News & Events | Russian Government Remains Committed to Supporting Farmers

Russian Government Remains Committed to Supporting Farmers

By Yuri Barutkin, USMEF-St. Petersburg Manager

In recent months, the Russian government has followed a sustained policy of supporting domestic meat production and protecting funding for meat production from budget cuts that have been implemented in many other areas. Russian meat processors and the restaurant industry nevertheless remain heavily dependent on imports, at least in part because domestic supplies lack quality and consistency. As a result, Russian meat imports grew 2.3 percent last year to 3.3 million metric tons (nearly 7.3 billion pounds). Imports made up 34.5 percent of all meat consumption: 33 percent of beef, 30 percent of pork and 36 percent of poultry.

In some areas, dependence on imported meat is astonishing. Recent surveys of St. Petersburg restaurants revealed that 80 percent of the meat supply for the food service sector is imported.

It comes as no surprise that the Russian government is very concerned about the food security of the nation and is committed to an ambitious plan of increasing domestic meat’s share to 85 percent by 2012.

Russia’s minister of agriculture, Elena Skrynnik, recently said that this year’s domestic meat production should be no less then 550,000 metric tons (1.2 billion pounds). Some 90 government programs have succeeded in increasing domestic poultry and beef production by 41,000 metric tons (90.4 million pounds).

The reality, however, may not be as rosy as the government projects. Domestic production remains very inefficient. High costs, low productivity, long freight hauls, lack of infrastructure and a high mortality rate in the herd make Russian meat very expensive to produce. The large numbers of backyard beef and pork producers are grossly inefficient but are likely to remain important contributors to Russia’s meat supply because they play an important social role in rural life.

Since the government is committed to lowering Russia’s dependence on imports, producers continue to lobby for a decrease in import quotas. Artificial limitations to imports allow domestic producers to make money. Large companies invest in vertical, farm-to-fork agricultural production, buoyed by government subsidies that keep profit margins high, and the future promises growth. Meat consumption in Russia is still only two-thirds of consumption in Western Europe and the United States.

The question for the Russian government is not just how to increase meat production but what is needed to create efficient domestic meat production. Imported meat keeps domestic prices under control. Prices for imported meat in the store are vivid indicators of what efficient production can do. Even with transportation costs and import duties, imported meat is less expensive.

In my view, the Russian government has no plans to eliminate imports because they encourage efficient production at home, fill in the gaps in supply and provide important food security.

Domestic production has a long way to go in improving efficiency before it can challenge imports.

In recent months interesting and contradictory stories have come out of Russia. On one hand some industry players forecast meat consumption in Russia will drop 15 percent to 20 percent due to the rise in meat prices and decreasing incomes, but others predict a more modest decline of 2 percent. Yet one Moscow government official told the media that despite the financial crisis, Muscovites actually increased meat consumption by 5,000 metric tons (11 million pounds) in the first five and a half months of 2009.

The truth, as always, lies somewhere in between. Meat consumption will most likely drop across the country. Pork and poultry will be substituted for beef; poultry and variety meat for pork.

The positive news though is that Russian consumers, as a rule, are very intelligent and educated in their meat purchases. We do not see any signs that A-H1N1 hysteria affected the consumption of pork or beef.

Another interesting media story last week was that the Moscow government was raising its meat reserves to 10,000 metric tons (22 million pounds) from about 2,000 metric tons (4.4 million pounds) because of concerns over interrupted supplies from Latin America due to the A-H1N1 crisis.

In the meantime, Russian retail food sales this year are forecast to grow at less than half 2008’s pace – although still high compared to many other nations – as the credit crunch has led to lower salaries and discouraged consumers, according to Prosperity Capital Management. Sales will increase 11 percent, compared with 24 percent last year, Prosperity estimated. Russian retail sales overall rose 28 percent to 13.9 trillion rubles ($444 billion) in 2008, fueled by higher wages and consumer spending, according to the Renaissance Capital investment bank.

The prospects for U.S. meat in the Russian market are promising despite all recent difficulties and challenges. Russia is not an easy market but there is no such thing as an easy export market. On the plus side, it’s a country of 140 million people with a tradition of eating meat deeply rooted in its heritage. Consumption is bound to grow and domestic production lags far behind the efficiency of the U.S. industry.

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The U.S. Meat Export Federation (www.USMEF.org) is the trade association responsible for developing international markets for the U.S. red meat industry and is funded by USDA, exporting companies, and the beef, pork, corn and soybean checkoff programs.