News & Events | Analysis of the Russian Pork Market

Russia

Analysis of the Russian Pork Market – 2008

Overview

U.S. pork exports to Russia set another record in 2007. While there are some caution signs in the market, the continued strengthening of the Russian economy and the weak U.S. dollar offer reasons for optimism in the coming year.

Russia is the second-largest pork importing nation in the world behind Japan. It is roughly 70 percent self-sufficient in pork production, but the U.S. Department of Agriculture (USDA) recently projected that Russia will have the largest volume increase of pork imports in the world over the next 10 years: 238,000 metric tons (524.7 million pounds) over 2007 levels, a 28 percent increase.

Brazil is the largest pork exporter to Russia (47 percent market share), followed by the European Union (32 percent), the United States and Canada (10 percent each).

U.S. Exports in 2007

U.S. exports exceeded the 49,000 metric ton (108 million pounds) tariff rate quota (TRQ) for muscle cuts by 64 percent. Exports increased 12 percent over 2006 levels to 80,566 metric tons (nearly 177.6 million pounds) valued at $165.3 million.
Exports of U.S. pork variety meats, which are not subject to a quota, increased 75 percent over the same period in 2006 to 19,310 metric tons (42.6 million pounds).

Outlook for 2008

The Russian pork market presents a unique blend of political and regulatory challenges as well as changing market conditions. Balancing that is the continuing improvement in the Russian economy, a retail sector that is modernizing and growing, and a Russian meat trade industry that has proven itself to be adaptable and adept at operating within a sometimes ambiguous market.

Following are several facts to consider:

New Retail Certificate – On Jan. 1, 2008, Russian authorities introduced a new retail certificate designed to level the playing field for countries seeking to export pork to Russia. While the new certificate does not directly affect U.S. producers, it facilitates retail market access for U.S. competitors and eliminates a competitive advantage U.S. companies have enjoyed.
Fewer approved points of entry – Last fall, the Russian Customs Service decided to remove some important customs posts, including posts in Vladivostok in the Far East and the Baltic post in St. Petersburg, from its list of approved points of entry for importing meat products. After a delay, this regulation is now expected to take effect April 15, 2008. While this adds yet another element of uncertainty to working in the Russian market, it looks like Russian authorities will relax the rules due to protests from Russian companies. Clarification is expected after this weekend’s election. It is believed that the list of approved customs posts can be expanded if customs warehouses are set up in accordance with Russian regulations.
Government support for domestic pork industry – Russian authorities have made significant investments in recent years to develop the domestic pork industry as part of the National Development Project for Agriculture, but results remain modest. According to the Federal State Statistics Service, as of Nov. 1, 2007, Russian pig inventory increased 6 percent over the previous year to 17.5 million. USDA forecasts further growth in 2008 to 18.58 million head. Pork production in 2008 is expected to increase by 6 percent while domestic consumption increases by 5 percent and total imports increase by 2 percent, according to USDA estimates.

Dimitry Medvedev, currently first deputy prime minister responsible for the National Development Project for Agriculture, has the support of Vladimir Putin to become the next president of Russia in March 2008. Medvedev, who has been particularly active and committed to this project, is expected to continue to support measures to increase domestic pork production if elected. This topic already has been included in the program of the ruling party, which supports Medvedev’s presidential campaign.

Limiting factors on domestic production – While pork production is increasing, particularly in the South, insufficient infrastructure (slaughter facilities, roads, cold storage and transport) continues to impede the development of a sustainable Russian pork industry. Another key factor limiting growth of domestic production is that Russian farmers do not produce the lean, standardized hogs and cuts required by Russian meat processing facilities outfitted with Western European equipment.

U.S. Pork Industry Competitors

Brazil – Brazil is the biggest pork exporter to Russia, and it will only get bigger with the Dec. 1, 2007, reopening of Russia to Brazilian meat imports from eight Brazilian states (Santa Catarina, Parana, Minas Gerais, Sao Paulo, Mato Grosso do Sul, Goias, Para and Amazonas). Previously, Russia only accepted meat imports from Rio Grande do Sul.

Brazil will remain the driving force in the market and new investment in the Brazilian industry will support growth in pork production. Nevertheless, the weak U.S. dollar and the strong Brazilian ‘real’ have a negative impact on the competitiveness of Brazilian meat products. Brazil’s pork and pork variety meat exports to Russia during 2007 totaled nearly 276,500 metric tons (more than 610 million pounds), a 5 percent increase over 2006. Nearly half of Brazil’s pork exports were bound for the Russian market.

