Meat A New Vector of Russian Agricultural Export

Although Russian market shows a slowdown of consumer prices of meat and meat products which is largely related to the drop of the population’s incomes, Russian pork supply to foreign markets has doubled in the last nine months. This information was provided by Yuriy Kovaliov, Head of the National Union of Pig Breeders.

Access to foreign markets
According to the Sectoral Expertise Centre of Rosselkhozbank, in 2020, the export volume of meat and meat products increased from 149 mln dollars to 336 mln dollars. Pork export increased four times (up to 85 mln dollars), while beef export increased three times (up to 16 mln dollars). Regarding the countries that import Russian meat, China has jumped to the top of the list with the share of 45% (54%, taking Hong Kong into account). The meat export to Vietnam almost tripled – from 12 to 15%. Ukraine now ranks second in meat export. Its share decreased from 28% to 16%, although the shipments increased from 42 mln to 53 mln dollars.

In January–July 2020, Russian manufacturers more than doubled meat exports, and the access to foreign markets somewhat compensated the losses of the farmers.

Yuriy Kovaliov, CEO of the National Union of Pig Breeders said at the business conference “Meat and Feed Stuff Industry: Markets in New Reality” that in 2020 pork export will exceed 300 mln dollars in value terms. The export of Russian pork has doubled in the last nine months, amounting to about 143 ths t, while at the end of 2020 the pork export may reach 200 ths t.

“The pork export will exceed 300 mln dollars in value terms at the end of the year. Meat export starts to play a serious role in the total export volume of agricultural products to foreign markets,” Yuriy Kovaliov said.

He also pointed out that three or four years ago 2/3 of the pork exports to foreign markets were by-products, while now the meat producers export about 2/3 of meat. Overall, the foreign exports increased by 103% in tonnes and almost by 130% by value.

Currently, there are many factors in terms of supply and demand that determine the growth of the meat market. The slowdown of the business life due to the coronavirus had a negative impact on the situation which led to a drop in the demand for meat products by the catering sector. Moreover, the drop of the population’s incomes leads to a decrease in prices, while the demand in the domestic market becomes more and more asymmetrical: cheap types of meat, such as pork, keep gaining popularity.

Pork breaks records
The studies of the Russian meat market show that pork is the only type of meat, consumption of which is increasing in Russia. Beef was out of demand due to its high price, while the restrictions imposed by the Federal Veterinary and Phytosanitary Monitoring Service had a negative impact on lamb. According to the experts of the National Union of Pig Breeders, the pork consumption grew by 5% (up to 2.92 mln t), while the lamb consumption decreased by 3.8% (to 98.9 ths t), the beef consumption decreased by 2.1% (to 1.16 mln t), poultry – by 1.4% (to 3.6 mln t), other types of meat – by 2.3% (to 35.7 ths t).
In nine months, the pig breeders produced 3.05 mln t of pork, which is by 10% more than in the same period last year; the beef production changed by 0.2% (to 984.1 ths t); the production of lamb and other types of meat decreased by 6.2% and 0.9% respectively. The pork production growth led to the drop in its wholesale price by 4-5%. As the result, the price of premium pork dropped below 90 roubles per 1 kg in May.

Overall, at the end of the year, the export of Russian meat will reach the record levels of 590 ths t, while in value terms it will exceed 1 bln dollars.

“The domestic market becomes more and more saturated, and the producers are looking for new distribution channels,” says Andrey Dalnov, Director of Rosselkhozbank’s Sectoral Expertise Centre. He sees several reasons for the increase in Russian meat export. First of all, it’s the general growth of the world meat trade volume, as well as the competitive prices of Russian products compared to the other large world suppliers. “The growth of pork export is also due to the opening of new markets, particularly Vietnam and Hong Kong,” he added. Andrey Dalnov also said that the export share will be about 6% of the production volume this year, while in the future it will reach 10%.

“In absolute terms, it means 1 mln t of meat and meat products, and the actual export increase will depend on the opening of new markets,” Andrey Dalnov also said. “However, next year the export may increase by 10-15% even without the opening of new strong markets.”

The Export will Correspond to the Import
According to Dmitriy Rylko, CEO of the Institute for Agricultural Market Studies (IKAR), at the end of the year, Russian meat export, including by-products, convenience and finished products will approximately correspond to the import and even exceed it in terms of some trade units. The import component plays an important role in meat production (feed, vitamins, equipment, etc.).

The experts of “Agricultural Analytics Centre” Federal State Institution and Rosselkhozbank’s Sectoral Expertise Centre examined the meat production and sales development in January-July 2020. According to their data, the available meat resources in seven months of 2020 showed a small increase (+1%). Regarding Russian pork, the domestic production and the export to Asia are increasing. The production grew by 12% in seven months versus the 2019 level. According to the National Union of Pig Breeders forecasts, in 2020, the production volume will increase versus 2019 at least by 7% (up to 4.1 mln t). COVID 19 pandemic, the depreciation of currency and the implementation of the 25% flat tax led to the import reduction to 2,000 tonnes within seven months of 2020 (97%).

The available beef volume decreased by 3% due to the import reduction. The demand fluctuations during the pandemic increased the wholesale price volatility in the meat market. Compared to 2019, in some months, the prices varied from -19% to +8 %, and within seven months they fell by 7% versus the same period of 2019.

The difficult cattle keeping and breeding, the long cycle and the significant share of the imported products in the market (the import almost corresponds to Russian production volumes) led to quite high prices (currently, beef is one of the most expensive types of meat in Russian market).

Sectoral Expertise Centre’s experts calculated that the annual average price development may show a negative trend due to the pork supply growth and population’s income reduction (it may decrease from -6% to -4%).

In July 2020, the export of pork products exceeded the 2019’s level several times mainly because of the opening of Vietnam market in late 2019, as well as due to the export growth to Hong Kong and Ukraine. In July, the main foreign importers of Russian pork were Ukraine and Vietnam. Ukraine mostly imported chilled carcasses and semi-carcasses which amounted to 82% of the total import in July. Half of the export to Vietnam was boneless pork (49%), 1/3 – ribs and cuts (35%), 10% – hams, shoulders and cuts. Hong Kong mostly imported ribs (97%), and the shipments increased almost seven times in July compared to 2019.

The annual average price development may show a negative trend due to the supply growth and population’s income reduction. According to the forecasts, the decrease in prices will be from -10% to -4% at the end of 2020. Furthermore, the switch of the demand from the expensive products of animal origin to cheaper products and the switch to substitute products depending on the affordable discounts will continue influencing the price development.

The experts believe that the expansion of shipment geography may help the further growth of meat export. However, the Federal Customs Service’s statistics show that the focus is on the key players. Thus, more than 90% of pork and cattle meat are exported only to five countries. The main buyer of Russian meat is China. In 2020, China imported products for 235 mln dollars (which is 3.9 times more than in 2019). Vietnam is second, as this country increased their import 3.8 times (up to 92 mln dollars). Ukraine imported Russian meat for 80 mln dollars (which is by 14% more than in 2019). The export to Hong Kong increased 2.1 times (up to 47 mln dollars), and to Kazakhstan – by 48% (up to 35 mln dollars).

Due to the current situation, the small and medium businesses are having major difficulties. It’s possible that such companies will be closing down in the near future due to liquidation or bankruptcy. It seems that the prices and the general market situation will be determined only by the largest players.