Due to the devaluation of the ruble and the drop in Russians’ incomes, meat import and consumption has dropped. However, the less conventional meat categories in Russia have benefitted – turkey production increased by a third in 2015.
Who is doing well without meat
Due to the decrease in incomes, meat consumption has fallen for the second consecutive year in Russia — in 2015, it fell 3% relative to the preceding year, to 10.3 million tons, and in 2014 it went down by 2%, although prior to that it had steadily risen starting in 2009.
Certain types of meat have been hit particularly hard: for instance, about 10% less beef was purchased by Russians in 2015, according to the president of the Meat Council of the Single Economic Space of the Eurasian Customs Union Musheg Mamikonian. Meat consumption has declined in the ruble devaluation situation and the sharp reduction in imports — in ten months of 2015, according to data from the Moscow International Trade Centre, meat and meat by-product imports fell 31.5% to 921,000 tons. In monetary value, the import reduction is even more severe — by 42.7%, to 2.5 billion USD.
However, there are meat categories for which the decline has been advantageous. For example, pork production has risen. However, there is no surplus on the market, as the increase goes towards compensating for the drop in imports. “While in 2013 the Russian Federation imported about 1.2 million tons of pork, pork by-products, and fatback, the figure for 2015 is slightly lower than 400 thousand tons. This year, import of this kind of meat will drop another 20%”, remarked the head of the executive committee of the National Meat Association Sergey Yushin.
“At present, the amount of pork produced within the country is too low to completely compensate for the loss in volume due to the embargo. However, judging by the rise in the number of piglets undergoing fattening, this situation will be resolved in a year’s time,” reports the director of the Agrobusiness analytics center “AB-Tsentr” Aleksey Plugov in his forecast.
It is notable that already a part of the pork production is meant for foreign markets. However, only certain cuts are being exported, the by-products. “Certain cuts, for instance the brisket, are in surplus here. They can be exported to China and Japan. Growth in exports will allow the sector to maintain its growth”, notes S. Yushin.
Furthermore,there has recently been a rise in the production of “unconventional” types of poultry, such as turkey, duck, and goose. The sharpest growth was observed in turkey production — according to the Ministry of Agriculture, turkey production grew by 34.9% to reach 205 thousand tons in 2015. In total, the volume of turkey production has multiplied 7.5 times in the last 10 years, according to the analytics agency Global Reach Consulting (GRC). Sergey Yushin confirms the record growth of turkey production in 2015, but calls attention to the low baseline. He noted that 10 years ago turkey production in Russia was at a “measly” 28 thousand tons, and the turkey consumption in the country has since gone from 200 grams a year per capita to 1.5 kg. There is still considerable room for growth: turkey consumption in the United States is 9 kg per capita, 7 kg per capita in the UK, and 4.5 kg per capita in Europe, reported S. Yushin.
Why the market is shrinking
According to data provided by the firm Romir, the average cost of meat (not adjusted for inflation) in the first half of 2015 was 29% higher than in the first half of 2014. Meanwhile, purchasing frequency reduced by 5%. In the past the situation was different: for instance in the first half of 2014, meat consumption rose by 11%.
Sergey Yushin of the National Meat Association attributes the rise in prices and the fall in demand primarily to the devaluation of the ruble and the fall in consumer incomes, and not to the food products embargo initiated in August 2014. “The population simply have little income, so they spend less on meat”, he said. “The amount imported from Europe began to fall even before the embargo.”
“Eight years ago, everyone dismissed turkey, and no one wanted to hear anything about it. Now everyone is involved in the turkey market, after we gave it a boost”, claims Vadim Vaneyev, head of leading Russian turkey producer Yevrodon.
In 2003 he launched Russia’s first large turkey enterprise. Todaythe Yevrodon Group produces nearly 20% of all the turkey in Russia — it produced 37.6 thousand tons in dressed weight in 2015. By the beginning of 2017, according to V. Vaneyev, investment in turkey production will reach 30 billion rubles. In 2014 (more recent data was unavailable), Yevrodon’s main business had a rise in turnover of 14.2%, at 4.75 billion rubles, while net profit was 333 million rubles, according to data from SPARK.
Other large meat producers entered the turkey market several years ago. In 2012, the Cherkizovo Group founder Igor Babayev and his cousin Naum Babayev independently launched their turkey production ventures. The company Damate, founded in 2012 by Naum Babayev, has become the second largest turkey producer in Russia — in 2015 it produced 34.7 thousand tons in dressed weight.
In 2012, the Cherkizovo Group signed an agreement with the Spanish Grupo Fuertes to establish a joint venture in Tambov Oblast. “We are already among the three leaders in the meat, pork, and meat by-product market”, claimed Cherkizovo director Sergey Mikhailov at the time. “Now our objective is to become the market leader in the fast-growing turkey segment.”
The partners decided to build an integrated full-cycle establishment, encompassing the entire production chain from feed manufacture to slaughter and processing. The complex is expected to have a capacity of 40-50 thousand tons per annum with room for further expansion. The investment is over 7 billion rubles. The first Tambov Turkey product is expected to hit the shelves by the end of summer 2016, according to Cherkizovo representative Marina Kagan.
In recent years, over 50 more smaller turkey production projects have been announced, reports Albert Davleyev, president of the Agrifood Strategies consulting firm, although most of them never reached implementation.
V. Vaneyev notes that raising turkeys takes longer than chickens — 105-140 days as opposed to 38, but turkey production is more profitable. He stated earlier that he expects a 10-year breakeven term from his projects. We note that according to data from the journal Expert, the Cherkizovo Group projected EBITDA profitability of 30% from its turkey production project. The total corrected EBITDA profitability of the Cherkizovo poultry production in 2014 was 24%.
In place of pork and beef
Turkey has ceased to be a niche product, and the range of turkey products on sale continues to expand each year, such that in certain supermarkets it already occupies its own shelves, according to Albert Davleyev.
A spokesperson for the second largest retail group in Russia, the X5 Retail Group (Pyatyorochka, Perekryostok, Karusel chains), confirms the rising demand for turkey. Turkey sales in Perekryostok supermarkets climbed 30% in 2014, and 20% in 2015, according to the X5 source. In total, the turkey share of the entire meat category of the Perekryostok chain rose from 13% in 2014 to 20% in 2015.
The large market share and broad variety of turkey products are characteristic specifically of the supermarket format, as it is a somewhat dear product, remarks Sergey Yushin. The cost of turkey breast in a supermarket usually begins at 400 rubles per kg, whereas chicken breast starts at about 250 rubles per kg, reports S. Yushin. In the Viktoria supermarkets of the Dixy Group, 11 turkey products are available for purchase, whereas the low-cost Dixy shops have only 4. Meanwhileturkey competes not actually with chicken, but with the more expensive beef and pork which it has begun to replace in the crisis, opined A. Davleyev and M. Mamikonian.
The Tambov Turkey complex is expected to have a capacity of 40-50 thousand tons per annum with room for further expansion. The total investment is over 7 billion rubles. The first products are to reach the market by the end of summer 2016.