Highlights

Post forecasts a 310 TMT drop in beef production in 2017 as cattle numbers decline 1.6 percent, mostly at dairy farms impacted by a lack of development funds. Cattle imports are forecast to fall to 50,000 head, as the beef industry utilizes more local dairy bulls in feedlots. Beef consumption declines to 1.785 MMT, while pork recovers to pre-crisis levels, 3.255 MMT. Pork production will grow to 2.98 MMT with heavier animals slaughtered. Beef and pork imports will drop due to shrinking demand for frozen meat from processed meat producers. Trade restrictions and the TRQ continue to influence trade. The Russian government is revising its support program to improve loan availability for the most efficient producers.

Executive Summary

Cattle Production

Total inventories are anticipated to decline 1.6 percent by the end of 2017 due to continued stagnation of dairy farms and low incentives for the inflow of private capital required to develop the beef production sector. Margins for cattle operations remain low mostly due to the high cost of capital in Russia. Because of the current market constraints, state support will focus on reducing of the cost of capital and creating incentives, particularly for major projects with a record of effective use of funds in the past. Beef herds at a few major beef farms in the Central Federal District are growing.

Cattle Trade

FAS/Moscow decreased its forecast of live cattle imports to 50,000 head in 2017 as shipments of beef steers from for feedlots halt due to cattle price increase in Australia, while imports of dairy heifers from the EU may stabilize or even exceed the 2016 volume. Beef industry leaders are purchasing affordable calves from local dairy farms for their feedlots over pedigree imported beef cattle. Strong demand for replacement dairy heifers in Russia is one of a few persistent trends of the country’s volatile milk and dairy market.

Beef Production

FAS/Moscow slightly revised its 2017 beef production forecast by 0.005 MMT to 1.310 MMT due to weak demand for beef and the continued decline of cattle inventories, in particular dairy cows. Despite improvement in the macroeconomic outlook, consumer demand for beef has fallen deeper in 2016 than previously forecasted. Good feed crops and favorable feed prices allowed farmers to keep cattle on feedlots longer, slaughtering fewer, heavier animals.

Beef Trade

With a significantly reduced forecast of beef imports in 2017 to 485,000 MT (CWE), FAS/Moscow anticipates a 6.4 percent annual decline. Meat processors traditionally consume most imported frozen beef, but the sector contracted considerably during the crisis of 2014-2016. Counter sanctions trade restrictions and the tariff rate quota (TRQ) regime continue to influence beef trade in 2017. Russia shows interest in additional beef exporters since Belarus and Brazil have increased market power recently.

Beef Consumption

FAS/Moscow significantly revised its 2017 beef consumption forecast to 1.785 MMT, which is a 3.25 percent decline from the also reduced 1.843 MMT estimate for 2016. Declining demand for traditional processed meat products negatively impacts beef as one of the ingredients. A government decision banned imported food for state and municipal purchases, which additionally favors consumption of pork and poultry of EAEU origin.

Swine Production

Swine numbers are anticipated to increase 2.2 percent by the end of 2017 to 22.335 million head. Growth in industrial farms has offset the decrease of swine numbers at backyard farms. The top 20 producers continue implementation of their investment projects. Investments are shifting from production expansion to operational efficiency. African Swine Fever (ASF) was a strong factor contributing to smaller than anticipated inventories in January 2017; however, fewer swine for slaughter due to ASF supported pork wholesale prices in 2016.

Swine Trade

Expecting no change from 2016 volumes, FAS/Moscow forecasts 8,000 head live swine imports and 8,000 head live swine exports in 2017. Considering the zero import tariffs and existing demand for breeding animals and 5 percent tariff for commercial hogs, an increase in live pig trade is possible as soon as Russia lifts its ASF SPS ban against the European Union (EU). However, the consensus of opinion is that this will not happen before the end of 2017.

Pork Production

FAS/Moscow increased its 2017 pork production by 0.08 MMT to 2.98 MMT (CWE). Commercial pork production will further expand and replace unbranded chilled pork from backyard farms and frozen pork imported from Latin America. As in the poultry industry, Russia’s industrialized pork producers are approaching the capacity to satisfy domestic demand.

