Russia
Red Meat Market Report
Russia
Russian Federation beef update February 2010 Gregorio Vial – February 2010 [email protected] 02 9463 9395
Red Meat Market Report – Russia
February 2010
Overview There continues to be a substantial gap between consumption and local production in the Russian beef market, with the gap increasingly being filled by South American supplies. Australian shipments peaked in 2008 as a result of favourable economic conditions and lower supplies from Brazil and Argentina, but dropped back in 2009 due to the tough and volatile trading conditions after the global financial crisis. However, this market has outstanding potential for both processing and high end beef products as the economy recovers over the medium to longer term. Currency volatility played a major role in last year’s trading environment, decreasing the competitiveness of Brazilian (Russia’s main beef supplier) product due to the real’s faster appreciation against the US$ than the currencies of other suppliers, including Argentina and Uruguay. This encouraged importers to reduce stocks and maintain low inventories. The pre-crisis controlled ruble appreciation encouraged excessive foreign currency borrowing (with local borrowers expecting to repay loans with a stronger ruble at a future date). Together with the high oil prices and high GDP growth rates prior to the global financial crisis, Figure 1 capital flows into Russia for investment in the country’s Exchange rates Index against US$ - Jan 2006 = 100 assets increased noticeably. 150 A$
The collapse in the economy and commodity prices after the 2008 crisis saw a sharp turnaround in terms of trade and capital flows, and dried up access to international capital markets. Fund flows reversed (as investors withdrew investments in Russia), sharply depreciating the rouble. A large number of companies, including meat processors, went bankrupt as a result of their inability to repay debt (further decreasing processing beef demand).
real rouble
130
Argentine peso 110
90
70 Jan-06
Jan-07
Jan-08
Jan-09
Source: Fxtop
Australian exports Australian beef exports during 2009 decreased 79% to 14,884 tonnes swt compared to 2008’s surge as a result of the disruption in trade, slump in consumer and processor demand and tough financial conditions after the 2008 financial crisis. However, despite the financial and economic situation, exports remained 194% higher than in 2007, confirming the potential for long term growth to this emerging market. Figure 2 Australian beef exports to Russia 80
'000 tonnes swt
A$/kg FOB
20
Frozen 70 60 50
Chilled forecast
15
av total price
The bulk of the decline in 2009 was in frozen beef, which decreased 80% to 14,008 tonnes sw. This fall was a result of the decrease in processing demand due to:
• a large number of companies going out of business after the 2008 financial crisis;
av chilled price
40
10
30 5
20
• the substitution of Australian product with more competitive Brazilian, Argentinean and Uruguayan beef;
10 0
0 00
01
02
03
04
05
06
07
Source: DAFF, Global Trade Atlas and MLA forecast
MLA Market Information
08
09
10f f = forecast
• an overall fall in beef consumption; and • the substitution to other cheaper proteins.
2
Red Meat Market Report – Russia
Figure 3 Australian frozen beef exports to Russia '000 tonnes swt
80
A$/kg FOB
8
Manufacturing 70
Silverside/Outside
7
60
Chuck & Blade
6
Thick Flank/Knuckle
50
5
Other
40
4
av frozen price
30
3
20
2
10
1
0
0 00
01
02
03
04
05
06
07
08
09
Source: DAFF, Global Trade Atlas
Figure 4 Australian exports to Russia by region 60
'000 tonnes swt Frozen Chilled
50
West
40 30 East
20
East West
10 East West
East
East West
West
0 2005
2006
2007
2008
2009
Source: DAFF
Figure 5 Australian chilled grainfed beef exports to Russia 500
These products are traditionally a staple among Russian consumers due to the ease of storage, usually for several months in isolated and cold regions of Russia (see box 2 on page 5). Cuts such as thick flank and silverside are utilised in the retail and foodservice sector. The majority of the decline in beef exports to Russia has been experienced in the western region (mainly Moscow and St Petersburg), falling 95% in 2009 to 2,393 tonnes swt. Australian shipments face strong competition from South America in western Russia due to the lower freight costs and less shipping time from South America. In contrast, Australian beef shipments to the Far East region of Russia remained relatively more stable, falling by a lower 29% in 2009 to 12,491 tonnes swt. The resilience of the Far East market within Russia has been supported by frozen lower value cuts, mainly destined to retail and processing. The major cuts in 2009 were blade (34% of the total), silverside (28%) and chuck and blade (26%). The higher end air-freight chilled beef sector (all of which was shipped to Moscow in 2009) demonstrated resilience, falling by a lower 25% to 876 tonnes swt.
Tenderloin Striploin Ribs prepared
300
The majority of the frozen product is utilised in this market for the manufacturing of a wide range of processed meat products, including dry fermented and wet sausages and canned meats, which, mixed with other meats and ingredients, are used in an innumerable range of meat products.
tonnes swt Cube Roll/Rib Eye Roll
400
February 2010
Other
200
100
0 2005
2006
2007
2008
2009
In addition, chilled grainfed exports to this market have demonstrated momentum, falling only 4% to 406 tonnes swt in 2009 compared to 2008, with cube roll accounting for 49% of the total, followed by tenderloin (24%) and striploin (24%).
Source: DAFF
These products have faced stable demand from the high end foodservice sector, deli supermarkets and the growing number of steakhouses in Moscow and St Petersburg, driven by the local upper-class segment, expatriates and travellers through local five star hotels.
