In 2020, Russian pork production is set to grow by 270,000 tonnes to a total of 4.2 million tonnes. The increasing numbers are a cause for concern, warns Yuri Kovalev, chairman of the Russian Union of Pork Producers (RUPP).
Kovalev told Russian agricultural magazine Agroinvestor that the increase in 2020 will be one of the strongest increases during the past few years. He added that Russia’s pig industry is now entering a stage of low profitability and high risk, because more pork will be ending up on the market.
A feed truck is delivering new rations at a farm in Lipetsk region. - Photo: Vincent ter Beek
Prices for pigs are coming down
That additional production quantity is pushing prices down. During the first 5 months of 2020, the average price on the market went down from 100 roubles (US$ 1.40) to 88 roubles (US$ 1.25). Kovalev said, “The situation in the Russian pig industry is complicated this year. We have achieved complete self-sufficiency for this type of meat and now have a real risk of oversupply.” The leading market players continue using bank loans to expand production, keeping confidence that they will be able to push less effective competitors out of the market.
Competition in the pig market
Kovalev said that the competition is getting fiercer, since the entire industry is caught in price scissors. He explained that a cocktail of different factors has been pushing production costs up, think of an increase in grain prices due to increasing exports, the devaluation of the Russian rouble, and consequently, an increase in prices for some imported feed components. RUPP has been forecasting that cost of production is expecting to be 10-15% higher this year than in 2019.
Kovalev said, “This means a several-fold slump in the margin. Only the most effective companies with no bank loans will be left over with some spare money.”
Future balance in the pork market
Kovalev said, it may take 2 to 3 years for the industry to find balance. In that period, some companies will go bankrupt, while others will change ownership. A continuous reduction in output of backyard farms is also anticipated.
All in all, Russia can no longer be considered a pork importer. During the first 5 months of 2020, the country imported only around 2,000 tonnes of pork – the lowest since Soviet times (which ended in 1991, ed.).
On the other hand, during the first 4 months of the year, exports grew by 66% year-on-year to 50,000 tonnes, Kovalev said. In 2020, exports could total 150,000 tonnes – 30% more than in the previous year.
Aiming for markets in South East Asia
Russian exporters are aiming for markets in South East Asia. This region is offering loads of opportunities. Kovalev said that to Vietnam and Hong Kong the number of shipments have been growing. In his perspective, the development of Russia’s pig industry will be dependent on the future growth of exports.