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USDA GAIN: Livestock and Products


15 March 2012

USDA GAIN: Russian Livestock & Products Semi-annualUSDA GAIN: Russian Livestock & Products Semi-annual

Russia’s WTO market access commitments for beef and pork should lead to expanding consumption in 2012 as import substitution practices via the TRQ were undone at the end of 2011. Meanwhile, African Swine Fever outbreaks continue unabated, and Russian restrictions on EU live swine trade adds to the list of SPS barriers Russia continues to impose on foreign suppliers prior to its WTO commitments coming into force. Russia’s openness toward increasing Belarus meat supplies remains stable but may be growing tenuous

USDA GAIN: Livestock and Products

Cattle and Beef

Cattle inventories ended 2011 surprisingly higher than expected after a dismal 2010. However, significant volatility in the monthly cow estimates lends this number to future revision. Combined with high price inflation in 2011, lower imports cut deeply into consumption. FAS/Moscow expects the typical cuts in beef consumption to reverse trend as Russia’s WTO Accession provides significantly better access to beef through better tariff-rate quotas (TRQ), a reformed high-quality beef definition, and reforming sanitary regulation. Increased TRQ access for the United States, in particular, represents a large opportunity for U.S. beef exports to expand market share in the immediate future.

Production: Cattle and Beef

Cattle Inventory

FAS/Moscow increased its 2012 cattle and cow inventories following Russia’s state statistical service (Rosstat) release of 2011 year-end figures; however, as opposed to the official statistics, FAS/Moscow and industry experts remain confident both cattle and cow stocks fell in 2011.

In 2011, Russian official inventories correlate substantially less than normal when compared to other statistics, such as milk production. Furthermore, uncharacteristically large month-to-month changes in the second half of Russian cow inventories, especially a 1.1% increase in cow stocks from November to December, instills less confidence in current official statistics. Stocks held at private households are known to be difficult to accurately count, and there is no logical conclusion for their increase with a corresponding decrease at agricultural establishments. It can be expected that Russia’s state program to develop dairy farms led to larger cattle and cow stocks at farms as Rosstat reported.

The Ministry of Agriculture reported the pedigree beef cow herd reached 131,100 head in 2010 and 140,200 head in 2011. Market experts expect the total will reach 200,000 head in 2012. The expansion of the beef cow herd will closely track with the development of Russia’s selected beef investment projects, including the largest Russian such project– Bryansk Meat Company, a subsidiary of Russia’s largest pork producer, Miratorg. Agricultural establishments account for virtually the entire pedigree cow herd, and pedigree stocks account for approximately 60% of the beef cow herd in Russia.

Russia cited the largest increases in 2011 year-end cattle inventories in the Southern and North Caucus Federal Districts as well as admitted decreases in the Central, Northwest, Volga, and Ural Federal Districts. There remains more than market forces driving cattle inventories. At a recent Russian conference far from Moscow, one participant noted the regional Governor threatened to punish any producer who would slaughter even one cow.

Cattle Imports

Imports of live cattle in 2011 reached record highs, supported by demand in both the dairy and beef sectors. Expectations for 2012 remain similar to 2011 with upside as domestic support is pegged to increase substantially.

Beef Production

Beef production continues to be a by-product of the Russian dairy industry’s profitability. Better than expected year-end cattle inventories resulted from significantly less kills and thus less beef production in 2011. For 2012, FAS/Moscow expects inventory and production to return to the long-term downward trend line.

According to Rosstat, beef production decreased 5.3% to 3,053.1 MMT live weight in 2011 from 2,891.2 MMT live weight in 2010.
Domestic Support
Both the beef and dairy industry receive 100% subsidized interest rates for the development of new, modernized, and reconstructed facilities.In 2011, a decision by Prime Minister Putin awarded a RUR5 billion ($167 million) subsidy to regions that did not reduce the total cattle inventories in 2010. As reported, 29-30 of the 80 regions received this support at RUR1,300-1,500/cow. The Ministry of Agriculture pointed out the region of Tatarstan was due to receive RUR320 million ($11 million) from this measure. There is no indication a similar subsidy will be declared in 2012.

Trade

Beef

Beef imports in 2012 remain poised to eclipse a new record with continued reductions in domestic production and new market access conditions upon WTO Accession. Most significantly, WTO access provides an additional 10,000 MT of TRQ volume for fresh/chilled beef and a reformed definition of high-quality beef that focuses on quality rather than price. Following WTO Accession, high-quality beef, as defined by Russia’s WTO commitments will be provided quota-free access at 15% duty. Currently, such an exception is provided only to beef imported at €8/kg. Furthermore, Russia will be committed to eliminating non-science-based sanitary barriers. In 2012, Russia did make significant TRQ allocation adjustments for frozen beef, without changing the overall total. This resulted in the U.S. allocation increasing from 41,700 MT to 60,000 MT, a new 3,000 MT allocation for Costa Rica, and an offsetting reduction to “other countries”. Costa Rica does not yet have a negotiated veterinary certificate for export to Russia or an approved list of beef facilities.

Beef imports in 2011 from non-Customs Union partners decreased 3.5% by volume (11.2% by value) to 605,000 MT (847,000 MT CWE). Brazil’s export capacity was reduced a small extent by Russian restrictions on its processing facilities. While remaining the dominant supplier, in total, imports from Brazil were again lower in 2011, totaling 224,000 MT. Uruguay, Paraguay, and Argentina also reduced supply. Supplies increased from the European Union, Australia, the United States, and Mexico. Increased U.S. sales were in response to an increased TRQ allocation as compared to 2010. Imports into Russia’s Special Economic Zones of Kaliningrad and Magadan fell in total by 11,000 MT. Also, TRQexempt beef from Ukraine totaled 12,000 MT. Rosstat reported Belarus exported Russia 21.6% less beef by volume and 5.8% more by value – 98,200 MT and $491,100 respectively.

Consumption

Consumption of meat and poultry are all well positioned to increase in 2012 as well as into the near future with the coming of WTO commitments on market access paired with a high domestic support ceiling. Both components should help ease annual price inflation of animal protein and increase consumption.

Russia’s Ministry of Health Order #593 of 2010 recommends 70-75 kg per capita consumption of meat, poultry, and offal, including 25 kg of beef, 1.0 kg of sheep meat, 14 kg of pork, and 30.0 kg of poultry. Rosstat reported Russia was close to the recommended norms in 2010.

Beef

High price inflation, especially for beef stymied its consumption in 2011. While increasing prices are unlikely to subside in 2012, FAS/Moscow believes increased market access provides room for growth, but we may not yet see a return to 2010 levels.

(March 2012)

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