Market trends Russia’s agricultural industry has undergone a number of changes since the fall of the Soviet Union. These changes have largely affected the structure of agricultural industries, changing the composition of major producers (with a shift from large farms, formerly known as “collective” farms as the main output source, to small farms and households accounting for the majority of production), output and food trade policies. Russia has been facing increased food imports, rising farm input costs and higher consumer food prices. At the same time, the country is attempting to achieve self sufficiency and food security by limiting imports through tariff rate quotas. MLA Market Information
3
Red Meat Market Report – Russia
February 2010
Box 1 – Tariff Rate Quota Regime As a way of supporting local meat production, a Tariff Rate Quota (TRQ) import regime was introduced in Russia in 2003 for beef, pork and poultry. Table 1 Russian Tariff Quota Regime - tonnes swt 2008
2009
Frozen
Beef
2007
343,700 17,900 3,000 70,400 435,000
347,600 18,100 3,000 71,300 440,000
351,600 18,300 3,000 72,100 445,000
355,600 18,500 3,000 73,000 450,100
Chilled
2006 EU US Paraguay Other Total frozen EU Other Total chilled
27,300 500 27,800
27,800 500 28,300
28,400 500 28,900
Total beef
462,800
469,300
Total pork
476,100
484,800
1,130,800
1,171,200
Total poultry With-in quota tariffs
2011
60,000 21,700 -
2012
60,000 21,700 -
60,000 21,700 -
448,300 530,000
448,300 530,000
448,300 530,000
29,000 500 29,500
29,000 1,000 30,000
29,000 1,000 30,000
29,000 1,000 30,000
473,900
479,600
560,000
560,000
560,000
493,500
531,900
472,100
472,100
425,100
1,211,600
952,000
780,000
600,000
550,000
2009
2010-12
15% but not less than 0.2 euro/kg (chilled) & 15% but Beef
2010
15% but not less than 0.2 euro/kg
not less 1.5 euro/ kg (frozen)
Pork
15% but not less than 0.25 euro/kg
15% but not less than 0.25 euro/kg
Poultry
25% but not less than 0.2 euro/kg
25% but not less than 0.2 euro/kg
Out of quota tarif fs Beef
2009
2010-12
30% but not less than 0.3 euro/kg
50% but not less 1 euro/kg
Pork
60% but not less than 1 euro/kg
75% but not less than 1.5 euro/kg
Poultry
60% but not less than 0.48 euro/kg
80% but not less than 0.7 euro/kg
Source: Russian Ministry of Economic Development and Trade of the Russian Federation
The TRQ beef import regime for 2010-2012 consists of a 530,000 tonne swt frozen beef quota and a 30,000 tonne swt chilled beef quota. A major change from previous years has been a reduction in the volume allocated to the European Union and a larger volume allocated to “other countries” which includes Australia, Brazil, New Zealand, Argentina, Uruguay and Paraguay.
In the 2000’s, domestic food production started increasing (partly the effect of the bottoming of 1998’s economic crisis), as domestic products became more competitive on price, quality and packaging, and a broad strategy of financial state support programs for Russia’s agriculture sector was implemented during President Vladimir Putin’s two terms. These programs have improved agricultural production, increasing private farm output, and to a lesser extent, large farm output. However, cattle numbers (mainly dairy) and beef production have declined over the last two decades and remained low as beef cattle raising continues to be unprofitable, mainly due to the disparities between Figure 6 input costs (feed) and beef wholesale and retail Russian cattle herd and beef production prices. million head '000 tonnes cwt 30
2,000
production cattle herd
25
1,500 20 15
1,000
10 500 5 0
0 00
01
02
03
04
Source: USDA
MLA Market Information
05
06
07
08
09
10f f = forecast
Although declining, the herd is falling at lower rates compared to previous years as a result of increasing investments, especially in dairy cattle breeding under government supported programs. Despite these investments, the cattle herd is expected to continue declining, at least in the short term, due to poor husbandry, low feed conversion ratios, a shortage of skilled workers (who migrate to other industries) and general negative profitability.
4
Red Meat Market Report – Russia Figure 7 Russian meat consumption 14 12
Million tonnes cwt beef beef per capita
av kg/capita annum pork pork per capita
poultry poultry per capita
sheepmeat
25
20 10 15
8 6
10
4
February 2010
In contrast to the decrease in beef production, the swine and poultry industries are growing and are increasing production as a result of large investments. The growth is directly related to government investment credit subsidies, which have led to higher reproductive yields, in addition to continued government meat import restriction policies.
5 2 0
0 00
01
02
03
04
05
06
07
08
09
10f
Source: USDA, FAO
Box 2 – Key trends in the Russian domestic market The increase in real incomes over the last decade in Russia has facilitated an increase in food consumption. Although there are disparities across economic groups and regions, the overall food consumption trend is upward, particularly for meat, a high preference commodity. Changes in Russian consumer behavior over the decades is particularly interesting, as the market for luxury goods in this country is one of the fastest growing in the world since the end of communism. This is attributed to the end of the 70year totalitarian regime which repressed demand. Since this time, western brands and consumption have become a part of the Russian lifestyle. Russians have traditionally consumed processed meat products, with beef and pork and poultry the most popular meats. Horsemeat is also popular, and until the recent ban, kangaroo meat was in demand. These products are blended to produce a wide variety of sausages (wet and dry fermented sausages), canned products and different types of dumplings. The processed meat culture in Russia is the result of a historic need to harvest livestock prior to the cold winter months and store meat for prolonged periods. Additionally, the vast country area and large transport distances and deficient (although improving in recent years) cold supply chain systems required long term meat preservation options. Even though Russian’s preference for long life processed meats developed as a necessity, high end consumer demand for these value added products has developed into a large range of high quality sausages and processed meats. At retail, the variety of delicatessen products occupies a much larger shelf space than fresh meat, However, socio-demographic factors, including urban growth and the entry of more women into the workplace, have led to an increase in the number of Russians eating fresh and high value meat meals in restaurants.
