Russia embraces its new global role in pork

For decades after the collapse of the Soviet Union, Russia was one of the biggest importers in the global pork market. Those times are over now, as the Russian pig industry has not only secured self-sufficiency, but also managed to become a low-cost producer.

Impact of COVID-19

The negative impact of Covid-19 in the Russian pig industry has not been as strong as in some other sectors, for example the beef industry. The crisis has primarily affected the hospitality industry, which is not a major sales channel for pork in Russia. Pork sales in Russia are up thanks to low prices. In the first four months of 2020 the average price for pork in Russia went down by 10%.

Russian companies have to bear high costs in order not to let the virus penetrate their production facilities. With production costs being as much as 15% higher now compared to the previous year, and in the context of falling prices, some companies may make losses. And yet, pig industry may experience a negative impact from the pandemic in future.

Pigs

Current self-sufficiency rate

After 15 years of massive investment exceeding US$ 10 billion, Russia produces pork in the amounts and varieties needed to fully meet domestic demand. In 2018, imports and exports were equal. In 2019, production increased by 150,000 metric tonnes compared to the year before, while exports grew to 90,000 metric tonnes. The market experienced some saturation, due to a slight increase in domestic demand. That affected prices, which have been falling drastically since late 2020.

As for regional distribution of production, it is well balanced. Indeed most production is concentrated in the European part of Russia where a large part of the population is located. The Central Federal District accounts for roughly 40% of the established pork production capacity, but the well-developed logistics system makes it possible to supply pork to remote regions.

Some reduction in pork production takes place in the Far East due to outbreaks of African Swine Fever (ASF), but there are some major projects underway there. There is no expectation on shortage; rather, a surplus of pork is forecast there, since those projects were laid down with excessive capacities to be able to export pork to China.

Investment attractiveness of Russia’s pig industry

Many pork companies are vertically integrated which adds to their stability, though it is obvious that old pig farms and a lot of backyard production will go out of business. The companies  constantly tryi to lower production costs and increase efficiency. The cost of production at modern facilities is around US$ 1.1–1.2/kg live weight. The price for grains and pig feed is not low, but remain stable, plus the expanding export opportunities offer room for profitability growth.

In spite of the current price situation, the overall investment in the Russian pig industry is expected to be around 200 billion roubles (US$ 3.3 billion) by 2023.

Piglets

Changes in the pig industry

Starting from 2019, state-subsidised soft loans are no longer issued for the construction of new pig farms. There is also uncertainty about new environmental requirements for Russian pig farms, specifically that treat them as being in the highest class of danger. This creates additional costs.

There is the question of measures the government is taking in regard to tackling ASF. A modern Russian pig farm with 2,750 to 5,000 sows has to spend up to 50 million roubles (US$ 800,000) protecting itself against ASF and maintaining additional biosecurity measures.

Backyard farms decline

The decline in backyard production began long before the ASF epidemic in Russia and the rapid growth in industrial pork production. In 2005, backyard farms in Russia produced about 1.1 million tonnes of pork or more than 70% of total production, and at that time we forecast that by 2020 this figure would fall to 350,000 metric tonnes, so they would account by then for less than 10% of the overall production in the country. This forecast turned to be rather precise. Though the backyard farms will not disappear completely.

Prospects of tackling ASF

There are positive developments, as companies have taken serious steps aimed at preventing new ASF outbreaks. Authorities throughout Russia have become more experienced in dealing with this issue, though the picture is far from ideal. Russia has established a regionalization programme, which can guarantee ASF-free pork supply from the regions free of the virus. Also compartmentalization is implemented, meaning that every company in the supply chain can receive its own biosecurity status defining how well it is protected against ASF. In addition, the Russian government is likely to introduce mandatory labelling of all pigs and other livestock in the country in 2022. Mandatory labelling is needed to ensure full traceability of livestock production on the Russian market and decrease the number of outbreaks of animal diseases.

Piglets drinking

Export prospects

A lot of hopes are focused on the Chinese market. Given the geographic proximity, exports to China could be an important factor to achieve comfortable pork prices in Russia. The average pork price in China is 2.5 times higher than in Russia. Nevertheless, trade negotiations with China are very complicated and long lasting. The government agencies of Russia and China could design a system ensuring supplies of safe pork, but so far this has not happened. Russian market players estimate that the country could export to China between 350,000 to 1 million metric tonnes of pork per year.

Other promising markets are South Korea and Japan, but they remain closed to Russian pork producers. The industry plans to concentrate on available markets in Africa, as well as Vietnam, Hong Kong, Singapore, Venezuela and countries in the Commonwealth of Independent States. The talks with the Philippines and Indonesia also take place.

Production costs

The industry has achieved great results in cutting production costs. Today the cost of production at modern farms and slaughterhouses is similar to that of the effective European or American producers. The price for pork carcasses is lower than in most EU countries, and is not higher than in Brazil. Only Canada and US are offering cheaper products than Russia.

Sources: PigProgress

Agricultural team Moscow