Brazilian pork exports to Russia in January 2008 dropped 49 percent versus a year ago, and 75 percent compared to December 2007. While the reason for the sharp decline is uncertain, the timing coincides with the withdrawal of Russian veterinarians stationed in Brazil. A memorandum of cooperation signed by the two countries Jan. 19, 2008, called for Brazil to manage the veterinarian monitoring of exports to Russia. According to the new agreement, it is the responsibility of the Brazilian veterinary service to guarantee the quality of exports to Russia.

Brazil is attempting to increase its share of the value-added market through branding, packaging, etc., and by positioning itself as a higher-quality producer. At the same time, Brazilian companies are opening more offices in Russia and hiring people with Russian market experience.

The “third country” quota – which is for all other countries besides the EU and the United States, which have country-specific TRQs – is primarily used by Brazil (193,400 metric tons in 2008 – more than 426 million pounds) and is nearly four times larger than the U.S. quota. Brazil also benefits from preferential duties of 11.25 percent on in-quota pork exports compared to 15 percent paid by the United States and the EU.

The European Union – The EU has the largest country-specific quota (249,000 metric tons in 2008 – nearly 549 million pounds) and remains a reliable pork supplier to Russia. EU pork exports to Russia through October 2007 totaled 192,608 metric tons (424.6 million pounds – down 7 percent compared to 2006) and variety meat exports fell 14 percent to 126,570 metric tons (279 million pounds). The larger EU quota creates an additional obstacle for U.S. pork, given the 60 percent duties on over-quota U.S. pork. The introduction of export refunds in the EU, which will make EU pork more price competitive with U.S. pork, could fuel an increase in Russia’s imports of EU pork. Russia is currently the EU’s largest pork export market in volume, followed by Japan. Russia is second to Japan in terms of the value of exports.

In December 2007, Russia lifted its ban on Polish meat imports. The impact of this action remains limited because as of Dec. 19, 2007, only six Polish plants (for both pork and beef) have been authorized for export to Russia.

Conclusion

For 2008, USMEF believes that the U.S. pork industry will easily fill its Russian quota of 49,800 metric tons (109.8 million pounds). If the current economic conditions – weak U.S. dollar versus strong Brazilian real, strengthening Russian economy and expanding retail sector – continue, it is possible that U.S. pork exports will even maintain their current growth path.

Russia

Analysis of the Russian Pork Market – 2008

Overview

U.S. pork exports to Russia set another record in 2007. While there are some caution signs in the market, the continued strengthening of the Russian economy and the weak U.S. dollar offer reasons for optimism in the coming year.

Russia is the second-largest pork importing nation in the world behind Japan. It is roughly 70 percent self-sufficient in pork production, but the U.S. Department of Agriculture (USDA) recently projected that Russia will have the largest volume increase of pork imports in the world over the next 10 years: 238,000 metric tons (524.7 million pounds) over 2007 levels, a 28 percent increase.

Brazil is the largest pork exporter to Russia (47 percent market share), followed by the European Union (32 percent), the United States and Canada (10 percent each).

U.S. Exports in 2007

U.S. exports exceeded the 49,000 metric ton (108 million pounds) tariff rate quota (TRQ) for muscle cuts by 64 percent. Exports increased 12 percent over 2006 levels to 80,566 metric tons (nearly 177.6 million pounds) valued at $165.3 million.
Exports of U.S. pork variety meats, which are not subject to a quota, increased 75 percent over the same period in 2006 to 19,310 metric tons (42.6 million pounds).

Outlook for 2008

The Russian pork market presents a unique blend of political and regulatory challenges as well as changing market conditions. Balancing that is the continuing improvement in the Russian economy, a retail sector that is modernizing and growing, and a Russian meat trade industry that has proven itself to be adaptable and adept at operating within a sometimes ambiguous market.

Following are several facts to consider:

New Retail Certificate – On Jan. 1, 2008, Russian authorities introduced a new retail certificate designed to level the playing field for countries seeking to export pork to Russia. While the new certificate does not directly affect U.S. producers, it facilitates retail market access for U.S. competitors and eliminates a competitive advantage U.S. companies have enjoyed.
Fewer approved points of entry – Last fall, the Russian Customs Service decided to remove some important customs posts, including posts in Vladivostok in the Far East and the Baltic post in St. Petersburg, from its list of approved points of entry for importing meat products. After a delay, this regulation is now expected to take effect April 15, 2008. While this adds yet another element of uncertainty to working in the Russian market, it looks like Russian authorities will relax the rules due to protests from Russian companies. Clarification is expected after this weekend’s election. It is believed that the list of approved customs posts can be expanded if customs warehouses are set up in accordance with Russian regulations.
Government support for domestic pork industry – Russian authorities have made significant investments in recent years to develop the domestic pork industry as part of the National Development Project for Agriculture, but results remain modest. According to the Federal State Statistics Service, as of Nov. 1, 2007, Russian pig inventory increased 6 percent over the previous year to 17.5 million. USDA forecasts further growth in 2008 to 18.58 million head. Pork production in 2008 is expected to increase by 6 percent while domestic consumption increases by 5 percent and total imports increase by 2 percent, according to USDA estimates.

