This has led the National Union of Meat Processors (NUMP) to appeal to Alexey Gordeev, Russia’s deputy Prime Minister, requesting that retailers be forced to raise the prices of meat products on grocery shelves.
“The reason is the sudden leap in prices for all meat in Russia in 2018. From January to July 2018, the average costs to for pork jumped by 30%, broiler meat by 35%, domestic beef by 10% and imported beef by 25%,” claimed the NUMP.
“Although, the price hike was anticipated, given the economic situation in our country, nobody was expecting they would jump simultaneously and so fast, above all forecasts and expectations. This means the actual picture is worse than all our predictions,” added the NUMP.
Meanwhile, retail prices for most meat products during the same period increased by only 2.5-3%, according to Russia’s Ministry of Agriculture. Retail prices are not rising due to the weak purchasing power of the Russian population and, as a result, payments to the meat processing plants are also flat.
In addition, the demand for sausages and semi-finished products has fallen in Russia over the past few years. According to GfK, these declined by 3% in the period from July 2017 to March 2018. In total, Russia’s meat producers manufactured 1.9 million tonnes of semi-finished meat products and 1.3 million tonnes of sausages during the first half of 2018, according to estimates from the Russian State Statistical Service.
No realistic demand
Although, Alexey Gordeev has ordered government agencies to have a look into the issue, most experts said they believed no real action to support meat processing would be taken.
“The idea of a government regulation on retailers’ purchasing prices for processed meats is not realistic,” Albert Davleyev, president of the Russian Consulting Agency Agrifood Strategies told GlobalMeatNews. “Retail prices for meat are extremely sensitive for consumers: any price increase could cause a slowdown in sales turnover and reduce retailers’ margins. Most likely, they would prefer to contract those suppliers who can control their production costs, by using their own resource base, and offer stable prices.”
Given this situation, independent meat processors are likely to keep losing the battle with vertically integrated meat businesses in Russia.
“The margins for Russian meat processing companies that are not integrated with their own farms and outsource raw material have been going down for many years and, in many cases, this has led to bankruptcy. Such companies cannot sustain price variations and suffer from serious competition at retail level. Vertically integrated companies benefit considerably from the absence of middlemen in the supply chain, as well as precisely controlled product specifications and quality,” added Davleyev.