In The War Economy Russia Has Taught The Pigs To Sing

The losses of the former are Russia’s tactical gains; they aren’t yet victory in the war.

But it’s the latter, the Russian pig (lead image) who, upon turning into pork, is breaking through the enemy’s defences towards strategic victory of Russian economic power to capture a world market. This means defeat – unrecoverable loss of market share – for the hostile states led by the once powerful pork exporters, Germany, Spain, Denmark, Canada, and the US. As the most recent European Union (EU) pig and pork slaughter data show,  the war is pushing up the energy and feed costs of pig farming,  and drastically cutting European exports of pork to the Asian consumer market, the biggest in the world.

There, Russia’s strategic ally China has cancelled the closure of its market in effect for Russia since 2008,  and simultaneously has begun pork trade restriction moves against Spain, Denmark and The Netherlands, the principal European exporters of pork to China. In trade war retaliation, China is also steadily reducing the volume and value of its pork imports from the US since 2021.

Behind the Ukraine front, the test of who is winning the war against Russia is also who puts their money and their meat where their mouth is. In Russia, meat consumption is rising per capita to a level never recorded before in Russian history.  At the same time, the country has become the world’s fifth largest pork producer.  

From self-sufficiency in pork production in 2018 to the export of market surplus, this industry achievement has been based on direct and indirect state support measures, including retaliation against EU imports which followed the start of the EU’s anti-Russian sanctions in 2014.  

“Practically speaking,” says Yury Kovalev, “we no longer have imports, but not because this is closed, but because over the past fifteen years an entire industry has been created, production has grown every year, and we have almost completely abandoned import dependence.”  Kovalev is general director of Russia’s National Union of Pig Breeders (NSS). Kovalev is also forecasting that Russian pork exports  will soon capture about 10% of the Chinese import market – about 300,000 tonnes per annum – displacing the Europeans.  

Here is the Russian market story from all sources, just before the opening of the China trade began in September 2023.  

For the full 15-year, 45-story  archive on Russian pork, click to read. The concentration of the pork industry into fewer large corporate hands, including the oligarch-sized Miratorg group of the Linnik brothers (14.3% market share) and the Rusagro combine of Vadim Moshkovich (5.9%), has been analyzed through this  archive. According to the latest tabulation published this February, over the past year the Linniks have increased their production by 21% to 803,500 tonnes, and lifted their market share from 12.6% to 14.3%. The top-5 pork producers now have a combined market share of 38%; this has not changed compared with a year ago; by contrast, in 2011 the top-5 Russian producers accounted for 26% of the market.

NATIONAL UNION OF PIG BREEDERS – TOP-20 RUSSIAN PORK PRODUCERS AT END-2023

No industry source will say publicly that the financial subsidies,  trade protection and other  administrative resources applied to the pork industry by the Putin administration to end import dependency and secure the domestic food chain are also responsible for the accelerating concentration of ownership and profit.

In this newly published report on the Russian pork industry,  Vzglyad, the semi-official platform for security analysis, explains the reasons for the exceptional success. Between the lines, however, the publication targets the Kremlin economic advisors, led by Central Bank Governor Elvira Nabiullina, for running a high-interest rate policy.  Vzglyad did not ask its sources to estimate what the net loan rate to the pork producers is after they offset their cost, investment, tax and other government benefits.

The Russian text has been translated verbatim; illustrations have been added.

October 8, 2024
Russia has made a revolution in animal husbandry How has Russia managed to achieve outstanding success in animal husbandry in twenty years
By Olga Samofalova

Russia has taken the fourth place among the world’s largest meat producers. Experts call it the livestock miracle of Russia. After all, Russia has come a long way from an overwhelming  dependence on American meat to reach complete self-sufficiency in poultry meat plus pork. How has Russia raised animal husbandry from its knees in 20 years, who helped the country in this, and why are there not comparably impressive successes in beef so far?

Russia has managed to achieve the fourth place among the world’s largest meat producers. This was recently stated by Prime Minister Mikhail Mishustin at a meeting with Chairman of the Board of the Russian Agricultural Bank Boris Listov.