MLA Market Information
5
Red Meat Market Report – Russia
February 2010
Key trends in the Russian domestic market continued...
Dining out for lunch has become more frequent, and business lunches have become standard in many mid-range restaurants. In addition, fast food chains are increasing their share of the restaurant sector, a general trend in developing economies in response to longer working hours and the desire for affordable and convenient food options. Consumers are also increasingly becoming health conscious, with the younger generation looking for low-calorie options. As a result, in 2006, the leading fastfood operator, McDonald’s, began including calorie information on its packaging in Russia. Other fast food restaurants and cafes have reported increased sales of healthy menu offerings. Russian consumers are also travelling abroad more often, and consequently, are being exposed to a wide variety of tastes and foods that they subsequently wish to find at home. Russians have discovered a variety of cuisines such as Italian, Japanese, and American in addition to long-familiar Georgian and Central Asian culinary traditions. A high end restaurant culture has emerged and therefore the demand for high end products and delicacies. Across the restaurant sector, US and Australian beef are considered to be of the highest quality. Beef from other suppliers (such as South America, which is mainly considered a commodity with the exception of some Uruguayan product) or locally produced product is considered of lower quality and is generally destined for low end restaurants, fast food restaurants and cafes. Among South American beef, Uruguayan product is considered to be of a higher quality over Argentinean and Brazilian, according to the local trade. Russian customers (chefs and importers) place a high importance on consistency in the product they purchase, as it is what assures them of the quality that they will provide to their respective customers and improves the service provided. The highest valued beef attribute is marbling (grain fed) – it is generally considered to be of a higher quality, more tender and more flavorsome than grass fed product. These products continue to be highly priced at around R$1,280 or A$50 a dish at local steakhouses (for 120 day grainfed loin cuts), and around R$2980/kg or A$115/kg at boutique retail shops (for 3-4 marble score striploin). Despite the stable and emerging high end chilled trade, exports of these products to Russia remain constrained as a result of the inability to export sea freighted chilled beef. This is due to restricted shelf life regulations (with long sea shipping times to the western region). Consequently, chilled beef is restricted to air freight, incurring additional costs.
MLA Market Information
6
Red Meat Market Report – Russia
Competitive position
Figure 8 Russian beef consumption and imports 3,000
February 2010
% of total beef consumption
'000 tonnes cwt domestic production
imports
50
import %
2,500
40
2,000 30
Despite the declining local beef production, consumption has been relatively stable over the last decade as imports substitute lower domestic supplies. Imports peaked in 2008, totalling 811,000 tonnes swt, accounting for 47% of total domestic beef consumption.
1,500 20 1,000 10
500
0
0 00
01
02
03
04
05
06
07
08
09
Source: USDA
10f f = forecast
Russian beef imports during 2009 dropped 22% to 635,842 tonnes swt compared to 2008, mainly the result of the trade disruptions after the 2008 financial crisis. Demand for processing products imports slumped, as a large percentage of the meat imported into Russia is utilised by processing companies, many of which disappeared after the crisis.
Figure 9 Russian beef imports 1,000
'000 tonnes swt Brazil
800
Argentina
Uruguay
Australia
EU
Other
600
400
200
0 2001
2002
2003
2004
2005
2006
2007
2008
2009
Source: Global Trade Atlas
Figure 10 Russian total chilled beef imports 40
'000 tonnes swt Lithuania
Germany
Australia
United States
Ukraine
Other
30
20
10
2002
2003
2004
2005
2006
2007
2008
2009
Source: Global Trade Atlas
Figure 11 Russian chilled beef imports - high end US and Australia 1,400
tonnes swt
'000 US$/tonne
16
Australia 1,200
United States
14
1,000
Australia av price
12
US av price
10
800
8 600
6
400
4
200
2
0
Beef imports from the EU (mainly bull beef) continued to decrease in 2009, as the EU’s production declines, while South America’s lower priced and leaner beef supplies (preferred by processors) continued to increase as a percentage of the total, accounting for 90% of imports during the period January to November in 2009. Despite a 20% fall to 322,831 tonnes swt in 2009, Brazilian imports continue to dominate in this market. However, part of Brazil’s fall was covered by a 97% rise in Argentinean product imports to 136,972 tonnes swt during the period. Higher production in Argentina left a larger volume of product available for exports, with Argentina’s gover nment easing export certificate restrictions in 2009. In the high quality chilled beef segment, Australian product faces competition from the US. US product has higher average prices compared to Australian product for similar cuts.
0 2001
The United States Department of Agriculture (USDA) estimates that Russian beef imports fell 38% to 700,000 tonnes cwt in 2009 year-on-year, while beef consumption fell 19%. However, USDA forecasts a 11% increase in beef imports and a 3% rise in total beef consumption in 2010.
