short-term loans. In 2015, the GOR allocated 24.1 billion rubles to support investment loans as well as 2.9 billion rubles for short-term loans. In line with import substitution strategies, the GOR launched a new program for the development of national poultry (and livestock) breeding stock. Funds were allocated for breeding stock maintenance and compensation of direct expenses for the construction and modernization of current breeding centers. In addition to subsidies, all Russian agricultural producers, including poultry producers, continue to benefit from a zero tax rate on profits.

A major concern to the Russian poultry industry is biological risk, particularly Highly Pathogenic Avian Influenza (HPAI). In 2015, two HPAI (H5N1) cases were registered in Russia (in Astrakhan region and Tyva). Market analysts have stated that 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. As a result, outbreaks in the regions where large commercial poultry operations are located may lead to significant declines in production.

Despite the economic challenges at the end of 2014 and the first half of 2015, FAS/Moscow increased its previous 2015 broiler meat production estimate by 140,000 MT to 3.55 MMT. The total reduction in broiler meat imports is anticipated to exceed 240,000 MT creating additional demand for domestic products. In the first half of 2015, Russian poultry producers were able to maintain production growth and replace falling imports with domestic broiler meat. According to the Russian Federal Statistics Service (Rosstat), poultry production at large agricultural establishments in the first half of 2015 (which account for 94 percent of all poultry meat produced in Russia) increased by nine percent compared to the same period last year. The trend is anticipated to continue in the second half of 2015 taking into consideration the high foreign exchange risks for importers and continued demand for affordable poultry products from consumers.

Consumption

FAS/Moscow forecasts 2016 broiler meat consumption to stabilize at 2015 levels, or 3.705 MMT, which is a 0.9 percent decrease compared to the revised 2015 broiler meat consumption forecast. Although many local market analysts claim that the economic recession is anticipated to recede in 2016, the demand for poultry meat as a better priced alternative to red meats is still expected to continue at 2015 levels.

According to a report released by ROSSTAT in August 2015, Russian gross domestic product (GDP) declined 4.6 percent, food retail turnover dropped by 7.7 percent, real disposable income declined by 3.1 percent, and real wages dropped by 8.5 percent compared to the first half of 2014. Multiple research polls conducted by official and private organizations inform that Russian consumers are economizing on food purchases in 2015. The Russian research organization "Public Opinion" survey in February 2015 showed that approximately 50 percent of consumers spent less on food purchases in recent months. According to research conducted by PWC, 32 percent of consumers reduced the amount of food purchases, 31 percent switched to less expensive brands, 24 percent started to buy more food items that were on sale, and 19 percent switched to less expensive discount stores. Three major trends being reported in the retail sector in 2015 are the growing use of "private labels", a switch to domestic suppliers, and increasing purchases of less expensive food products. According to multiple media reports, increasing consumer demand for more affordable products is causing the leading retailers to increase the amount of "goods of the first price" or cheapest goods within product groups by an average of 20 percent.

Poultry is the least expensive meat in Russia, and poultry consumption continues to grow. According to the National Meat Association, the share of poultry in total meat consumption will reach 46 percent by the end of 2015 (compared to 21 percent beef and 33 percent pork). Broiler meat remains competitively priced compared to red meats. Rosstat reports that during the first six months of 2015, retail prices for whole broilers varied between 135.2 - 140 rubles per kilogram and 155.7 - 158.5 rubles per kilogram of chicken leg quarters. This is in comparison to 361 - 365 rubles per kilogram of boneless pork and 420 - 448 rubles per kilogram of beef cuts. A reduction of disposable income has resulted in a larger drop in consumption of beef than earlier forecast. Thus, FAS/Moscow anticipates a 1.6 percent increase in domestic broiler meat consumption compared to 2014, and increases its previous 2015 broiler consumption estimate by 50,000 MT totaling 3.735 MMT.

Trade

Taking into account an anticipated increase in domestic production, a weak ruble, and continued market access restrictions placed on important foreign suppliers, FAS/Moscow is forecasting a 52 percent decrease in Russian broiler imports in 2016. Russian broiler imports are estimated at 100,000 MT, which is roughly 120,000 MT lower than 2015 forecast.

In June 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 addition, the GOR is in the process of extending the ban to include five additional countries in retaliation for Western economic sanctions imposed on Russia over the crisis in Ukraine. Meanwhile, the opportunities for non-restricted exporters will also be reduced in a market saturated with competitively priced domestic broiler meat supported by exchange rates favorable to local producers.

Moreover, industry sources report that more than two thirds of Russian meat importers suspended trade operations or even closed their businesses in 2015 as a result of financial difficulties arising from trade restrictions and volatile currency rates. A report published by market information agency, E-Meat, informed that only about 10.5 percent of poultry Tariff Rate Quotas have been utilized through the end of July 2015.

The largest source of broiler meat exports to Russia between January and May 2015 were from Belarus (55,809 MT) and Brazil (24,379 MT). During this period Belarus and Brazil accounted for approximately 89 percent of all Russian broiler imports. Other notable suppliers of broiler meat to Russia in January-May of 2015 were Turkey (6,986 MT) and Argentina (2,088 MT). Despite the increase in imports from Belarus (+17.97 percent), Brazil (+54.6 percent) and Turkey (started poultry exports to Russia in August 2014) from January to May 2015, total broiler imports were approximately 50 percent lower than during the same period in 2014.

