Russian poultry market braces for a price hike
The product volumes in Russian poultry market have shrunk recently due to a seasonal factor and due to the avian influenza (H5N8) spread in Southern Russia, in Krasnodar Krai, Stavropol Krai, and Rostov Oblast. From there, the disease began spreading into European Russia. Poultry companies plan to increase their prices by about 10% against the backdrop of the continuing avian influenza epidemic while supermarkets want to safeguard their margins. So far trading chains and large producers of poultry meat have agreed to maintain the selling prices for a broiler carcass for three weeks and supply volumes at the level not lower than last year. This should meet the increased demand.
Shortage of hatching eggs
Since the end of last year, there has been a shortage of hatching eggs in Russia. Part of the eggs used by Russian poultry farmers are imported (about 20% of the annual demand). The main suppliers are EU countries, many of which are closed for supplies due to avian influenza. This creates a shortage of this material on the domestic market, and as a result, manufacturers do not have it enough. This has already led to an increase in prices. The situation is also complicated by the fact that China, the world's largest consumer of meat, has begun to develop poultry farming due to a significant loss of pig livestock as a result of African swine fever, and therefore is buying hatching eggs in the market, which makes it difficult to buy, including Russian companies.
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Domestic breeding base is needed
The Russian poultry industry’s production costs have jumped by nearly 6% in February, compared to January. In 2020, the production costs went up by 20% to 25%, but poultry companies constrained the rise in prices, bearing certain costs.
All poultry producers are equally affected by the rise in the cost of production components, but some, such as turkey breeders, also face significant reductions in the supply of hatching eggs. The self-sufficiency of Russia for broiler hatching eggs is about 80%, while for turkey it is less than 10%. That is why it is necessary to support as much as possible new projects to create a domestic breeding base and compensate for the losses for producers of turkey, duck and laying hens. According to the poultry sector experts, it is also equally important to finance a set of measures for additional biological protection of livestock against threats of avian influenza and Newcastle disease.
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Expected support from the Ministry of Agriculture
During the meeting at the Ministry of Agriculture in early March, a number of new measures were proposed that should preserve the financial stability of producers and stabilize prices for poultry and eggs. Thus, the Ministry of Agriculture plans to increase the maximum limit on preferential short-term loans for poultry enterprises from 1 billion rubles up to 1.5 billion rubles per borrower. In addition, it is proposed to extend preferential investment loans for enterprises affected by avian influenza up to 12 years. To reduce the industry's dependence on imported hatching eggs, it is planned to stimulate the development of their own production. In particular, a phased increase in the import customs duty rate for these products is currently being discussed: from January 1, 2022 - from 0% to 5%, from January 1, 2023 – to 15%. The ministry is also considering the possibility of reimbursing part of the investment costs for the construction and modernization of facilities for the production of hatching eggs from 2022. Another support measure can be compensation for part of the costs per 1 kg of manufactured and sold products. It is clarified that this measure will be valid until October 1, 2021 for poultry enterprises that do not increase selling prices.
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Challenges for meat processing plants
Meat processing plants may face a shortage of poultry meat, which will have to reduce the production of sausages in the economy segment. Poultry farms may opt out of premium products such as select eggs and brisket. Russian poultry association (Rosptitsesoyuz) suggests that producers concentrate on making cheaper products like broiler carcasses and C2 table eggs. The new tactic will help companies to maintain their own and consumer interests, in particular to reduce the cost of manufacturing products and offer customers an inexpensive option.