The US was an important beef supplier to this market until 2003, but was banned after bovine spongiform encephalopathy (BSE) was detected. Both the US and Russia agreed to resume trade in November 2007, with an import protocol that included an animal age limitation (up to 30 months) and product origin restrictions (no Mexican or Canadian beef). Russia resumed US beef imports in 2008, with almost 19,000 tonnes swt of unprocessed beef traded in 2008. In 2009, Russia imported 3,126 tonnes swt of US beef.
0 2001
2002
2003
2004
2005
2006
2007
2008
2009
Source: Global Trade Atlas
MLA Market Information
7
Red Meat Market Report – Russia
February 2010
Box 3 – Australian beef in the Russian market Australian product has been increasingly promoted in the Russian market through food fairs, to high end restaurant chefs, via importer missions to Australia and at retail workshops. These activities serve to raise the awareness of Australian beef and lamb, its quality attributes and Australia’s food safety and quality assurance systems. Retail meat cutting training workshops have been performed in Far East Russia to assist butchers and retailers with improving product display and matching cuts with appropriate cooking methods in order to take full advantage of the attributes of each cut. It has been found frequently that cuts have been displayed and promoted for cooking methods not appropriate for them. Given the current economic situation, marketing activities by retailers for up-market products has slowed in favour of more economical and lower segment products. However, importers have manifested their interest in advertising fr om Australian suppliers, especially through lower cost electronic methods, such as electronic product brochures that are distributed among clients, highlighting Australian beef’s safety and quality. Despite the fact that Australian beef dominates in the restaurant sector, many chefs perceive that US beef quality is higher, has more marbelling, has better size and is more consistent and of a higher tenderness. However, a number of chefs prefer Australian beef, rating it higher in its taste attributes compared to US product. Australian beef also has an outstanding ‘clean and green’ image among consumers.
Figure 12
Outlook
Russian economic indicators 15
The medium term future for Australia’s beef exports to the Russian market remains bullish, as the Russian economy is expected to recover in 2010 with a forecasted 5% real GDP growth in 2010 supported by lower inflation rates. This is expected to bring stabilisation compared to 2009’s tough trading conditions.
annual % growth
10
5
0
-5 Real GDP growth -10
Inflation 2006
2007
2008
Source: OECD
MLA Market Information
2009f
2010f
2011f f = forecast
The fast food service sector is expected to regain its growing trend, with McDonald’s announcing new stores and Burger King joining the market.
8
Red Meat Market Report – Russia
February 2010
The recovery in Australian processing supplies to Russia in the long term may be supported by tighter supplies from Argentina and the lower competitiveness of Brazilian product, deemed to remain constrained by a rapidly appreciating real and strong domestic Brazilian consumption. In addition, lower domestic supplies are expected to continue declining as government incentives fail to increase output. Australian beef production and exports are expected to fall in 2010, with heightened competition for Australian beef from other markets such as the US, South East Asia and the Middle East. The future of the high value chilled and grainfed beef sector remains encouraging, with a small but growing high end retail and foodservice sector, fuelled by a share of high income earners in the main Russian urban centres such as Moscow and St Petersburg. Table 2 Australian beef exports to Russia (tonnes swt) Chilled 2008
2009
Net tonnage
tonnage
tonnage
change
Blade 1 0 Chuck & Bl ade 0 0 Silverside/Outside 1 9 Thick Flank/Knuckle 1 1 Cube Roll/Rib Eye Roll 364 296 Tenderloin 371 292 Manufacturing 0 2 Chuck 0 0 Striploin 189 150 Ribs prepared 88 80 Other 158 45 TOTAL 1,172 876 Source: Department of Agriculture, Fisheri es and Forestry
-1 0 9 0 -67 -79 1 0 -38 -8 -113 -296
Frozen % change
-82% 1065% 50% -19% -21% 1053% -100% -20% -9% -71% -25%
2008
2009
tonnage
tonnage
6,133 8,157 11,457 6,933 66 84 27,303 720 79 65 7,593 82,599
4,468 3,865 3,633 1,175 32 32 195 195 38 44 330 14,008
Total
Net change % change
-1,664 -4,292 -7,824 -5,759 -34 -52 -27,108 -525 -41 -21 -7,262 -54,583
-27% -53% -68% -83% -51% -62% -99% -73% -52% -32% -96% -83%
2008
2009
tonnage
tonnage
6,134 8,157 11,458 6,934 430 454 27,304 720 267 153 7,750 69,763
4,469 3,865 3,643 1,176 329 323 197 195 188 124 376 14,884
Net change % change
-1,665 -4,292 -7,816 -5,758 -101 -131 -27,107 -525 -79 -29 -7,375 -54,879
-27% -53% -68% -83% -24% -29% -99% -73% -30% -19% -95% -79%
Free to MLA members For further information please call toll free 1800 023 100 or 02 9463 9163 or fax 02 9954 0752 Also available on www.mla.com.au
© Meat & Livestock Australia, 2010. ABN 39 081 678 364. MLA makes no representations as to the accuracy of any information or advice contained in Red Meat Market Report and excludes all liability, whether in contract, tort (including negligence or breach of statutory duty) or otherwise as a result of reliance by any person on such information or advice.
