Overproduction of pork led to an increase in its consumption
The growth in pork production this year will be 7-10% or more than 300 thousand tons in slaughter weight, while in 2019 the increase was 5% (about 200 thousand tons). This factor will lead to lower prices by at least 10-15%, which will result in an increase in consumption of this type of meat. According to the director general of the National Union of Pig Breeders Yuri Kovalev, already in the first quarter of this year the following picture was observed: prices fell by 10%, and consumption grew by 6.5%. “The increase in production does not mean that this pork will be redundant. It will simply lead to an additional reduction in wholesale and retail prices”, he told «Agroinvestor».
The overproduction of pork in Russia this year is estimated at 150-200 thousand tons, Rusagro CEO Maxim Basov estimated during a conference call on the financial results of the first quarter. The company uses analytics from the National Union of Pig Breeders. In this case, the overproduction mentioned by Basov is “surplus”, which will lead to a drop in prices, Kovalev explains. According to him, if the growth of production amounted to 150-200 thousand tons, this would allow maintaining last year's prices, but would not lead to an increase in consumption. “But it grows in two cases: either purchasing power rises, which was not the case in the first quarter of this year, or the price decreases - this is what we are seeing,” adds Kovalev.
Also, production growth can offset the decline in imports, which are now almost absent, although Russia imported 90 thousand tons of pork last year. The drop in imports is due to the introduction of a “flat” duty of 25%, the abolition of the import quota, the devaluation of the ruble and a huge increase in production, which led to lower prices for domestic pork. “All this practically squeezed out the remnants of imports,” said Kovalev.
In the first four months, Russia exported about 50 thousand tons of pig products (+ 66% over the same period last year) worth $80 million (+ 95%). The growth in export in value terms is due to the fact that in 2019, offal was usually exported, but this year, almost half of the supply falls to meat. According to Kovalev, about 50% of pig production goes to neighboring countries, the rest - to Hong Kong and Vietnam. “We just opened Vietnam, and a very serious positive trend is visible, so it’s impossible to say that its potential has been worked out. Deliveries to Hong Kong are also growing”, says Kovalev. “Of course, we also hope for other markets in Southeast Asia, but it is Hong Kong, Vietnam and China that are potentially interesting markets.” China for the supply of Russian pork is still closed. Predict when it opens, Basov does not undertake, because it is a "completely political" issue. “Only Xi Jinping and Vladimir Putin know whether this will be done or not. I’m sure that President Putin will achieve this if he focuses on this issue, but I don’t think that he is the number one, number two or number three priority now”, he said.
According to Basov, the main promising countries for Russian pork are Belarus, Hong Kong and Vietnam, but open export destinations are not enough to export the entire volume of production growth. The Rusagro CEO believes that the alternative to exporting abroad is to sell more pork to Russian consumers, but for this you need to make the offer interesting, including through marketing and price.
Now pig farming, like other industries, needs support. At this stage, the most serious help for many areas of the agro-industrial complex can be provided by loans for the maintenance of working capital. “We advocated raising the limit on preferential short-term loans from 600 million rubles. up to 1.2 billion rubles. with the possibility of prolonging them for one year”, says Kovalev. “This idea found support in the Ministry of Agriculture, and now the department is looking for ways to implement this idea.” Also, the National Union of Pig Breeders asks to extend the use of preferential short-term loans for the purchase of grain for feed production and the purchase of live pigs for slaughter enterprises. “These are the main ideas that we support at this stage. We will determine further in the second half of the year depending on how the situation on the market changes and measures to support the population and the economy work”, he adds.