Russia to remain 'sleeping giant' of global beef trade for some time

26.09.2016

Squeezed consumer budgets are encouraging a marked shift in the Russian protein market, as beef consumption falls to record lows, while pork gains ever stronger market share, US officials said.

The tightness in beef imports, caused by political spats and the weak rouble, is encouraging this trend.

And pork producers are having much more success in boosting domestic production than beef producers, as the shrinking dairy herd reduces the availability of cattle for slaughter.

Drop in production

The US Department of Agriculture's Moscow bureau saw Russian beef production in 2016 at 1.34m tonnes, slightly above the official USDA estimates.

But it saw beef production to fall to 1.32m tonnes in 2017 "mostly due to reduced numbers of cattle for slaughter".

This is the lowest level since the fall of the Soviet Union.

"Accelerated production growth at major beef farms has not yet offset the reduced beef outcome from shrinking herds at dairy farms," the bureau said.

The bureau forecast total cattle stocks to fall by 2.0%, to 18.05m head, in 2017, and the dairy herd was seen down 2.8%, to 7.48m head.

"Low margins from milk sales discourage farmers from growing milking herds," the bureau said.

Lower consumption

But despite lower beef production, imports in 2017 are forecast to remain 610,000m tonnes, in line with 2016 estimates.

This will tighten the market, driving a 1.3% drop in beef consumption, to 1.92m tonnes, also the lowest level on record.

"Beef will face more competition from falling pork prices and affordable poultry meat, which will continue to replace bovine meat both in retail and meat processing," said the Moscow Bureau.

Tighter budgets

But consumption of pork, the cheaper meat, is booming, as consumers look to cut spending.

"The current economic crisis has hit the Russian households more strongly than the previous crisis of 2008-09, and in this respect is often compared to the systemic crisis in 1990s," the bureau said.

Real disposable incomes have been tumbling since 2014, with retail turnover and consumer expenditure sharply down.

"The continued decline of consumer spending in 2016 suggests that the economic outlook remains unfavourable for beef as a premium meat product," the bureau said.

Consumer substitution

With consumer prices for beef some 30% higher than pork, tighter budgets encourage the substitution for one with the other.

The bureau forecast domestic pork consumption to rise to 3.28m tonnes in 2017, the highest level since 1991.

And supply is rising to meet demand.

Pork production is anticipated to rise to 2.90m tonnes, the highest level since 1990, "as industry leaders continue to expand output and gain market share over smaller commercial and backyard farms, which are disproportionately hit by falling pork prices and African swine fever".

'Sleeping giant'

But prospects for beef demand could be stronger in the long term.

Earlier this week, Rabobank termed Russia the "sleeping giant" in the global beef trade.

"Until recently, Russia was a dominant player in the global beef trade complex," the bank said.

"Following geopolitical events, it decided to withdraw from global trade and focus on developing its domestic beef industry."

"This, however, has not yet generated volumes that overcome its beef deficit, and Russia remains a sleeping giant with the potential to re-enter the global beef trade, drawing in substantial import volumes in the process," said Rabobank.

Rising imports

Rabobank forecast beef imports to rise in the long term, as the economy stabilises and recovers.

"The rising GDP will boost consumer confidence and support beef demand, which will be partly met by the investments in prime beef production."

Rabobank saw Russian beef imports with the potential to recover to their pre-2015 levels "if the import bans are removed, the oil price recovers, and the rouble regains strength".


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