MLA Market Information
9
Russia
Russian Federation beef update February 2010 Gregorio Vial – February 2010 [email protected] 02 9463 9395
Red Meat Market Report – Russia
February 2010
Overview There continues to be a substantial gap between consumption and local production in the Russian beef market, with the gap increasingly being filled by South American supplies. Australian shipments peaked in 2008 as a result of favourable economic conditions and lower supplies from Brazil and Argentina, but dropped back in 2009 due to the tough and volatile trading conditions after the global financial crisis. However, this market has outstanding potential for both processing and high end beef products as the economy recovers over the medium to longer term. Currency volatility played a major role in last year’s trading environment, decreasing the competitiveness of Brazilian (Russia’s main beef supplier) product due to the real’s faster appreciation against the US$ than the currencies of other suppliers, including Argentina and Uruguay. This encouraged importers to reduce stocks and maintain low inventories. The pre-crisis controlled ruble appreciation encouraged excessive foreign currency borrowing (with local borrowers expecting to repay loans with a stronger ruble at a future date). Together with the high oil prices and high GDP growth rates prior to the global financial crisis, Figure 1 capital flows into Russia for investment in the country’s Exchange rates Index against US$ - Jan 2006 = 100 assets increased noticeably. 150 A$
The collapse in the economy and commodity prices after the 2008 crisis saw a sharp turnaround in terms of trade and capital flows, and dried up access to international capital markets. Fund flows reversed (as investors withdrew investments in Russia), sharply depreciating the rouble. A large number of companies, including meat processors, went bankrupt as a result of their inability to repay debt (further decreasing processing beef demand).
real rouble
130
Argentine peso 110
90
70 Jan-06
Jan-07
Jan-08
Jan-09
Source: Fxtop
Australian exports Australian beef exports during 2009 decreased 79% to 14,884 tonnes swt compared to 2008’s surge as a result of the disruption in trade, slump in consumer and processor demand and tough financial conditions after the 2008 financial crisis. However, despite the financial and economic situation, exports remained 194% higher than in 2007, confirming the potential for long term growth to this emerging market. Figure 2 Australian beef exports to Russia 80
'000 tonnes swt
A$/kg FOB
20
Frozen 70 60 50
Chilled forecast
15
av total price
The bulk of the decline in 2009 was in frozen beef, which decreased 80% to 14,008 tonnes sw. This fall was a result of the decrease in processing demand due to:
• a large number of companies going out of business after the 2008 financial crisis;
av chilled price
40
10
30 5
20
• the substitution of Australian product with more competitive Brazilian, Argentinean and Uruguayan beef;
10 0
0 00
01
02
03
04
05
06
07
Source: DAFF, Global Trade Atlas and MLA forecast
MLA Market Information
08
09
10f f = forecast
• an overall fall in beef consumption; and • the substitution to other cheaper proteins.
2
Red Meat Market Report – Russia
Figure 3 Australian frozen beef exports to Russia '000 tonnes swt
80
A$/kg FOB
8
Manufacturing 70
Silverside/Outside
7
60
Chuck & Blade
6
Thick Flank/Knuckle
50
5
Other
40
4
av frozen price
30
3
20
2
10
1
0
0 00
01
02
03
04
05
06
07
08
09
Source: DAFF, Global Trade Atlas
Figure 4 Australian exports to Russia by region 60
'000 tonnes swt Frozen Chilled
50
West
40 30 East
20
East West
10 East West
East
East West
West
0 2005
2006
2007
2008
2009
Source: DAFF
Figure 5 Australian chilled grainfed beef exports to Russia 500
These products are traditionally a staple among Russian consumers due to the ease of storage, usually for several months in isolated and cold regions of Russia (see box 2 on page 5). Cuts such as thick flank and silverside are utilised in the retail and foodservice sector. The majority of the decline in beef exports to Russia has been experienced in the western region (mainly Moscow and St Petersburg), falling 95% in 2009 to 2,393 tonnes swt. Australian shipments face strong competition from South America in western Russia due to the lower freight costs and less shipping time from South America. In contrast, Australian beef shipments to the Far East region of Russia remained relatively more stable, falling by a lower 29% in 2009 to 12,491 tonnes swt. The resilience of the Far East market within Russia has been supported by frozen lower value cuts, mainly destined to retail and processing. The major cuts in 2009 were blade (34% of the total), silverside (28%) and chuck and blade (26%). The higher end air-freight chilled beef sector (all of which was shipped to Moscow in 2009) demonstrated resilience, falling by a lower 25% to 876 tonnes swt.
Tenderloin Striploin Ribs prepared
300
The majority of the frozen product is utilised in this market for the manufacturing of a wide range of processed meat products, including dry fermented and wet sausages and canned meats, which, mixed with other meats and ingredients, are used in an innumerable range of meat products.
tonnes swt Cube Roll/Rib Eye Roll
400
February 2010
Other
200
100
0 2005
2006
2007
2008
2009
In addition, chilled grainfed exports to this market have demonstrated momentum, falling only 4% to 406 tonnes swt in 2009 compared to 2008, with cube roll accounting for 49% of the total, followed by tenderloin (24%) and striploin (24%).
Source: DAFF
These products have faced stable demand from the high end foodservice sector, deli supermarkets and the growing number of steakhouses in Moscow and St Petersburg, driven by the local upper-class segment, expatriates and travellers through local five star hotels.
