Market Report Russia March 2018
Simon Grey, General Manager Russia, CIS and Europe, Genesus Inc.
Pig Price is 84 Roubles per live kg ($1.47). Average cost of production quoted at about 65 Roubles ($1.14) and with some of the top companies quoting costs in the 50’s average – profitability remains for most of the world, good at 2200 Roubles ($40).
There is however in Russia a slight mood change. There are still new farms being built and being stocked and still new projects being talked about. This at a time when domestic production nears self-sufficiency.
The WTO has found that Russia’s embargo on meat imports was not legal under WTO rules. The verdict is being challenged, and there is some talk in Russia about withdrawal from WTO!
Russia is now exporting some pork products to Asia and Africa. A lot of talk is about increasing exports. Seems withdrawal from WTO does not help here?
The assumption in the industry is that prices are tracking down!
Many parts of the world can look at current profitability and think ‘we wish’. However, if you are used to profitability of $80 to $100 per pig for several years then $40 is a concern. Many Russia companies I talk with have no idea how to work with the levels of profitability we are used to in the rest of the world, or indeed why you would bother to keep pigs with such low average profitability!
As in all markets the clever companies are already planning how to deal with the reality of lower prices. Of course, and as always, the majority will do nothing until the money runs out and they are forced to act. There will also be those few companies that even do nothing, then with the obvious consequence.
A lot of the world over the past 20 to 30 years have focused on reducing fat. All contracts have paid the farmer for producing leaner and leaner pigs. Has this increased pork consumption? Certainly, in Europe where very lean pigs still receive the most money at slaughter it has done nothing. Pork consumption is at best static!
It seems with pigmeat we have a ‘the world is flat’ syndrome. Lack of fat is so ingrained in the mentality nobody can accept the ‘world is round’!
The glimmer of hope comes from the USA. Several years ago, a major packer looked seriously at what really drives profitability in their plants. Their assumption too was that it would be lean. The result of the study was that the real driver was carcass weight. The bigger the better. Fat had no influence. The result, they turned off the grading machines and paid the farmer to produce heavier pigs.
This is of course good for the farmer to as maximising numbers and weight of pigs sold is the major driver of profitability and minimising cost on a pig farm!
Many Russian plants have invested in and use European technology for measuring lean% in carcass. Seems they have been looking at the wrong continent? Most business are fully integrated. They have production and slaughter plants. For both profitability is driven by maximising throughput – more kg.
Russia is a country, like USA, where the fatter cuts sell for the highest price!
Consumers want value for money. The ideal value for money is better quality at lower price.
There is an association of pale lean meat to chicken and lower price and very good consistency. There is also association dark marbled meat with expensive beef.