According to the National Meat Association, imports of meat and meat products from 2003 to 2023 decreased from 2.67 million tonnes to 0.64 million tonnes.

Particularly impressive results in import substitution have been achieved for poultry and pork meat. Meat imports in the early 2000s reached 1.2 million tonnes, but in 2023 only 0.23 million tonnes were imported.

“Imports of pork and pork offal, including lard, over the years has reached from 600,000 tonnes to 1.250 million tonnes at its peak in 2010. This year, pork imports will be only 3,000  tonnes, and exports will be about 300,000 tonnes. Beef imports have also decreased significantly, though not because of our successes, but because of changes in the structure of domestic consumption: other types of meat have become much cheaper than beef, and people have begun to eat less beef. Imports in 2003 reached 700,000 tonnes, and in 2023 decreased to 231,000 tonnes, and this year we will supply about 40,000 tonnes of beef for export to other countries,” says Sergei Yushin, Head of the Executive Committee of the National Meat Association.

How did Russia manage to achieve such incredible success in animal husbandry for poultry and pork?

Yushin, chief executive of the National Meat Association, recalls that from the 1990s into the early 2000s, the situation was difficult: 70% of consumption was provided by imported broiler meat – the famous ‘Bush legs’. There was an excess of legs in the USA, as they prefer other parts of the chicken there.

“The first investments went specifically into broiler production, because it is the most affordable and acceptable meat for Russians; there are no religious restrictions on its use; a low payback period due to the rapid production of a piece of meat from chicken, unlike pig farming where the terms of investment return are several times longer, not to mention beef cattle where capital costs are also much higher,” says Yushin.

Interestingly, the first major investors in Russian poultry farming were American funds, which began to actively come to Russia after 1998.

An important milestone in the development of animal husbandry was the arrival of Alexei Gordeyev to the Ministry of Agriculture in the early 2000s. “Gordeyev drew attention to the fact that import dependence is dangerous, and if a man-made disaster occurs, or animal disease, then there will be nothing to eat. Secondly, it was a shame that Russia, having huge territories for the production of animal feed, oilseeds, etc., is so heavily dependent on imported meat,” says Yushin (right).

The main problem, he said, was the low and often negative profitability of production, so  Gordeyev set about the task of ensuring profitability. Accordingly, in 2005, customs and tariff regulation measures were introduced – quotas were introduced for meat imports, and high duties were imposed on import volumes exceeding the quota. This has led to an increase in meat prices and then to the incomes of Russian enterprises. Europe used the same measures to raise its livestock production after the Second World War, the source recalls.

Since about 2005, thanks to these import duties, a second industry has appeared that has become interesting to investors – pig farming.

“Many foreign companies, primarily German, Danish and French, also took part in the formation of modern pig farming in Russia. They not only built their own pig farms, but also provided expertise, technological equipment, breeding programs, genetic material, and so on,” Yushin says.

The second important stage was the implementation in 2006-2007 of the National Agro–industrial Complex Development Project, where for the first time the state provided preferential loans for livestock farming. Government support and cheap money have done their job – banks have become more willing to lend to companies to build farms.

The third stage was the adoption in 2008 of the state program for the development of agriculture and regulation of the market of agricultural products, raw materials and food, which was in effect for four years until 2012. “This program provided for a number of measures to support agricultural producers, including animal husbandry. These are the construction of new and modernization of old facilities, zero rates for the supply of breeding material from abroad. Then substantial funding was allocated,” the source says.

In 2012, Russia joined the World Trade Organization (WTO), and measures were provided to protect our market for livestock farmers. At the same time, the state support program was extended until 2020.

“All these years, enterprises have been built in Russia. We worked closely with leading foreign companies that supplied us with the best equipment, the best technologies, the best breeding material, and advised on the production of feed for farm animals. Genetic companies, world market leaders, opened their representative offices in Russia and trained our specialists. They have done a lot of work on the development of breeding in Russia. There was a breakdown of stereotypes that the work of a collective farmer is dirty and for the uneducated. Very educated, erudite and active people have joined the industry. Without this, nothing would have happened either,” Yushin believes.