Market trends Russia’s agricultural industry has undergone a number of changes since the fall of the Soviet Union. These changes have largely affected the structure of agricultural industries, changing the composition of major producers (with a shift from large farms, formerly known as “collective” farms as the main output source, to small farms and households accounting for the majority of production), output and food trade policies. Russia has been facing increased food imports, rising farm input costs and higher consumer food prices. At the same time, the country is attempting to achieve self sufficiency and food security by limiting imports through tariff rate quotas. MLA Market Information
3
Red Meat Market Report – Russia
February 2010
Box 1 – Tariff Rate Quota Regime As a way of supporting local meat production, a Tariff Rate Quota (TRQ) import regime was introduced in Russia in 2003 for beef, pork and poultry. Table 1 Russian Tariff Quota Regime - tonnes swt 2008
2009
Frozen
Beef
2007
343,700 17,900 3,000 70,400 435,000
347,600 18,100 3,000 71,300 440,000
351,600 18,300 3,000 72,100 445,000
355,600 18,500 3,000 73,000 450,100
Chilled
2006 EU US Paraguay Other Total frozen EU Other Total chilled
27,300 500 27,800
27,800 500 28,300
28,400 500 28,900
Total beef
462,800
469,300
Total pork
476,100
484,800
1,130,800
1,171,200
Total poultry With-in quota tariffs
2011
60,000 21,700 -
2012
60,000 21,700 -
60,000 21,700 -
448,300 530,000
448,300 530,000
448,300 530,000
29,000 500 29,500
29,000 1,000 30,000
29,000 1,000 30,000
29,000 1,000 30,000
473,900
479,600
560,000
560,000
560,000
493,500
531,900
472,100
472,100
425,100
1,211,600
952,000
780,000
600,000
550,000
2009
2010-12
15% but not less than 0.2 euro/kg (chilled) & 15% but Beef
2010
15% but not less than 0.2 euro/kg
not less 1.5 euro/ kg (frozen)
Pork
15% but not less than 0.25 euro/kg
15% but not less than 0.25 euro/kg
Poultry
25% but not less than 0.2 euro/kg
25% but not less than 0.2 euro/kg
Out of quota tarif fs Beef
2009
2010-12
30% but not less than 0.3 euro/kg
50% but not less 1 euro/kg
Pork
60% but not less than 1 euro/kg
75% but not less than 1.5 euro/kg
Poultry
60% but not less than 0.48 euro/kg
80% but not less than 0.7 euro/kg
Source: Russian Ministry of Economic Development and Trade of the Russian Federation
The TRQ beef import regime for 2010-2012 consists of a 530,000 tonne swt frozen beef quota and a 30,000 tonne swt chilled beef quota. A major change from previous years has been a reduction in the volume allocated to the European Union and a larger volume allocated to “other countries” which includes Australia, Brazil, New Zealand, Argentina, Uruguay and Paraguay.
In the 2000’s, domestic food production started increasing (partly the effect of the bottoming of 1998’s economic crisis), as domestic products became more competitive on price, quality and packaging, and a broad strategy of financial state support programs for Russia’s agriculture sector was implemented during President Vladimir Putin’s two terms. These programs have improved agricultural production, increasing private farm output, and to a lesser extent, large farm output. However, cattle numbers (mainly dairy) and beef production have declined over the last two decades and remained low as beef cattle raising continues to be unprofitable, mainly due to the disparities between Figure 6 input costs (feed) and beef wholesale and retail Russian cattle herd and beef production prices. million head '000 tonnes cwt 30
2,000
production cattle herd
25
1,500 20 15
1,000
10 500 5 0
0 00
01
02
03
04
Source: USDA
MLA Market Information
05
06
07
08
09
10f f = forecast
Although declining, the herd is falling at lower rates compared to previous years as a result of increasing investments, especially in dairy cattle breeding under government supported programs. Despite these investments, the cattle herd is expected to continue declining, at least in the short term, due to poor husbandry, low feed conversion ratios, a shortage of skilled workers (who migrate to other industries) and general negative profitability.
4
Red Meat Market Report – Russia Figure 7 Russian meat consumption 14 12
Million tonnes cwt beef beef per capita
av kg/capita annum pork pork per capita
poultry poultry per capita
sheepmeat
25
20 10 15
8 6
10
4
February 2010
In contrast to the decrease in beef production, the swine and poultry industries are growing and are increasing production as a result of large investments. The growth is directly related to government investment credit subsidies, which have led to higher reproductive yields, in addition to continued government meat import restriction policies.
5 2 0
0 00
01
02
03
04
05
06
07
08
09
10f
Source: USDA, FAO
Box 2 – Key trends in the Russian domestic market The increase in real incomes over the last decade in Russia has facilitated an increase in food consumption. Although there are disparities across economic groups and regions, the overall food consumption trend is upward, particularly for meat, a high preference commodity. Changes in Russian consumer behavior over the decades is particularly interesting, as the market for luxury goods in this country is one of the fastest growing in the world since the end of communism. This is attributed to the end of the 70year totalitarian regime which repressed demand. Since this time, western brands and consumption have become a part of the Russian lifestyle. Russians have traditionally consumed processed meat products, with beef and pork and poultry the most popular meats. Horsemeat is also popular, and until the recent ban, kangaroo meat was in demand. These products are blended to produce a wide variety of sausages (wet and dry fermented sausages), canned products and different types of dumplings. The processed meat culture in Russia is the result of a historic need to harvest livestock prior to the cold winter months and store meat for prolonged periods. Additionally, the vast country area and large transport distances and deficient (although improving in recent years) cold supply chain systems required long term meat preservation options. Even though Russian’s preference for long life processed meats developed as a necessity, high end consumer demand for these value added products has developed into a large range of high quality sausages and processed meats. At retail, the variety of delicatessen products occupies a much larger shelf space than fresh meat, However, socio-demographic factors, including urban growth and the entry of more women into the workplace, have led to an increase in the number of Russians eating fresh and high value meat meals in restaurants.