Pork Trade

Reducing the forecast of pork imports in 2017 to 300,000 MT (CWE), FAS/Moscow anticipates 13.5 percent annual decline due to faster than anticipated growth in domestic production. In addition, similar to the beef market, shrinking demand from the meat processing sector will contribute to a reduction of frozen pork imports.

Pork Consumption

FAS/Moscow forecasts 2 percent growth of pork consumption to 3.255 MMT (CWE) in 2017. Per capita pork consumption is anticipated to recover to the pre-crisis level of 2013 or approximately 22.9 kg (CWE). Producers offer very attractive discounts, which appeal to consumers who continued looking for promotional sales in the second half of 2016. Pork started regaining market share despite the fact that the consumer price of pork remained higher than for chicken meat. Official statistics show the average consumer price for one kg. of pork meat in January 2017 at 261 rubles, a 1.9 percent decrease year-on-year. Meanwhile, the consumer prices for broiler (in rubles) have increased by 4.4 percent year-on-year.


Animal Numbers,

2015

2016

2017

Market Begin Year

Russia

Jan 2015

Jan 2016

Jan 2017

USDA

Official

New

Post

USDA

Official

New

Post

USDA

Official

New

Post

Total Cattle Beg.

19,152

19,152

18,838

18,879

18,43

18,568

Dairy Cows Beg.

7,982

7,982

7,8

7,8

7,58

7,56

Beef Cows Beg.

490

490

520

548

540

626

Production (Calf Crop)

6,6

6,62

6,52

6,55

6,36

6,41

Total Imports

144

144

65

63

90

50

Total Supply

25,896

25,916

25,423

25,492

24,88

25,058

Total Exports

25

25

15

11

20

10

Other Slaughter

6,655

6,635

6,613

6,548

6,46

6,42

Total Slaughter

6,655

6,635

6,613

6,548

6,46

6,42

Loss

378

377

365

365

350

328

Ending Inventories

18,838

18,879

18,43

18,568

18,05

18,27

Total Distribution

25,896

25,916

25,423

25,492

24,88

25,028


Cattle Production

As of January 1, 2017, Rosstat reported 18.568 million head total cattle and 8.186 million head of cows; at all farms total inventories declined by 1.64 percent, cows by 1.94 percent. FAS/Moscow has changed the 2015 and 2016 year-end cattle stocks in accordance with official statistics. Total inventories are anticipated to decline 1.6 percent by the end of 2017 due to continued stagnation of dairy farms and low incentives for the inflow of private capital required to develop the beef production sector.

Margins for cattle operations remain low mostly due to the high cost of capital in Russia. Farms depend on government financial support, but the Government of Russia (GOR) is currently revising its agricultural program again. Because of the current market constraints, state support will remain focused on reducing of the cost of capital and creating incentives, particularly for major projects with a record of effective use of funds in the past. After a redesign of agricultural subsidies in the 2017 Federal budget, the most significant difference is that the 54 specific subsidies that the federal center previously distributed to the regions have now been merged to seven major budget lines.

Regions will receive funds from the federal budget as “unified agricultural subsidies”, from which their regional agricultural authorities will identify projects to support.The changes to the available financial instruments have added uncertainty to the financial planning of dairy farms, and will offset the positive effects of increased prices for raw milk in 4th quarter of 2016, 1st quarter 2017.

One positive trend in the market is growth of beef herds at a few major beef farms located mostly in the Central Federal District.

Cattle Trade

FAS/Moscow decreased its forecast of live cattle imports to 50,000 head in 2017, which is a 19.3 percent decline from 62,000 head imported in 2016. Shipments of beef steers for feedlots will likely continue to decline in 2017, while imports of dairy heifers may stabilize or even exceed the 2016 volume.

If increased prices for feeder cattle in Australia continue, along with price volatility in the world market and high currency rates risks, then shipments of cattle for slaughter will decline. Russian culinary traditions, taste for processed and minced meat products, as well as declining demand for beef also motivated the beef industry leaders to purchase more affordable calves from local dairy farms for their feedlots, a slight change back from pedigree imported beef cattle herds toward local dual-purpose and even calves of modern dairy breeds.

