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CP Foods pumps cash into Russia’s meat industry

Post a commentBy Vladislav Vorotnikov , 08-Feb-2017
Last updated on 08-Feb-2017 at 12:34 GMT2017-02-08T12:34:10Z

CP Foods invested U$680m in the acquisition of two poultry farms near St Petersburg in 2015
CP Foods invested U$680m in the acquisition of two poultry farms near St Petersburg in 2015

Russia will see millions of dollars invested in its meat industry this year amid Thailand's Charoen Pokphand Foods' (CP Foods') plans to pump US$2 billion into expansion there by 2020. 

Sergey Samokhin, deputy head of the government of Ryazan Oblast, revealed that construction work on the company’s livestock farms in the region should start in the spring. According to Samokhin, last year CP Foods, the Russian Direct Investment Fund and the local Ryazan government signed an investment project deal worth some US$1bn. As part of this, CP Foods is planning the construction of several livestock farms designed to handle 80,000 head of cattle.

However, first of all, the company is seeking further investment in Russia’s meat processing segment. Musheg Mamikonyan, president of the Meat Council of the Eurasia Economic Union, explained that the cost of acquiring the Ostankino Meat Processing Plant could be higher than US$150m, “given the synergy with the assets of strategic investor, the time of getting [products] into the market and the plant’s share [in country’s sausage sector]”.

Data from Ostankino suggested that, in 2015, it sold 190,000 tonnes (t) of sausages in Russia. Sales data for 2016 is not yet available, but according to Russian agricultural holding company Cherkizovo, sausage sales in Russia fell by 2% last year to 2.41 million tonnes. Also, the average price for sausages in the market dropped by 10% in 2016 to RUB88.20 (US$1.20) per kg.

Good time to enter market

However, Mamikonyan pointed out that this might be good time for CP Foods to enter the market, as it could expect to get a discount on purchasing the assets of Ostankino, due to the drop in sales. Ostankino largely depends on market conditions in Russia as, according to a press release from the company, over the past few years, it has accounted for a 5% share of sausage sales in the market.

Under the terms of the Ostankino deal, CP Foods might also acquire two pig farms in Moscow and Smolensk Oblast, which currently belong to the processing firm and produce around 45,000t of pork per year. At the moment, CP Foods already has several pig farms in the Moscow, Kaluga and Kursk Oblasts of Russia, handling 77,000 head of pigs and holds the largest stake in Russia Baltic Pork Invest ASA, with two pig farms in Kaliningrad and Nizni Novgorod Oblast, each covering 180,000 head of pigs.

In 2015, CP Foods invested US$680m into the acquisition of two poultry farms not far from St Petersburg, each with a production capacity of 180,000t of poultry meat. Speaking at a press conference last year Russia’s Deputy Prime Minister Arkady Dvorkovich revealed that CP Foods was looking at further investments of US$500m in the country’s poultry and pig industries.

CP Foods is pursuing an intensive expansion programme at the moment. In January it took a 33% stake in Poland's SuperDrob , while in December 2016 it announced the US$1.1 billion takeover of US firm Bellisio Foods . In November it emerged it was investing US$531m in pig processing in Northern China

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