MLA Market Information
5
Red Meat Market Report – Russia
February 2010
Key trends in the Russian domestic market continued...
Dining out for lunch has become more frequent, and business lunches have become standard in many mid-range restaurants. In addition, fast food chains are increasing their share of the restaurant sector, a general trend in developing economies in response to longer working hours and the desire for affordable and convenient food options. Consumers are also increasingly becoming health conscious, with the younger generation looking for low-calorie options. As a result, in 2006, the leading fastfood operator, McDonald’s, began including calorie information on its packaging in Russia. Other fast food restaurants and cafes have reported increased sales of healthy menu offerings. Russian consumers are also travelling abroad more often, and consequently, are being exposed to a wide variety of tastes and foods that they subsequently wish to find at home. Russians have discovered a variety of cuisines such as Italian, Japanese, and American in addition to long-familiar Georgian and Central Asian culinary traditions. A high end restaurant culture has emerged and therefore the demand for high end products and delicacies. Across the restaurant sector, US and Australian beef are considered to be of the highest quality. Beef from other suppliers (such as South America, which is mainly considered a commodity with the exception of some Uruguayan product) or locally produced product is considered of lower quality and is generally destined for low end restaurants, fast food restaurants and cafes. Among South American beef, Uruguayan product is considered to be of a higher quality over Argentinean and Brazilian, according to the local trade. Russian customers (chefs and importers) place a high importance on consistency in the product they purchase, as it is what assures them of the quality that they will provide to their respective customers and improves the service provided. The highest valued beef attribute is marbling (grain fed) – it is generally considered to be of a higher quality, more tender and more flavorsome than grass fed product. These products continue to be highly priced at around R$1,280 or A$50 a dish at local steakhouses (for 120 day grainfed loin cuts), and around R$2980/kg or A$115/kg at boutique retail shops (for 3-4 marble score striploin). Despite the stable and emerging high end chilled trade, exports of these products to Russia remain constrained as a result of the inability to export sea freighted chilled beef. This is due to restricted shelf life regulations (with long sea shipping times to the western region). Consequently, chilled beef is restricted to air freight, incurring additional costs.
MLA Market Information
6
Red Meat Market Report – Russia
Competitive position
Figure 8 Russian beef consumption and imports 3,000
February 2010
% of total beef consumption
'000 tonnes cwt domestic production
imports
50
import %
2,500
40
2,000 30
Despite the declining local beef production, consumption has been relatively stable over the last decade as imports substitute lower domestic supplies. Imports peaked in 2008, totalling 811,000 tonnes swt, accounting for 47% of total domestic beef consumption.
1,500 20 1,000 10
500
0
0 00
01
02
03
04
05
06
07
08
09
Source: USDA
10f f = forecast
Russian beef imports during 2009 dropped 22% to 635,842 tonnes swt compared to 2008, mainly the result of the trade disruptions after the 2008 financial crisis. Demand for processing products imports slumped, as a large percentage of the meat imported into Russia is utilised by processing companies, many of which disappeared after the crisis.
Figure 9 Russian beef imports 1,000
'000 tonnes swt Brazil
800
Argentina
Uruguay
Australia
EU
Other
600
400
200
0 2001
2002
2003
2004
2005
2006
2007
2008
2009
Source: Global Trade Atlas
Figure 10 Russian total chilled beef imports 40
'000 tonnes swt Lithuania
Germany
Australia
United States
Ukraine
Other
30
20
10
2002
2003
2004
2005
2006
2007
2008
2009
Source: Global Trade Atlas
Figure 11 Russian chilled beef imports - high end US and Australia 1,400
tonnes swt
'000 US$/tonne
16
Australia 1,200
United States
14
1,000
Australia av price
12
US av price
10
800
8 600
6
400
4
200
2
0
Beef imports from the EU (mainly bull beef) continued to decrease in 2009, as the EU’s production declines, while South America’s lower priced and leaner beef supplies (preferred by processors) continued to increase as a percentage of the total, accounting for 90% of imports during the period January to November in 2009. Despite a 20% fall to 322,831 tonnes swt in 2009, Brazilian imports continue to dominate in this market. However, part of Brazil’s fall was covered by a 97% rise in Argentinean product imports to 136,972 tonnes swt during the period. Higher production in Argentina left a larger volume of product available for exports, with Argentina’s gover nment easing export certificate restrictions in 2009. In the high quality chilled beef segment, Australian product faces competition from the US. US product has higher average prices compared to Australian product for similar cuts.
0 2001
The United States Department of Agriculture (USDA) estimates that Russian beef imports fell 38% to 700,000 tonnes cwt in 2009 year-on-year, while beef consumption fell 19%. However, USDA forecasts a 11% increase in beef imports and a 3% rise in total beef consumption in 2010.