However, estimates are subject to wide variation based on market pressures. If world prices for beef steers decline and 2017 brings another good crop of forage wheat and soy in Russia’s black soil regions, the imports of beef steers may pick up in the second half of 2017. Modern slaughterhouses and feedlots in Bryansk and Voronezh have enough unused capacity to feed and process additional cattle. Because major beef importers also produce beef, those producers who operate feedlots will choose feeder cattle depending on prices for beef in the world market, costs of forage, and currency exchange rates.

Strong demand for replacement dairy heifers in Russia is one of a few persistent trends of the country’s volatile milk and dairy market. 2016 was another year in which factors other than demand constrained imports. Instead, volatile exchange rates and changes of the state support program, resulting in difficulties financing new cattle purchases, were the main limits on imports. Growth of dairy prices in the last quarter of 2016 first quarter of 2017 may improve financial performance such that farms can borrow funds for development at reasonable interest rate; as a result, imports of purebred breeding dairy heifers may exceed 2016 levels, in particular in the second half of 2017.

The Federal Customs Service reported 62,885 head live cattle imports in 2016 with a total value of USD 106.266 million. Compared to 2015, the annual decline of cattle imports was 56.4 percent in absolute numbers, while in value the imports declined only 39.4 percent. On average, importers paid USD 1,689 per head, or 38.84 percent more than in 2015. Russia imported 26,672 steers for feedlots from Australia (HS Code 010229) in 2016. Feeder cattle arrived from Australia in three shipments, the last one in April 2016. No commercial cattle for slaughter were imported from Australia the second half of the year. Imports of dairy heifers from the EU grew 5 percent in quantity, but declined approximately 10 percent in value, as exporters reportedly offered discounted prices. Major heifer suppliers are the Netherlands (13,046 head), Germany (8,925 head), Hungary (3,651 head), Denmark (2,480 head), France (583 head), and Ukraine (540 head). In particular, in 2016 the Netherlands increased shipments of dairy heifers to Russia by 36.4 percent, and Germany by 5.3 percent.

The United States and Canada used to be key suppliers to Russia but did not export any live cattle in 2016, mostly due to the risk that currency rates could fluctuate during veterinary quarantine and shipping. However, cattle genetics from North America is in demand as producers improve operational efficiency on their farms. Imports of bovine semen, HS Code 051110, grew 60.7 percent in value in 2016 to 7.88 million USD. The United States and Canada together accounted for 85 percent of this trade, a trend which is expected to continue in 2017.

The Russian government is remodeling its agricultural program, but the focus on improvement of genetics of the national cattle herd will remain strong in 2017. The counter-sanctions trade restrictions on agricultural products from major western suppliers do not apply to live cattle and genetic material. The zero VAT rate applies to trade operations with domestic and imported purebred breeding cattle, semen and embryos of purebred breeding bulls until December 31, 2020. GOR intends to support breeding work and enhance the genetic evaluation system.

FAS Moscow decreased its cattle exports forecast to 10,000 head in 2017, which is a minor decrease from the revised 2016 estimate. In 2016, live cattle exports dropped 58 percent in quantity to 10,804 head and 25 percent in value to USD 4.98 million. The decrease of shipments from Russia is due to high prices for cattle in the domestic market. Meat plants in Russia are paying better prices for slaughter cattle than importers from neighboring countries. Some recovery in cattle exports to two traditional destinations, Azerbaijan and Kazakhstan, is possible in 2017 if recovering oil prices improve the economic situation in these oil-exporting countries.


Meat, Beef and Veal

2015

2016

2017

Market Begin Year

Jan 2015

Jan 2016

Jan 2017

Russia

USDA

Official

New

Post

USDA

Official

New

Post

USDA

Official

New

Post

Slaughter (Reference)

6,655

6,655

6,613

6,548

6,46

6,43

Production

1,355

1,355

1,34

1,335

1,315

1,31

Total Imports

621

621

585

518

585

485

Total Supply

1,976

1,976

1,925

1,853

1,9

1,795

Total Exports

10

10

10

10

10

10

Human Dom.Cons.

