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With U.S. Meat Absent from Russia, Which Suppliers Benefit?

This year’s biggest market access setback for U.S. beef and pork has been the closure (in effect since Feb. 11) of the Russian market due to the impasse over ractopamine use. While efforts to resolve this dispute continue, it is important to examine how meat import activity in Russia has adjusted to the absence of U.S. products.
Russian-Pork-PVM-Imports Russia’s pork imports increase from South America, smaller European suppliers
Through May, Russia’s pork and pork variety meat imports from all sources were down 18 percent to 265,865 metric tons (mt). In addition to the 76 percent decline in imports from the U.S. (6,217 mt), imports were also lower from the EU (167,437 mt, -9 percent) and Canada (35,031 mt, -46 percent). Imports were sharply higher from Brazil (47,244 mt, +40 percent) and Chile (7,387 mt, +42 percent) – although it is important to note that imports from Brazil are still far below 2011 levels, when January-May imports exceeded 80,000 mt.

A closer look at Russia’s imports from the EU confirms that traditional leading suppliers Spain (43,187 mt, -14 percent) and Germany (36,136 mt, -26 percent) are being held back by a number of market access restrictions. Imports from Denmark (31,281 mt, -5 percent) and France (8,913 mt, -27 percent) were also lower, while significant gains were recorded by the Netherlands (8,573 mt, +37 percent), Poland (7,048 mt, +37 percent) and Hungary (6,601 mt, +78 percent).

As for Russia’s domestic production, USMEF St. Petersburg Manager Yuri Barutkin reports that the situation continues to be very challenging.

“The upward trend in live hog prices that we saw in May has leveled out and is now stagnant,” he explained. “Year-over-year pork production is still higher, but the growth rate in June (8 percent) was lower than that in the beginning of the year. And in addition to price pressures, June has seen the unusually high number of African Swine Fever (ASF) outbreaks. ASF continues to be a serious threat to pork production in Russia and has spread very close to large pork-producing regions such as Belgorod.”

Recent developments in the Russian pork market point to opportunities for U.S. exports if we can return to the market soon. Russian pork imports during the first five months of 2013 were down 18 percent, and processors (the primary customers for U.S. pork in Russia) are forecasting serious ham shortages this fall if imports from the U.S. and Canada remain suspended. Pork stocks in Russian cold stores have been drawn down from the very high levels reached in early 2013, and domestic production is projected to decline in the second half of this year. Russia, like the United States, is forecasting a strong fall grain harvest, so the prospects for lower feedgrain prices and a return to profitability for Russian producers is expected to lead to lower slaughter numbers as producers retain sows in an effort to rebuild their herds. With imports dropping significantly so far this year, the global duty-free tariff rate quota (TRQ) is being underutilized and importers are anxious to find ways to use the TRQ before the end of the year.

Russia’s beef imports impacted by booming demand in China
Russia’s beef and beef variety imports through May were down 12 percent to 243,280 mt, with only Brazil (110,283 mt, +17 percent) and Paraguay (47,861 mt, +33 percent) recording gains over last year’s pace. While recording virtually no import activity from the United States or Canada, Russia also imported less beef from Uruguay (20,876 mt, -34 percent), Argentina (19,661 mt, -3 percent) and Australia (13,272 mt, -28 percent). It is worth noting, however, that Australia’s chilled beef exports to Russia have increased sharply this year (+156 percent through June, to 1,302 mt) – which is likely linked to the absence of chilled U.S. beef.

While Australia and Uruguay are facing no new access restrictions in Russia, the surge in demand from China may be impacting their exports to Russia. Through May, China’s beef imports from both Australia (51,823 mt, +1180 percent) and Uruguay (29,081 mt, +651 percent) were much higher than a year ago, while Brazil and Paraguay do not have access to China and both rely on Russia as their top export destination.

Unlike the pork importers mentioned above, importers who hold licenses under the U.S. country-specific beef TRQ are not feeling the same pressure to utilize the quota before the end of the year. Since the Russian market is closed to beef imports from the United States, importers will not suffer a penalty for failing to use their licenses. Moreover, the glut of domestic pork on the market at greatly reduced prices (down 30 percent from last year) has undercut demand by processors for lean beef cuts that can be used as raw material in sausage formulations. On the other hand, the absence of U.S. beef from the high-end foodservice and retail sectors is definitely being felt. The United States’ reputation as a reliable supplier is being compromised, and even loyal customers are turning to other suppliers (such as Australia, as noted earlier) to meet their needs. Russian-Beef-PVM-Imports

Barutkin said that while Russia’s cattle population continues to shrink, beef production is up slightly from a year ago.

“It is important to note that Russian beef production remains the prerogative of backyard producers, with only about 40 percent of beef produced in commercial facilities,” he explained. “The Russian market continues to experience deficit in beef supplies, especially for chilled beef.”

Beef prices at the wholesale level have fallen 8 percent in Russia since the beginning of this year, pressured by lower prices for other proteins. But retail prices have remained steady, discouraging any significant growth in consumer demand.