With the increase of the grain production in Russia, the country is also increasing the compound feed production, which is necessary for the development of the meat industry. The potential of this sector is promising, but the country should think about what to do with overproduction.
In 2014, for the first time, Russia was able to reach a minimum level of food independence for meat, which, according to the State Food Security Doctrine, should be at least of 85%. Bear in mind that during this year Russia annexed Crimea, immediately followed by retaliation measures from western countries and the Russian embargo. According to official data, in 2018, the self-sufficiency of the Russian Federation for meat reached 95.8%; in 2019 it is expected to be 96.0%.
Russia is actively investing in all agriculture sectors, but in animal farming in particular. It is logical that poultry and pig breeding has been the first sector to develop. At the same time, it is interesting to see that the poultry production volumes, which have been growing steadily every year, have begun to decline since 2018. The reason is the overproduction of this sector; the exports could help to clear a part of production surplus from the market. However, due to the high costs, the Russian products are not really competitive abroad. That is why, the Ministry of Agriculture advised the operators to limit the poultry production until the export market is sufficiently developed.
The number of cattle is also falling, but for other reasons. At the opposite, the consumption and production of meat is growing, and production does not match the demand. Thus, the pork became the driver of the growth of the meat market in Russia. But there are some other difficulties. Russia, like for poultry, has become self-sufficient. Its import volumes recorded a bottom low, and exports are increasing. However, without having access to the Chinese market, the growth in exports will not exceed 5 to 10%, according to the estimates of the National Union of Russian Pig Breeders.
So far, Russia can start to only supply chicken meat to China: negotiations to penetrate this market took six years. Gaining only 5% of the total Chinese pork import would quickly develop the Russian industry. However, Canada and USA are already supplying pork to China, which affects prices. Note that Russian pork prices are currently decreasing. Indeed, in 2019, the Russian pork in Russia retreated by -8% compared to 2018. Due to a high level of production, prices will continue to fall in 2020. And even the opening of the Chinese market will not allow prices to recover significantly due to a stiff competition on this market.
The leading region in Russia for both poultry and pork production is the Belgorod region, which is located in the south-west of the central part of the European territory of Russia. The remaining main meat producing regions are also situated in the southern and western parts of the central regions of the country, as well as in the Southern Federal District. In the Urals and Siberia, only the Chelyabinsk oblast can boast of good performance in this sector.
It is clear that production is concentrated close to largest cities where the demand for meat is high, and also not far from the producing regions of feed barley, wheat and corn. Such geography, however, is not very convenient for the development of export shipments beyond CIS countries. And given the logistical difficulties in Russia, this will be challenging to export pork to China from the western regions of the country.
Russia would like to supply the Chinese market not only with meat but also with grain, oilseed and processed products. As everyone knows, the country continues to increase its production of cereals every year, the authorities fixed an export target of 64 million tons for 2035 (see previous note). That is why Russia is working hard to get new markets along with the development of infrastructures in different regions, including in the most remote areas of the country. One of the projects is the construction of the Trans-Baikal grain terminal which was planned for last five years and should finally start in March 2020. Its projected capacity should be of 8 million tons per year, which will give the Siberian regions a competitive advantage over other grain exporters toward China. Of course, in the first months after the launch of the terminal the traffic will not operate at full capacity. It must be noted that only a few regions have been allowed to deliver to China, most of them are not in surplus of grain production.
Considering that the Chinese market is very promising, the role of the grain terminal in Trans-Baikal should become essential. With the willing of China to quickly restore its hog herd, Siberian producers will not have issues to find outlets in feed wheat, barley and soybeans. The latter, by the way, is actively cultivated in the Russian Far East. The Amur region is producing up to 40% of all Russian soybeans and a large part is exported to China.
The compound feed production is also gaining ground in Russia. This confirms the imporvements made in the animal farming sector. A further advantage for the agricultural sector in Russia…