1,966

1,966

1,915

1,843

1,89

1,785

Other Use, Losses

0

0

0

0

0

0

Total Dom.

1,966

1,966

1,915

1,843

1,89

1,785

Ending Stocks

0

0

0

0

0

0

Total Distribution

1,976

1,976

1,925

1,853

1,9

1,795


Beef Production

FAS/Moscow slightly revised its 2017 beef production forecast by 0.005 MMT to 1.310 MMT due to weak demand for beef and the continued decline of cattle inventories, in particular dairy cows. Specialized beef cattle businesses were introduced to Russia about ten years ago, but despite a growing number of beef farming projects, over 90 percent of beef still originates from dairy cattle.

The 2016 production estimate has been corrected to 1.335 MMT in accordance with preliminary Rosstat production data, also 0.005 MMT less than the previous forecast.

Despite some improvements of the macroeconomic outlook, consumer demand for beef has fallen deeper in 2016 than previously forecasted. Good feed crops and favorable feed prices allowed farmers to keep cattle on feedlots and pastures longer, slaughtering fewer, heavier animals. Weak demand for beef impacted the domestic industry less than non-banned suppliers; therefore, the 2016 beef import estimate and 2017 beef import forecasts have been reduced significantly.

Beef Trade

FAS/Moscow significantly reduced the forecast of beef imports in 2017 to 485,000 MT (CWE), anticipating a 6.4 percent annual decline of imports. FAS/Moscow changed 2016 beef imports estimate to 518,000 MT (CWE) from the previous 585,000 MT (CWE). Imports of frozen beef usually grow July-December compared to January-June, but this did not happen in 2016 due to weak demand for frozen beef from the meat processing sector and strong competition from domestically produced pork and poultry.

Meat processors traditionally consume most imported frozen beef, but the sector has and contracted deeper than previously anticipated due to the crisis of 2014-2016. Production of sausages contracted approximately 0.5 percent in 2016. Moreover, canned meat production has fallen approximately 20 percent in four years. Imported frozen beef used to be a traditional ingredient for meat preserves, in particular for state procurement needs.

However, on August 22, 2016, GOR issued Decree # 832 to ban goods originating from non-EAEU member countries for public procurement purposes. The Decree contains a list of various products subject to the ban including chilled and frozen beef and veal, chilled and frozen pork, and chilled (but not frozen) poultry meat. If State and municipal procurement services switched to locally produced pork and poultry, which is reasonable given meat prices, then demand for imported beef would fall even more.

Margins in the sector decreased 10 percent on average since the beginning of 2015. NUMP estimates that expenses of sausage producers increased 45 percent in 2014 and 15 percent in 2015, while retail prices for sausages increased 19 percent and 5 percent correspondently. Many meat processing businesses are balancing on the precarious edge of profitability. At the same time, large meat producers from the domestic top twenty list were actively developing their own meat processing and branding. As a result, affordable locally produced chilled or marinated pork and poultry is winning the market from half-cooked and ready to eat processed meat products made from imported meat, in particular from frozen beef.

Belarus, Brazil, and Paraguay accounted for 93 percent of Russia’s beef imports in 2016, and most likely these three countries will remain the key exporters in 2017. Belarus increased its beef exports to Russia by 12 percent compared to the previous year, and shipped 198,856 MT CWE. Both Brazil and Paraguay decreased their beef exports to Russia by 21 percent to 180,741 MT CWE and 104,403 MT CWE, respectively. The total value of Russian beef imports in 2016 was 1.142 billion USD.

Counter sanctions trade restrictions and the tariff rate quota (TRQ) regime continue to influence beef trade in 2017. The counter-sanctions ban on a variety of agricultural products (including beef, HS codes 0201, 0202, and 0210) from a number of western countries is effective at least until the end of 2017. The tariff rate quota trade regime continues without change in 2017 for non EAEU-members. Russian importers are currently allowed to bring in 40,000 MT of chilled beef and 530,000 MT of frozen beef under 15% in-quota tariff rates (compare to 55% tariff out of quota).

