Russian Meat Situation and Outlook
The decade long decline in Russian meat production is forecast to continue in 2000 as the livestock and poultry sectors are faced with high input costs and inefficient production systems. Meat imports remain at low levels following the devaluation of the ruble, and Russian meat consumption continues to fall, even with the provision of food aid.
Meat Production Continues to Fall
Russian meat production (beef, pork, poultry) continues to decline as the livestock and poultry sectors are faced with high input costs for feed and fuel, limited capital for operating expenses, aging and inefficient infrastructure, and limited demand for meat due to declining consumer incomes. According to Russian State Statistics, all types of meat production have been unprofitable for several years, with cattle returns the worst with loss margins of 60 percent, and poultry production the "best" with loss margins of 25 percent.
Cattle numbers continue to fall by 7 to 10 percent annually as farmers have been culling their herds and slaughtering low weight animals in the face of rising feed costs. Sources in the industry don't anticipate any turn around in the cattle sector for at least 5 to 10 years. Interfax, a Russian news service, reported red meat production down by 18 percent for the first eight months of 1999, which reflects this continued decline in inventories, but could also indicate some holding of animals during the summer when fodder was available and feed prices were lower. However, feed prices have started to move up which should lead to increased slaughter and meat production in the fall.
Declines in hog production have been less severe in recent years, running around 2 to 6 percent annually, reflecting better management for both the former state enterprises and increased private sector interest.
Poultry production is the one sector that appears to be turning the corner, with broiler production expected to increase in 2000. While the majority of the industry continues to be plagued with the same problems as the rest of the livestock industry (poor management, lack of capitalization, high mortality and disease, low feed conversion factors) some restructuring has begun. New infusions of foreign capital and increased domestic investment in the sector are modernizing operations and have shifted production into areas with better access to feed ingredients. Improved management of flocks are starting to show reductions in mortality rates and better feed conversion factors and profitability. Some plants are now seeing feed conversion factors of around 2:1 and grow out periods of 45 to 48 days. These, however, are the exceptions, with many facilities still faced with production cycles of 75 days or more and feed conversions of 4:1. Overall poultry production is forecast to fall in 2000 as production outside of the modernizing broiler industry drops off sharply due to inefficiencies.
Achieving better production results will depend to a large degree upon the availability of feed ingredients such as soybean meal and corn, which are currently in short supply. Poultry production bids away feed from hogs and cattle, and tighter feed availability overall is expected to drive up prices in the coming year.
Overall, meat production in the livestock and poultry sectors is still expected to continue to decline, but at roughly 5 percent annually in 1999 and 2000, which is an improvement from the 10 percent annual reductions earlier in the decade. Meat production in 2000 is forecast to total only 3.8 million tons, down from 4 million tons in 1999 and drastically below the level of almost 10 million tons of meat produced in Russia in 1990.
1,000 metric tons
Commercial Imports Lower but Supplies Bolstered by Food Aid in 1999
The August 1998 devaluation of the ruble led to a dramatic decline in meat imports, particularly of chicken leg quarters. However, import volumes did not collapse completely, as initially feared, since reduced demand from both Russia and the Asian economies in 1998 led to reductions in international prices that helped keep a smaller level of imports moving. In addition, there have been some shifts internally to improve processing plant management to cut costs, and to producing cheaper types of sausages in order to meet consumers' needs for less expensive meat products.
Commercial imports of U.S. poultry meat have also been faced with severe competition from highly subsidized exports of pork from the EU which sent pork into Russia at prices below those of leg quarters. A reduction in the EU restitution for pork this fall will reduce that advantage, and is expected to lead to shifts of imports of pork from other sources or possibly increased poultry imports.
In addition to direct commercial imports of poultry meat, significant quantities have been entering Russia via the Baltic countries. This has been particularly true for poultry meat from the United States. While U.S. exports of poultry to Russia are down 80 percent for the first seven months, exports to all the FSU countries are down only 40 percent. As much as 300,000 tons of poultry meat may come in via the Baltics this year, and this quantity is included in the trade and consumption estimates for Russia. If a recent Russian decree restricting customs clearance points comes into effect, it would essentially eliminate this trade. The United States Government has protested that this decree discriminates against certain countries and should not be implemented in its present form.
The European Union and the United States also shipped meat to Russia through their food aid programs in 1999. The following table lists best estimates as to when the announced meat food aid will arrive in Russia. Due to programming technicalities, some of that product may not reach Russia until 2000. At this time, neither the United States nor the European Union have announced any additional supplies of meat food aid for 2000. Many in the trade complain that food aid hampers the development of commercial channels for meat trade. However, only limited quantities of food aid have been distributed so far, with most of the U.S. shipments occurring in September, October, and November, and some of the EU product not expected to arrive until next year.
1,000 metric tons
|Beef - commercial||600||620||485||305||500|
|Beef - aid||0||0||0||195*||--|
|Pork - commercial||450||500||375||250||300|
|Pork - aid||0||0||0||100*||50*|
|Poultry - commercial||1116||1283||820||550||600|
|Poultry - aid||0||0||0||50||--|
* Some of this product may not arrive until 2000.
Meat Availability and Demand Are Reduced
Since the August 1998 devaluation, consumer prices for beef and poultry have more than doubled in ruble terms, which has led to a dramatic reduction in meat consumption since salaries have not kept pace with prices. In order to cope, consumers, in addition to buying less meat, have also begun to substitute poorer cuts of meat into their diets, and are spending more of their household budget on food.
Meat prices are expected to continue to increase in the face of tighter domestic supplies. This factor, combined with continued low international prices in the face of abundant world meat supplies, should lead to some improvement in commercial imports in 2000, limited by the availability of hard currency and consumer purchasing power. However, imported meats, both commercial and food aid, are still viewed by the public as inferior products, be that due to negative publicity on the use of growth promotants, hormones and antibiotics in the United States and other countries, or the prevailing view that it is more patriotic to buy Russian product. Furthermore, there is a strong Russian concern that imported meat depresses prices and disrupts the potential to rebuild the struggling domestic livestock and poultry industries.
Russian per capita meat consumption is now less than half of what it was 10 years ago and has declined to only 36 kg/year. While previous meat consumption levels were high, the reduction has been so substantial, and uneven, that there are now significant sectors of the Russian population faced with protein deficits. The Russian government, with support from the World Bank and U.S. AID, is tracking changes in consumption as part of the Russia Longitudinal Monitoring Survey. A recent report "Monitoring Economic Conditions in the Russian Federation" tracked declines in protein intake in particular by the elderly and children, and noted that they "are approaching levels at which they may impact vulnerable groups unfavorably." Moreover, that report tracked a three-fold increase in households below the poverty level since 1992, with the North Caucasus, Siberia and Far East regions most severely affected.
Assuming a continuation of the current relatively stable economic situation in Russian and no further significant devaluation of the ruble, commercial imports should improve in 2000. Current forecasts assume an increase in commercial imports to at least cover the amount of product shipped under food aid in 1999.
Russian Meat Availability*
1,000 metric tons
* Includes production and imports.
For further information, contact Leanne Hogie, (202) 720-1372.