FAS/Moscow has decreased its broiler meat import estimate by 100,000 MT in 2015 - from 320,000 MT to 220,000 MT. With the decline of the ruble, the cost of imported chicken in the first quarter of 2015 was comparable to that of local production, but with the added risk of SPS violations and further currency risk. Although, the volume of imports from non-restricted exporters may moderately improve in the second half of 2015 if the ruble stabilizes at a reasonable level.

FAS/Moscow forecasts 2016 broiler meat exports to reach 45,000 MT, or 10,000 MT more than the forecasted broiler exports in 2015. EAEU markets (namely Kazakhstan) are expected to remain the major destination for broiler meat shipments from Russia in 2016. Historically, shipments to Kazakhstan accounted for approximately 40 percent of total broiler meat exports from Russia (excluding exports of sub-products to Asian markets). During the first half of 2015, Kazakhstan was the major destination of broiler meat from Russia– the country imported 11,100 MT of frozen chicken cuts (HS Code 020714), which is an 11 percent increase compared to same period in 2014. Russian exporters also increased shipments of broiler meat to African markets including 1,150 MT to Liberia - 76 percent higher than the same period in 2014.

A moderate increase in poultry exports is anticipated in 2016 as the leading Russian broiler meat producers have intensified market expansion activities focusing on Asian and North African countries. Several leading companies (Poultry Plant "Akashevskaya"; "Bryanskiy Broiler" (Miratorg); GAP Resource; "Chelny Broiler" etc.) have invested in "halal" brands targeted for Middle Eastern markets and industry experts believe that Russia could potentially supply 10,000–20,000 MT of "halal" broiler meat to the Middle East as soon as the markets open to Russian suppliers.

These market access initiatives have been supported by GOR agencies such as the Federal Veterinary and Phytosanitary Surveillance Service (Rosselkhoznadzor) and the Ministry of Agriculture. In June 2015, Rosselkhoznadzor published a list of countries open for Russian meat exports (including poultry meat) along with a list of countries that Russian government officials are currently working with to finalize new export veterinary certificates to gain market access. In July 2015, the Ministry of Agriculture held an intergovernmental meeting to discuss support measures and coordinate efforts for further agricultural export expansion making this a top priority for the GOR.

In the first half of 2015, poultry prices and international trade volumes were influenced by trade interruptions resulting from HPAI outbreak in North America. Despite the weak ruble, Russian exporters were not able to compete with other suppliers in the traditional Asian markets because Western exporters have been able to offer better prices. Thus, as reported by Hong-Kong Census and Statistics Department, Hong-Kong imports of HS Code 160232 (Prepared or Preserved Chicken Meat or Offal) from Russia declined 36 percent from January – June 2015. FAS/Moscow has dropped its 2015 broiler exports forecasts to 35,000 MT.

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

N/A

Aug

240,295

277,740

281,769

316,412

N/A

Sept

241,885

272,306

289,114

325,619

N/A

Oct

258,404

284,067

304,823

338,530

N/A

Nov

263,090

288,425

296,723

336,464

N/A

Dec

279,943

306,582

332,032

361,474

N/A

Russia: Import Volume of Broiler Meat, 2010 – 2014 & Year To Date: 05/2014 & 05/2015, MT(020711, 020712, 020713, 020714, 160232)

2010

2011

2012

2013

2014

Jan-May 2014

Jan-May 2015

% Change Jan-May 2014/2015

World

656,332

463,413

559,539

535,429

465,142

171,627

90,857

-47.06%

Brazil

137,468

64,446

61,847

48,367

117,785

15,769

24,379

54.60%

United States

294,920

239,306

262,882

266,236

137,713

75,380

0

-100.00%

Argentina

6,821

4,745

14,026

8,221

21,699

2,516

2,088

-17.01%

Turkey

41

52

341

0

16,040

0

6,986

100.00%

EU-28

173,912

72,482

76,997

64,946

45,437

26,803

59

-99.78%

Ukraine

75

5,171

30,440

39,691

7,036

2,474

278

-88.76%

* Belarus

37,887

73,434

102,929

103,739

112,516

47,310

55,809

17.96%

**Kazakstan

N/A

10

1,419

2,620

5,925

1,189

1,145

-3.70%

All Others

5,208

3,777

10,077

1,609

991

186

113

-39.25%

Source: Federal Customs Service of Russia; *Belstat; **Eurasian Economic Commission (HS Code 0207; Includes data attributable to some products which are not reported in the PSD)

Russia: Export Volume of Broiler Meat, 2010 – 2014 & Year to Date: 05/2014 & 05/2015, MT (020711, 020712, 020713, 020714, 160232)

2010

2011

2012

2013

2014

Jan-May-2014

Jan-May-2015

% Change Jan-May 2014/2015

World

19,861

38,403

42,252

52,277

64,671

28,104

25,338

-10.21%

Hong Kong

8,420

11,128

10,741

14,683

24,236

10,416

3,184

-69.43%

Vietnam

6,676

6,424

2,650

1,421

5,216

644

1,407

118.48%

Liberia

0

0

54

1,459

946

653

1,202

84.07%

Thailand

0

0

325

2,447

1,834

25

405

1520.00%

Kyrgyzstan

9

3

288

371

1,135

635

1,446

127.72%

Abkhazia

927

929

1,314

1,256

1,341

418

373

-10.77%

* Belarus

694

895

963

1,278

4,769

1,184

1,287

8.70%

**Kazakhstan

18,406

25,538

26,244

23,379

13,233

13,747

3.88%

All Others

3,135

618

379

3,118

1,815

896

2,287

155.25%

Source: Federal Customs Service of Russia; *Belstat; **Eurasian Economic Commission (HS Code 0207; Includes data attributable to some products which are not reported in the PSD)