Rabobank: Russian meat industry to change
Over the last ten years, the Russian meat industry has grown at an extremely fast rate. However, according to a new report by Rabobank, fundamental changes including lower projected domestic consumption growth and Russia’s recently acquired World Trade Organisation (WTO) membership will drive the industry towards a phase of lower growth over the next ten years.
These developments are likely to compel Russian and international companies with exposure in Russia to alter their strategies. Attractive opportunities for companies exist, but action is required to capitalise on them. In the coming decade, the industry’s market focus will shift from volume to value. Rabobank expects value chain models to change and the importance of achieving improved efficiency to grow.
Nan-Dirk Mulder, Rabobank Analyst commented: “Today’s modern, fast-growing meat industry has been driven by increasing domestic meat consumption, attributed to the increasing wealth of Russian consumers. Production growth has also been driven by the Russian government’s agricultural programme, implemented in 2003, which has boosted the country’s agricultural self-sufficiency ambitions. Despite this, however, we expect meat industry growth to fall to significantly. As a member of WTO, Russia will no longer have as much opportunity to apply meat import quotas and tariffs and Russian players will see more competition from imports.”
Lower expected Russian meat demand means that the industry will need to look for alternative sources for growth. Extremely fast growth in poultry and pork production, along with a lack of growth in the cattle industry have resulted in a less than optimum structure. Value-chain inefficiencies - such as farm input supply and grain quality, efficiency and availability - and skill shortages both hinder potential growth. Rabobank believes that reshaping the meat industry to one that is structurally more efficient and better suited for competition will be one of the key priorities for Russia in the coming years.
In addition to the WTO’s import threat to local meat supply, Rabobank believes that Russian markets are also at threat from grain supply volatility and the risk of disease; particularly in the current presence of swine flu and the threat of new diseases from Asia.
Despite this changing landscape, opportunities still exist. The industry will evolve from volume to value; creating opportunities to exploit new specialty and niche markets in Russia. A few international investors have already successfully invested in the Russian meat industry but in the coming years, the biggest opportunities will be in animal genetics and equipment; investing further back in the value chain to secure supply to increase efficiency of grain production. If the industry can capitalise on these opportunities, then the future is bright.
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