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Russian Federation Meat and Poultry Prices Update

10 March 2009

Average retail prices for meat and poultry in Russia increased by more than 23 per cent in 2008 while the increase in overall food prices jumped nearly 18 per cent, according to the USDA Foreign Agricultural Service. Meat market analysts expect this trend to continue in 2009 as the Russian government continues to take protectionist measures to limit imports of meat and poultry.

Executive Summary

According to the Russian State Statistic Service (Rosstat) average retail prices for meat and poultry increased in Russia by more than 23 percent in 2008 while the overall growth of food prices in general jumped by nearly 18 percent. Demand for beef and pork is expected to decrease due to higher prices as Russian consumers begin substituting them for cheaper proteins such as chicken meat and eggs.

The Russian government continues to implement protectionist measures against imported agricultural products such as increasing import duties on butter, soybean meal and dry milk powder, using tariff rate quotas to limit meat and poultry imports, delisting U.S. and European Union meat and poultry plants ostensibly for not meeting Russian requirements and other such actions. Alongside the protectionist climate in Russia, the Russian Ruble decreased by 35% against the U.S. Dollar during the last 6 months making imported agricultural products much more expensive. All of these factors are leading to higher prices throughout the production/import/wholesale trade/retail trade chain.

Incomes Falling, Prices Rising

Rosstat figures demonstrate that disposable income grew just 2.7% in 2008 after jumping 12.1% in 2007. In addition, Rosstat reported that inflation in January 2009 reached 2% with much of it attributed to the rise in meat and poultry prices. 2008 poultry and meat price growth were the most significant compared to other food products (table 1).

The Russian government continues to implement protectionist measures against imported agricultural products such as increasing import duties on butter, soybean me al and dry milk powder, using tariff rate quotas to limit meat and poultry imports, delisting U.S. and European Union meat and poultry plants ostensibly for not meeting Russian requirements and other such action. Along side the protectionist climate in Russia, the Russian ruble decreased by 35% against the U.S. dollar during the last 6 months (1 USD = 23 Rubles in Sep 08 compared to 36 Rubles in Mar 09) making imported agricultural products much more expensive. All of these factors are leading to higher prices throughout the production /import/wholesale trade/retail trade chain.

Ministry of Agriculture officials have publically vowed to limit meat and poultry imports in order to protect domestic meat and poultry producers during the global financial crisis. Outgoing Minister of Agriculture Aleksey Gordeyev has accused imported meat shipments on numerous occasions of driving down farmgate pork prices and expressed the need for serious measures to limit meat imports even if it means increasing prices for Russian consumers. A major cause of concern of Russian government officials is the ability of new pork and poultry producers to repay their subsidized loans financed under the National Priority Project for Agriculture.

Increasing beef and pork prices will likely lead many Russian consume rs to substitute more expensive red meats for poultry meat and eggs. Demand for pork is lower than for poultry and some importers are switching from buying hams and other premium cuts to cheaper pork offals and trimmings which are growing more popular with consumers who watch food prices rise on a monthly basis. With rising demand for poultry in 2009, prices are expected to go up for both domestic and imported products.

Poultry Wholesale Prices

Domestic frozen poultry carcasses and chicken leg quarters’ wholesale prices in Moscow increased by 24% in December 2008 compared to December 2007 (table 2). Prices for imported chicken carcasses increased by 14% while imported chicken leg quarters’ prices increased by 31% during the same time period. Such increases were the largest seen in recent years. The price differential between wholesale domestic and imported chicken leg quarters was always substantial and generally hovered around 10 Rubles/kg in the first half of 2008. The gap decreased in the second half of the year and ranged between 3-6 Rubles/kg.

Poultry Retail Prices

Retail prices for poultry also increased significantly in Moscow (table 3). The top price level increased and wealthier customers can buy more expensive products of well known brands, and buyers with lower incomes can still enjoy chipper products from less known produces coming from removed regions. About 30% of total poultry and meat retail trade takes place at open air market.

Ministry of Agriculture officials have been planning for many years to develop a system of cooperative farmers markets to make distribution chain shorter and thus, allow customers to buy lower priced meat and other food items. According to this plan agricultural products would go straight from the field/farm to farmers markets and would be traded by farmer’s representatives avoiding the retailers.

 

Red Meat Wholesale Prices

Domestic beef wholesale prices increased by 34% in December 2008 over a 12-month period while imported beef prices jumped 36%. Domestic pork prices increased 33.5% while imported pork increased by only 26%. Most of growth occurred in the second half of 2008. High than usual over quota pork and beef imports in 2008 did not stop prices from growing at tremendous rates.

Red Meat Retail Prices

Retail prices for beef and pork increased even higher in comparison with wholesale prices in 2008. The prices for frozen pork and frozen beef jumped by 30% and 35% respectively in 2008 in Moscow region open air markets and hypermarkets. Price increases of chilled pork and beef jumped about the same level during 2008 as well.

Meat Prices Expected to Rise in 2009

Retailers and traders that attended the XIV International Summit of Leaders of the Food Market in Moscow in early February 2008 said that food product prices will likely grow by 25-40 percent in 2009. Minister of Agriculture Gordeyev recently stated that he expects to see new pork and poultry projects continue in 2009 even as market analysts predict a major decrease in domestic production resulting from the financial crisis. Gordeyev optimistically stated that in a couple of years, Russia may “overproduce” poultry meat and eggs making it necessary to introduce production quotas to help keep prices at certain appropriate levels for producers.

March 2009

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