Russia’s poultry output will rise even further this year than had been thought, driving imports to a 24-year low, and enhancing price pressure which is expected to fuel a round of consolidation, and potentially bankruptcies.
Russian poultry production will hit 3.70m tonnes in 2016, a rise of 150,000 tonnes year on year, and the biggest volume since the collapse of the Soviet Union, the US Department of Agriculture bureau in Moscow said.
The increase, to a level 50,000 tonnes more than the USDA officially forecasts, comes amid a state-backed expansion programme in the sector, with officials early last year listing 65 projects in poultry production expansion over 2015 and 2016, with investment totalling 64.9bn roubles ($1.1bn).
The plans proposed to raise output capacity by potentially 455,000 tonnes, although “some” have been “put on hold or cancelled due to financial reasons”, the bureau said.
‘Indications of saturation’
Indeed, Russian poultry producers have suffered a squeeze in margins as growth in consumption, after near-tripling since 2000, is tailing-off, as a “growing number of Russian consumers respond to the on-going economic crisis by economising on food purchases”, the bureau said.
“There are indications of saturation of the Russian broiler meat market, such us wholesale and consumer price decreases, especially when compared to the inflation levels and price growth for other food items.”
Meanwhile, high inflation and rouble depreciation have “had a direct impact on production costs”, swelling costs of the likes of genetics, drugs, equipment and feed additives.
“Margins in the poultry sector are expected to further decrease in 2016.”
‘More likely to go bankrupt’
The impact will likely be an increase in sector deals, as better-financed producers scale-up to exploit economies of scale – and grain producers seek a way of adding value to their harvests.
“Industry experts expect the consolidation process in the poultry industry to intensify in the second half of 2016,” the bureau said.
“Large producers may consider buying smaller companies struggling with low poultry prices.
“Major companies that previously focused exclusively on crop production may begin to purchase poultry production businesses.”
The threat to this scenario is that Russia’s economic situation “further deteriorates”, and less efficient producers are rendered “more likely to go bankrupt as potential buyers experience difficulties with borrowing funds for closing mergers and acquisitions deals”.
The bureau flagged Rusagro’s cancellation in December of its purchase of Uralbroiler, which has capacity of about 110,000 tonnes of poultry production a year.
‘Further decrease in imports’
Meanwhile, broiler meat import volumes will suffer too, halving to 130,000 tonnes this year – the lowest since 1992.
Weakness in the rouble and the expanded domestic output have mitigated against purchases from abroad, besides the sanctions against some Western countries since August 2014 which have cut purchases from the European Union and US to de minimis levels.
“All three above-mentioned trends will remain in the market in 2016, resulting in a further decrease in imports.”
Belarus is the major origin of Russian poultry imports, estimated at 118,000 tonnes in the first 11 months of last year, a rise of 11%, with purchases from Brazil up 4% at 82,325 tonnes.
In 2013, the last calendar year unaffected by import sanctions, Russia purchased 266,236 tonnes of broiler meat from the US, and 64,946 tonnes from the EU.
(Source – http://www.agrimoney.com/news/russian-poultry-imports-to-tumble-to-24-year-low–9316.html)