As estimated by E-Meat, importers utilized 39.7 percent of TRQs for frozen beef (HS Code 0202), which amounted to 210,300 MT in 2016. Approximately 93 percent of all beef imports from outside of the EAEU were in-quota shipments of frozen beef. The imports of chilled beef from non-EAEU exporters almost stopped.

Suppliers from the EAEU do not pay tariffs when exporting to Russia. However, shipments from EAEU countries, in particular Belarus, are unlikely will grow significantly in 2017. Fresh or chilled beef (HS Code 0201) accounts for approximately 70 percent of imports from Belarus. Competition in the chilled and premium segments has intensified because Russia’s industry leaders aim to increase sales of branded chilled beef.

Bilateral trade relations between Russia and Belarus worsened in the end of 2016, and multiple disputes remain unsolved up to March 2017. After both countries issued a series of unfriendly SPS trade restrictions, a lawsuit was filed in Belarus against the head of Russia’s Sanitary-Phytosanitary Surveillance Service (VPSS or Rosselkhoznadzor). Russia is searching for additional suppliers of beef (and dairy) products to reduce the market power Belarus and Brazil have gained since 2014.

Beef Consumption

The annual contraction in retail trade slowed to 4.9 percent in 2016 from 14.1 percent in 2015. Real wages have stopped declining in all sectors since August 2016; annualized food inflation in 2016 was 4.6 percent. The economic outlook has slightly improved; however, after two years of intensive reduction, the demand for beef continues to fall due to vigorous price competition from other meats. FAS/Moscow significantly revised its 2017 beef consumption forecast to 1.785 MMT, which is a 3.25 percent decline from the estimated, also reduced 1.843 MMT consumed in 2016.

Development of the retail sector has had a significant influence on consumption patterns. For example, chilled meats and modern half-cooked meat products are replacing frozen meat and processed meat products. Declining demand for traditional processed meat products, such as cold-smoked salami, negatively impacts beef as the traditional main ingredient. Demand for beef in retail and processing was further weakened by a government decision to ban imported food for state and municipal purchases that additionally favored consumption of pork and poultry of EAEU origin over frozen beef from Latin America.

The share of top ten largest leading retail chains continued to grow toward 27 percent of the market in 2016 and is expected to reach up to 40 percent of the market13. Expansion will continue in 2017: the second largest chain in Russia, X5 Retail Group, has announced plans to open 2,000 new grocery stores. Modern retail offers enhanced logistics and storage capacity and brings new types of fresh and extra fresh products to new locations. It shapes new consumption trend such as growing consumption of chilled meat, growing sales of branded products and private labels, growing sales of cuts and semi-cooked meat products, declining bulk sales of unbranded whole frozen meat, and declining meat distribution via traditional farmers markets and independent sellers. In a market where consumers economize on many items, one surprising new trend is the growth in consumption of premium chilled beef cuts while less expensive frozen beef is losing the market.

Swine


Animal Numbers,

Swine

2015

2016

2017

Market Begin Year

Jan 2015

Jan 2016

Jan 2017

Russia

USDA

New

USDA

New

USDA

New

Official

Post

Official

Post

Official

Post

Total Beginning

19,405

19,405

21,267

21,345

22,3

21,885

Sow Beginning Stocks

2,42

2,42

2,48

2,48

2,54

2,53

Production (Pig Crop)

39,76

39,83

41,031

41,474

42,316

42,97

Total Imports

2

2

5

8

6

8

Total Supply

59,167

59,237

62,303

62,827

64,622

64,863

Total Exports

2

2

3

7

2

8

Sow Slaughter

0

0

0

0

0

0

Other Slaughter

35,8

35,8

37,7

38,55

39,5

40,1

Total Slaughter

35,8

35,8

37,7

38,55

39,5

40,1

Loss

2,098

2,09

2,3

2,385

2,37

2,4

Ending Inventories

21,267

21,345

22,3

21,885

22,75

22,355

Total Distribution

59,167

59,237

62,303

62,827

64,622

64,863


Swine, Production

FAS/Moscow anticipates 2.2 percent increase of swine numbers by the end of 2017 to 22.335 million head. In accordance with official Rosstat data, FAS/Moscow has changed its 2017 beginning swine inventory estimate for to 21.885 million head, 0.415 million head fewer than the previous estimate, but still 2.4 percent increase.

