Report Highlights:

FAS Moscow reduced the 2014 broiler production forecast for Russia to 3.1 MMT (from the previous forecast of 3.3 MMT) as a result of lower live bird inventories at the beginning of the year, near market saturation, high indebtedness coupled with low profitability at poultry establishments, as well as other factors. FAS Moscow’s import estimate for Russian broiler imports for 2014 remains unchanged at 530,000 MT, in large part, as a result of unchanged Tariff Rate Quota volumes. Russian broiler exports, however, are forecast to increase in 2014 as the industry increasingly looks to foreign markets to further market domestic production.

Production

2014 Broiler Production

FAS Moscow reduced its 2014 broiler production forecast for Russia to 3.1 MMT (from the previous forecast of 3.3 MMT). If realized this would still be 3 percent growth from 2013 production levels, but which is a slowdown in growth compared to the over six percent growth which occurred during 2012 and which would be the slowest annual growth rate since 1999.

There are a number of reasons for this slowdown in growth and forecast revision, including:

• Reduced poultry inventory numbers: Although 2013 domestic poultry production growth was strong, end-of-the-year inventories for live birds in 2013 were down marginally - 0.3 percent (by comparison inventory numbers at the end of 2012 were up 6.7 percent from the previous year). These lower inventory numbers are likely to constrain production growth this year.

• Near market saturation: Domestic production is estimated to supply over 85 percent of domestic consumption in Russia. As a result, analysts report that the Russian market is nearly saturated and, in order to further market domestically produced products, poultry companies will have to look to export markets to further drive growth.

• Reduced areas for productivity growth: One of the key factors that has driven poultry production growth in Russia in the last two decades has been the shift of production from private household and small-scale operations to more modern agricultural enterprises with modern facilities and greatly improved efficiency. While a large proportion of production for some other meats remains in these smaller establishments (e.g., in 2013, according to Rosstat, only 40 percent of cattle were located at agricultural enterprises), the vast majority of poultry production has already shifted to these larger producers. For example, according to Rosstat, over 80 percent of total birds (including layers) are now located at agricultural establishments, and, for broilers specifically, the Russian Union of Poultry Producers (RUPP) estimates 91 percent are at these establishments. As a result, it is becoming increasingly more difficult to improve productivity efficiency as a means of increasing production.

• High indebtedness and low profitability: The combination of high feed prices during much of 2013, combined with continued low poultry prices (as a result of abundant supplies), sharply impacted profitability of poultry establishments and also increased their indebtedness. The RUPP also reported that delayed government support payments exacerbated this situation. According to RUPP’s estimation, the combination of all these factors decreased poultry production profitability to 3.5 percent in 2013 (compared to 17.2 percent in 2012) which has decreased the investment attractiveness of this sector. The RUPP also estimates that the percentage of unprofitable establishments increased to 44 percent in 2013, compared to 22 in 2012.

2013 Broiler Production

FAS Moscow’s production estimate for 2013 was decreased by 40,000 MT to 3.01 MMT as a result of recently released year-end total poultry production statistics from Rosstat. Nevertheless, this amount is still a 6.3 percent increase from 2012.

The concentration of broiler production in Russia in certain key regions has continued to increase. For example, the 20 largest poultry producing regions produced 71 percent of Russia’s poultry production in 2013, an increase from 68 percent in 2012. The three largest producing regions were Belgorod, Leningrad and Chelyabinsk oblasts. They produced 14.8 percent, 5.5 percent and 5.5 percent of the total production, respectively, in 2013.

As previously noted, Russian domestic poultry production is dominated by large agricultural establishments. Specifically, in 2013, over 90 percent of domestic poultry production occurred at these facilities. Total poultry production on a live weight basis (as reported by Rosstat) in Russia was 5.122 MMT in 2013, compared to 4.864 MMT in 2012. At agricultural establishments, it reached 4.640 MMT in 2013, compared to 4.371 MMT in 2012.

Consumption

FAS Moscow reduces its 2014 broiler consumption forecast for Russia by 5 percent to 3.59 MMT (from the previous forecast of 3.765). This is primarily a result of a decrease in the production forecast and an expectation that imports will remain flat. Population growth in Russia is minimal and there does not seem to be any significant shifting between meat protein sources. Prices for beef and pork, although considerably higher, have remained largely steady vis-à-vis poultry prices.

Poultry Prices

Farm gate poultry prices decreased from 81.8 rubles/kilogram in December 2012 to 70.5 rubles in December 2013, with nearly this entire decline occurring in January and February 2013 as a result of the seasonal spike in production at the end of year.

Trade

Exports

The Russian poultry export forecast for 2014 is decreased to 40,000 MT as a result in a change in methodology. The lion’s share of Russian broiler exports go to Kazakhstan, and the Customs Union (CU) has begun to publish data on intra-CU trade which are not reflected in Russian Customs data. As previously reported, some analysts have observed that CU data underreports trade. Nevertheless, due to a dearth of information that would allow quantification of this, FAS Moscow export estimates will include the official trade data for exports to CU Member States.

Russia’s broiler exports are expected to grow in 2014 (by one-third) as poultry producers increasing look to foreign markets to spur continued production increases. Most likely these markets will initially be composed of the other CU Members States, but recently small export volumes have begun to move to Asian and African markets. 

Consistent with estimates for 2014, Russia’s 2013 exports were revised to 30,000 MT, based on Russian Customs data and CU statistics.

Imports

FAS Moscow’s import estimate for Russian broiler imports for 2014 remains unchanged at 530,000 MT, which is flat from the revised 2013 estimate. Imports from non-CIS countries are controlled by a Tariff Rate Quota, the volumes for which remain unchanged in 2014 (i.e., 350,000 MT). Also imports from CIS countries are not expected to see dramatic shifts. One factor that could impact this forecast, however, is that if the Russian ruble further weakens over the course of 2014, it could yield increased market opportunities for domestically produced poultry at the expense of imports.

The 2013 broiler import estimate is revised down 10,000 MT to 530,000 MT as a result of final Russian Customs data, and Customs Union statistics. The United States remained the largest supplier, followed by Belarus, Brazil and Ukraine. Imports from Ukraine showed the strongest growth of any major supplier, rising 30 percent to nearly 40,000 MT in 2013