Dimitry Medvedev, currently first deputy prime minister responsible for the National Development Project for Agriculture, has the support of Vladimir Putin to become the next president of Russia in March 2008. Medvedev, who has been particularly active and committed to this project, is expected to continue to support measures to increase domestic pork production if elected. This topic already has been included in the program of the ruling party, which supports Medvedev’s presidential campaign.

Limiting factors on domestic production – While pork production is increasing, particularly in the South, insufficient infrastructure (slaughter facilities, roads, cold storage and transport) continues to impede the development of a sustainable Russian pork industry. Another key factor limiting growth of domestic production is that Russian farmers do not produce the lean, standardized hogs and cuts required by Russian meat processing facilities outfitted with Western European equipment.

U.S. Pork Industry Competitors

Brazil – Brazil is the biggest pork exporter to Russia, and it will only get bigger with the Dec. 1, 2007, reopening of Russia to Brazilian meat imports from eight Brazilian states (Santa Catarina, Parana, Minas Gerais, Sao Paulo, Mato Grosso do Sul, Goias, Para and Amazonas). Previously, Russia only accepted meat imports from Rio Grande do Sul.

Brazil will remain the driving force in the market and new investment in the Brazilian industry will support growth in pork production. Nevertheless, the weak U.S. dollar and the strong Brazilian ‘real’ have a negative impact on the competitiveness of Brazilian meat products. Brazil’s pork and pork variety meat exports to Russia during 2007 totaled nearly 276,500 metric tons (more than 610 million pounds), a 5 percent increase over 2006. Nearly half of Brazil’s pork exports were bound for the Russian market.

Brazilian pork exports to Russia in January 2008 dropped 49 percent versus a year ago, and 75 percent compared to December 2007. While the reason for the sharp decline is uncertain, the timing coincides with the withdrawal of Russian veterinarians stationed in Brazil. A memorandum of cooperation signed by the two countries Jan. 19, 2008, called for Brazil to manage the veterinarian monitoring of exports to Russia. According to the new agreement, it is the responsibility of the Brazilian veterinary service to guarantee the quality of exports to Russia.

Brazil is attempting to increase its share of the value-added market through branding, packaging, etc., and by positioning itself as a higher-quality producer. At the same time, Brazilian companies are opening more offices in Russia and hiring people with Russian market experience.

The “third country” quota – which is for all other countries besides the EU and the United States, which have country-specific TRQs – is primarily used by Brazil (193,400 metric tons in 2008 – more than 426 million pounds) and is nearly four times larger than the U.S. quota. Brazil also benefits from preferential duties of 11.25 percent on in-quota pork exports compared to 15 percent paid by the United States and the EU.

The European Union – The EU has the largest country-specific quota (249,000 metric tons in 2008 – nearly 549 million pounds) and remains a reliable pork supplier to Russia. EU pork exports to Russia through October 2007 totaled 192,608 metric tons (424.6 million pounds – down 7 percent compared to 2006) and variety meat exports fell 14 percent to 126,570 metric tons (279 million pounds). The larger EU quota creates an additional obstacle for U.S. pork, given the 60 percent duties on over-quota U.S. pork. The introduction of export refunds in the EU, which will make EU pork more price competitive with U.S. pork, could fuel an increase in Russia’s imports of EU pork. Russia is currently the EU’s largest pork export market in volume, followed by Japan. Russia is second to Japan in terms of the value of exports.

In December 2007, Russia lifted its ban on Polish meat imports. The impact of this action remains limited because as of Dec. 19, 2007, only six Polish plants (for both pork and beef) have been authorized for export to Russia.

Conclusion

For 2008, USMEF believes that the U.S. pork industry will easily fill its Russian quota of 49,800 metric tons (109.8 million pounds). If the current economic conditions – weak U.S. dollar versus strong Brazilian real, strengthening Russian economy and expanding retail sector – continue, it is possible that U.S. pork exports will even maintain their current growth path.