As of January 1, 2017, swine inventories at commercial farms were 4.5 percent (0.791 million head) higher than in January 2016. Growth in the industrial farms has offset the 7 percent (0.234 million head) decrease of swine numbers at backyard farms, and 3.5 percent (0.016 million head) decrease at small peasant farms. The swine herd is anticipated to grow in 2017 as leading commercial pork producers continue implementation of their investment projects. Industry leaders have invested in parent herds with focus on animal health and improved sow productivity for about ten years, and these investments are paying back: the pig crop in 2016 was better than anticipated. FAS/Moscow increased its 2016 swine production estimate by 0.44 million piglets, and the 2017 forecast by 0.65 million.

Another positive factor was the good forage grain crop in the major pork producing regions. Large, vertically integrated pork companies now produce most of the necessary compound feeds for their livestock, so most of industry leaders were able to save on feed ingredients and get heavier animals for slaughter. These improvements allowed a 10 percent increase of meat production out of a 7.6 percent increase of slaughter swine numbers. The ability of these producers to maintain smaller herds while improving efficiency has resulted in smaller year-end swine inventories.

African Swine Fever (ASF) was a strong negative factor contributing to smaller than anticipated inventories in January 2017. Russian Federal Veterinary and Phytosanitary Surveillance Service (VPSS) reported 298 ASF cases in 2016, including 222 detections in domestic pigs and 76 in wild boars. Nine commercial facilities have been impacted, with over 230,000 head of live swine destroyed. The number of outbreaks in 2016 significantly exceeded the VPSS forecast released in the beginning of the year. Nine new cases of the disease have been detected in domestic swine and nine in wild boars since the beginning of 2017, and the epizootic outlook remains unfavorable in terms of ASF control.

Swine Trade

FAS/Moscow forecasts 8,000 head live swine imports and 8,000 head live swine exports in 2017, unchanged from the 2016 volumes. There are over one hundred specialized swine breeding farms in Russia, and these businesses are interested in a continual supply of quality genetics from all leading breeders. Breeding farms will likely continue imports of quality genetics because, similar to live cattle, live swine and swine genetic material are excluded from the trade restrictions which the GOR imposed in August 2014 and extended until the end of 2017.

Rosselkhoznadzor banned the import of live swine in 2014 from Russia’s historical major supplier, the European Union (EU), due to concerns regarding African Swine Fever (ASF). The EU quickly initiated a World Trade Organization (WTO) dispute over the ban, and in August 2016, a WTO dispute resolution panel found that Russia’s country-specific swine and pork ban did not conform to relevant World Organization for Animal Health (OIE) standards and was therefore inconsistent with Russia’s obligations under WTO rules.

The EU exported approximately 30,000 head of swine for slaughter to Russia in 2013, before the ASF ban; and hundreds of thousands in the previous years. Despite the significant boost of pork production in Russia, prices for live pigs in the EU are still lower. For example, in the beginning of February 2017 the price for live pigs in Germany was 1.19 USD per kg. compared to 1.72 USD per kg. in Russia.

Considering the zero import tariff for breeding animals and 5 percent tariff for commercial hogs, a large increase in live pig trade is possible as soon as Russia lifts its SPS ban. However, the consensus of opinion is that the market will not reopen for live swine from the EU before the end of 2017.

In 2016 Russia imported 8,358 head of pigs; 98 percent of which is HS Code 010310, “Swine, Live, Purebred Breeding Animals”. Imports of pedigree pigs from Canada and US were also banned in 2014 due to Porcine Epidemic Diarrhea outbreaks. Canada has since been allowed to re-enter the market19. The total value of live swine imports in 2016 was USD 12.853 million. Imports increased 243 percent in absolute numbers and 126 percent in value.