Another factor which helped the Russian livestock miracle happen was the growth of household incomes in the 2000s when meat consumption began to grow in step with the growth of the economy.

Over twenty years, meat consumption in Russia has increased from 52 kg per capita in 2003 to 80 kg per capita in 2023; this includes poultry from 18 kg to 36 kg and pork from 17 kg to 32 kg, while beef consumption has decreased from 17 kg to 13 kg.

TRAJECTORY OF RUSSIAN MEAT CONSUMPTION, KILOGRAMS PER CAPITA

“Despite the large volumes of imports, we had to produce more and more and the demand of the population supported good prices, which allowed companies to take out new loans and build, build, build. We have built a huge number of enterprises, created more than a hundred thousand new jobs. The development of animal husbandry has prompted the accelerated development of crop production, the construction of the most advanced feed mills, veterinary science, vaccine production, etc.,” says Yushin.

It is clear that at the stage of the formation of animal husbandry in Russia, the cost of meat was artificially inflated by the government’s import restrictions.

“I don’t hide the fact that at the initial stage in the second half of the 2000s and in the first half of the 2010-2020 decade, Russians overpaid for meat compared to the world market. But the goal was to raise profitability and increase local production. So that the moment will come when the competition in the market will be so fierce that meat will become one of the cheapest in the world for us.”

US, AUSTRALIAN BEEF EXPORT PRICE IN RUSSIAN ROUBLES PER KILOGRAM, 2013-2024

DOMESTIC BEEF PRICE IN ROUBLES PER KILOGRAM, 2021-22 

“And indeed, today commercial pork is more expensive in Brazil, in Canada and the US,  where traditionally there were cheap pigs – pork is more expensive there than in our country. In terms of poultry meat, we are one of the lowest in price,” says Yushin.

Over the past decade, active work has been underway to open export markets. “We are displacing [other country] imports in the competitive struggle, but our market is also not so flexible — people cannot go on eating infinitely more meat. Our meat consumption level has already increased to 83 kg per person, and this is the level of rich countries. Therefore, our potential is to increase exports. Russia already supplies meat to more than 60 countries on a regular basis,” the expert says.

Exports of meat and meat products have grown enormously in twenty years – by a magnitude of 22 times: from 36,000 tonnes in 2003 (mainly supplied to neighbouring CIS countries) to 800,000  tonnes in 2023. Foreign countries bought 343,000 tonnes of poultry meat, 223,000 tonnes of pork,  and 36,000 tonnes of beef.  

An important step was the understanding of the country’s leadership that top officials of the state should develop exports, as did the presidents of the United States, Brazil, the Prime Minister of France, etc., the expert notes. The departments of government have also joined the effort in parallel, and the Ministry of Agriculture has created a strong agricultural attaché apparatus abroad. “We see the result: almost 45 billion roubles worth exports of agricultural products. Who would have believed this ten years ago,” Yushin notes.

Another thing, the expert does not hide, is that the current situation with expensive money due to the high key loan rate of the Central Bank greatly complicates the situation. “To be realistic, the industry may face a period of stagnation in investment and a halt in growth. And then we will lose the fight for world markets to other countries where loans are still cheap. No one will take out loans at 22% to 23%. The cost of construction has almost doubled in price over the past five years. The labour force has not only risen in price, but we also have a shortage of workers,” the source expresses concern.

Another potential for the development of animal husbandry in Russia lies in cattle meat. “Russia has not achieved great success in beef, except that it fully meets the needs of the Russian market in expensive marbled beef, which was previously imported from America and Australia. Consumption of this expensive meat has increased ten times in 10 years. In addition, we also export it. However, there were no large investments in beef, with the exception of a few projects. There are very long payback periods, the infrastructure of cattle raising is not developed, and there is low or even negative profitability. So we see a continuing decline in the number of cattle. We have enough beef, plus there are imports, but beef is where Russia could take the next step, albeit it’s a difficult one. But this requires no less money than other projects. We are talking about a trillion rubles and a period of 10-20 years,”” Yushin concludes. Beef in Russia is also one of the cheapest in the world, and this is one of its tragedies, since the low price scares off investors and slows down the development of the industry.