Russian producers hit by reduced poultry margins

By Vladislav Vorotnikov

- Last updated on GMT

Russian poultry producers see margins fall

Related tags: Poultry producers, Livestock, Poultry farming, Meat

Russia’s third-largest poultry producer, agricultural holding Belaya Ptitsa, has reported financial turbulence, as falling prices and shrinking state aid keep pushing down profitability in the industry.

Belaya Ptitsa released 260,000 tonnes of broiler meat in 2017, up 18% on the previous year, according to a company statement. However, the company has found itself under strong pressure due to the low prices achieved for its products and a “shortfall in the state aid​”, according to its press service.

During a meeting in Moscow on 7 February, governors of the top three agricultural regions in Russia reportedly asked Russian Prime Minister Dmitry Medvedev to support Belaya Ptitsa, as the company had been facing serious difficulties.

Meanwhile, Belaya Ptitsa confirmed to Russian news outlet RBK that the company was unable to complete some of its investment projects and there was a real threat that supplies of feed to its poultry farms could be disrupted.

According to the Russian Union of Poultry Producers, 30 poultry producers, primarily small-scale farms, went bankrupt in 2016, amid a background of low prices in the domestic market. In 2017, the bankruptcies continued, including among some larger producers - for example, Gafuri Poultry Complex, which was the third-largest turkey producer in the country.  

Crisis gains momentum

Meanwhile, the profitability of Russian broiler producers in the first two months of 2018 has maintained a steady downward trend, Albert Davleyev, president of the Russian consulting agency Agrofood Strategy told GlobalMeatNews​. While in 2017 the average industry profitability level ranged between 7% and 8%, in early March it decreased to just 5%.

The major factors affecting producers’ margins are skyrocketing prices for soybean meal, which have risen 25% during the last two months, ​[synthetic amino acid] lysine, which also added 20%, vitamins A and E and other feed components. The overall price increase for poultry feed premixes in January-February is estimated at a minimum of 30%​,” Davleyev estimated.

Lyubov Burdienko, commercial director of the Russian consulting agency EMEAT, told GlobalMeatNews​ that profitability in the industry was under pressure, as the saturation of the domestic market pushed average prices down.

We​ [Russia] increased consumption of poultry meat, and the purchasing power of the population is also on the rise, but the growth in domestic production is still running ahead​ [of the growth in consumption]. In this regard, export development is becoming a top priority in the industry​,” she said.

In 2017, Russia made strong progress on poultry exports and further growth could stabilise the situation in the industry, according to Burdienko.

No more helping hand

In addition, the Russian government is gradually reducing state support for poultry producers, placing additional pressure on their profitability.

The government owes billions of roubles to Russian poultry producers in already approved state subsidies, as partial reimbursement of capital expenses on new production and processing facilities, as well as approved subsidies on working capital and short-term loans​,” said Davleyev. 

Since 2016, the Ministry of Agriculture has ‘frozen’ the process of selecting and approving new investment projects in the poultry industry that are eligible for subsidies from the federal budget. According to the Russian Ministry of Agriculture, the overall volume of state subsidies is due to decrease 1.7 times by 2020,” he added.

Related topics: Financial, Russia, Poultry

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