FAS Moscow increased its live swine export estimate to 7,000 head in 2016, and 8,000 head in 2017. Russia exported 3,340 head of slaughter swine (HS 010392) to Eastern Ukraine: these shipments accounted for half of Russia’s live swine exports. Other important destinations were Kazakhstan (1,725 head, 25 percent of exports) and Georgia (1,529 head, 23 percent). Any further increase in live swine exports from Russia will prove difficult due to epidemic ASF in the country.

Pork


Meat, Swine

2015

2016

2017

Market Begin Year

Jan 2015

Jan 2016

Jan 2017

Russia

USDA

Official

New

Post

USDA

Official

New

Post

USDA

Official

New

Post

Slaughter (Reference)

35,8

35,8

37,7

38,55

39,5

40,1

Production

2,615

2,615

2,77

2,87

2,9

2,98

Total Imports

408

408

410

347

400

300

Total Supply

3,023

3,023

3,18

3,217

3,3

3,28

Total Exports

7

7

20

25

25

25

Human Dom.Cons.

3,016

3,016

3,16

3,192

3,28

3,255

Other Use, Losses

0

0

0

0

0

0

Total Dom.Cons.

3,016

3,016

3,16

3,192

3,28

3,255

Total Distribution

3,023

3,023

3,18

3,217

3,3

3,28


Pork Production

FAS/Moscow increased its 2017 pork production by 0.08 MMT to 2.98 MMT (CWE) after revising 2016 estimate up by 0.1 MMT (CWE) to 2.87 MMT (CWE). The new forecast anticipates 3.8 percent annual production growth. Commercial pork production will further expand and replace chilled unbranded pork from backyard farms and frozen pork imported from Latin America.

As in the poultry industry, Russia’s industrialized pork producers are approaching the capacity needed to satisfy the domestic demand. The output at commercial pork farms increased 12.9 percent in 2016. Backyard farms reduced production by 3.7 percent in 2016 due to increased prices for compound feeds, the African Swine Fever outbreak, and costly new sanitary-veterinary requirements, which together almost completely prohibit hogs at non-commercial homestead farms.

The Russian average monthly wholesale prices for pork in rubles were lower in 2016 compared to the average prices in 2015, mostly due to excess supply and soft consumer demand. The National Union of Pork Producers (NUPP) estimates the average price decline in 2016 at 12 percent year-on-year.

Reduced prices depressed producer margins but did not constrain growth in the largest companies. Of the 20 largest pork producers, which together account for 60 percent of commercial pork, 17 companies increased their output. The net increase for these top 20 producers was 218,000 MT (live weight) in 2016. Small and medium size farms also increased production by 184,000 MT (live weight). The stronger growth was primarily due to improved genetics and focus on better health and efficiency. The record crop of forage grains was another positive in the market that helped smaller producers grow better than expected.

Nine industry leaders plan to continue development and add 1.202 MMT of live swine for slaughter by 2020. High price volatility and veterinary risks remain high in 2017, and smaller farms are more vulnerable to any negative changes. As a result, more intensive consolidation may be seen in the pork sector.

Industry has already built up enough capacity for processing, and focus is shifting from production growth to operational efficiency and production of higher margin, value-added products. The shift of industry leaders (Rusagro, Agrobelogorie, Cherkizovo and others) from only selling live pigs to slaughtering and processing meat has resulted in a seasonal shortage of live swine for slaughter. More efficient producers growing their own feeds will continue gaining the market from non-modernized farms. As mentioned above, the government will continue support investments to improve operational efficiency. Only a few major companies will continue to receive subsidies for projects to expand pork production. For example, major agricultural company Rusagro (ROS AGRO PLC) will receive federal subsidies to expand its pork production in Primorsky Krai (the Russian Far East) to 100,000 MT by 2020, which is the first stage of a major project targeting Asian markets.

Pork Trade

FAS/Moscow revised down the forecast of pork imports in 2017 to 300,000 MT (CWE), anticipating 13.5 percent annual decline due to faster than anticipated growth of domestic production. In addition, similar to the beef market, shrinking demand from the meat processing sector will contribute to a reduction of frozen pork imports. The 2016 pork imports estimate fell to 347,000 MT (CWE) from the previously-forecast 410,000 MT (CWE) also, because pork production at commercial farms grew more than anticipated.