The US was an important beef supplier to this market until 2003, but was banned after bovine spongiform encephalopathy (BSE) was detected. Both the US and Russia agreed to resume trade in November 2007, with an import protocol that included an animal age limitation (up to 30 months) and product origin restrictions (no Mexican or Canadian beef). Russia resumed US beef imports in 2008, with almost 19,000 tonnes swt of unprocessed beef traded in 2008. In 2009, Russia imported 3,126 tonnes swt of US beef.
0 2001
2002
2003
2004
2005
2006
2007
2008
2009
Source: Global Trade Atlas
MLA Market Information
7
Red Meat Market Report – Russia
February 2010
Box 3 – Australian beef in the Russian market Australian product has been increasingly promoted in the Russian market through food fairs, to high end restaurant chefs, via importer missions to Australia and at retail workshops. These activities serve to raise the awareness of Australian beef and lamb, its quality attributes and Australia’s food safety and quality assurance systems. Retail meat cutting training workshops have been performed in Far East Russia to assist butchers and retailers with improving product display and matching cuts with appropriate cooking methods in order to take full advantage of the attributes of each cut. It has been found frequently that cuts have been displayed and promoted for cooking methods not appropriate for them. Given the current economic situation, marketing activities by retailers for up-market products has slowed in favour of more economical and lower segment products. However, importers have manifested their interest in advertising fr om Australian suppliers, especially through lower cost electronic methods, such as electronic product brochures that are distributed among clients, highlighting Australian beef’s safety and quality. Despite the fact that Australian beef dominates in the restaurant sector, many chefs perceive that US beef quality is higher, has more marbelling, has better size and is more consistent and of a higher tenderness. However, a number of chefs prefer Australian beef, rating it higher in its taste attributes compared to US product. Australian beef also has an outstanding ‘clean and green’ image among consumers.
Figure 12
Outlook
Russian economic indicators 15
The medium term future for Australia’s beef exports to the Russian market remains bullish, as the Russian economy is expected to recover in 2010 with a forecasted 5% real GDP growth in 2010 supported by lower inflation rates. This is expected to bring stabilisation compared to 2009’s tough trading conditions.
annual % growth
10
5
0
-5 Real GDP growth -10
Inflation 2006
2007
2008
Source: OECD
MLA Market Information
2009f
2010f
2011f f = forecast
The fast food service sector is expected to regain its growing trend, with McDonald’s announcing new stores and Burger King joining the market.
8
Red Meat Market Report – Russia
February 2010
The recovery in Australian processing supplies to Russia in the long term may be supported by tighter supplies from Argentina and the lower competitiveness of Brazilian product, deemed to remain constrained by a rapidly appreciating real and strong domestic Brazilian consumption. In addition, lower domestic supplies are expected to continue declining as government incentives fail to increase output. Australian beef production and exports are expected to fall in 2010, with heightened competition for Australian beef from other markets such as the US, South East Asia and the Middle East. The future of the high value chilled and grainfed beef sector remains encouraging, with a small but growing high end retail and foodservice sector, fuelled by a share of high income earners in the main Russian urban centres such as Moscow and St Petersburg. Table 2 Australian beef exports to Russia (tonnes swt) Chilled 2008
2009
Net tonnage
tonnage
tonnage
change
Blade 1 0 Chuck & Bl ade 0 0 Silverside/Outside 1 9 Thick Flank/Knuckle 1 1 Cube Roll/Rib Eye Roll 364 296 Tenderloin 371 292 Manufacturing 0 2 Chuck 0 0 Striploin 189 150 Ribs prepared 88 80 Other 158 45 TOTAL 1,172 876 Source: Department of Agriculture, Fisheri es and Forestry
-1 0 9 0 -67 -79 1 0 -38 -8 -113 -296
Frozen % change
-82% 1065% 50% -19% -21% 1053% -100% -20% -9% -71% -25%
2008
2009
tonnage
tonnage
6,133 8,157 11,457 6,933 66 84 27,303 720 79 65 7,593 82,599
4,468 3,865 3,633 1,175 32 32 195 195 38 44 330 14,008
Total
Net change % change
-1,664 -4,292 -7,824 -5,759 -34 -52 -27,108 -525 -41 -21 -7,262 -54,583
-27% -53% -68% -83% -51% -62% -99% -73% -52% -32% -96% -83%
2008
2009
tonnage
tonnage
6,134 8,157 11,458 6,934 430 454 27,304 720 267 153 7,750 69,763
4,469 3,865 3,643 1,176 329 323 197 195 188 124 376 14,884
Net change % change
-1,665 -4,292 -7,816 -5,758 -101 -131 -27,107 -525 -79 -29 -7,375 -54,879
-27% -53% -68% -83% -24% -29% -99% -73% -30% -19% -95% -79%
Free to MLA members For further information please call toll free 1800 023 100 or 02 9463 9163 or fax 02 9954 0752 Also available on www.mla.com.au
© Meat & Livestock Australia, 2010. ABN 39 081 678 364. MLA makes no representations as to the accuracy of any information or advice contained in Red Meat Market Report and excludes all liability, whether in contract, tort (including negligence or breach of statutory duty) or otherwise as a result of reliance by any person on such information or advice.
MLA Market Information
9