Pork imports in Russia are usually 20-25 percent higher in the 3rd and 4th quarter of the year; however, low pork prices in Russia, higher Brazilian exporter prices22 for Russia, the exchange rates between Ruble and Real, and enhanced sanitary-phytosanitary control over imports resulted in slower pork imports. In the second half of 2016 imports only grew 13 percent over that of the first half.

As a result of intensive consolidation in the pork trade segment, only a few major importers, which are mostly associated with large, vertically integrated meat producing companies, continue profitable pork imports. These companies, in most cases beef and pork TRQ holders, most likely continue to ship frozen pork cuts (HS Code 020329) under the preferential zero tariff rate. In 2016 these importers utilized 55.3 percent of the total tariff quota for pork and shipped 238,000 MT from Latin America. Assuming no significant changes in the trade regime, Brazil will likely remain a key supplier. However, actual imports will strongly depend on world pork prices and the currency exchange rates.

In 2016, 80 percent of Russia’s pork imports were HS Code 020329 (“Meat of Swine, Nesoi, Frozen”) and 6.25 percent were HS Code 020321 (“Carcasses and Half-Carcasses of Swine, Frozen”). Belarus ships 86 percent of Russia’s chilled pork imports and 56 percent of the imports of prepared or preserved pork (HS code 160249).

FAS/Moscow forecasts Russian pork exports at 25,000 MT (CWE) in 2017, unchanged from the previous forecast and exports estimate in 2016. Pork exports increased 284 percent in 2016 to 25,260 MT (CWE), mostly to Ukraine (11,870 MT CWE), Belarus (9,548 MT CWE), and Kazakhstan (1,909 MT CWE). Almost 52 percent of Russia’s pork exports in 2016 were shipments to Eastern Ukraine of products under HS Code 020311 (Carcasses and Half-Carcasses of Swine, fresh or chilled) and HS Code 020321 (Carcasses and Half-Carcasses of Swine, frozen). Russia exported 618 MT of frozen pork to Hong Kong and 245 MT to Japan in 2016. An increase in pork exports from Russia in 2017 is unlikely due to epidemic ASF in the country.

Pork Consumption

FAS/Moscow forecasts 2 percent growth of pork consumption to 3.255 MMT (CWE) in 2017. Per capita pork consumption is anticipated to recover to the pre-crisis level of 2013 or approximately 22.9 kg (CWE). The consumption estimate for 2016 changed to 3.160 MMT (CWE), 5.84 percent annual growth (compare to the previous forecast of 4.7 percent pork consumption recovery).

Producers offered very attractive discounts to consumers, who continued looking for promotional sales in the second half of 2016. Pork started regaining market share despite the fact that consumer price of pork remained higher than for chicken meat. Official statistics show the average consumer price for one kg. of pork meat in January 2017 at 261 rubles, a 1.9 percent decrease year-on-year. Meanwhile, the consumer prices for broiler (in rubles) have increased by 4.4 percent year-on-year.

The main competitor of pork – broiler meat – did not respond to the decline of pork prices with an equivalent decrease due to the limited financial flexibility of poultry producers. In addition, turkey supplies and prices shifted following a High Pathogenic Avian Influenza (HPAI) outbreak in South Russia, which contributed to better demand for swine meat. After two years of recession, important economic and financial indicators show moderate positive dynamics in the second half of 2016: inflation in 2016 was 5.4 percent, far less than the 12.9 percent of 2015. Experts forecast GDP growth at 1.2-1.5 percent in 2017 and a record low inflation at 4 percent. Despite the continued contraction of disposable incomes, by 5.8 percent in 2016, the poverty rate has stopped growing. Multiple independent market research and official statistical data demonstrate that Russian consumers have adjusted to the crisis.

Economic stabilization is the key assumption for projected continued recovery of pork consumption in 2017. GFK Consumer panel data showed growth in regular and promo sales of pork in September 2016. Total pork sales grew 11.6 percent while sales of pork in modern retail stores grew 6.1 percent. GFK research showed that all consumer groups are reducing purchases of chicken meat and increasing purchases of pork.