The pork market is in an ambiguous situation, analysts say

The Center for Industry Expertise of the Russian Agricultural Bank in its August review recorded that in January-April, the EXPORT of pig food products increased by 30% year on year, to more than 69,000 tons. Vietnam became the largest importer: Hong Kong, which reduced pork purchases in RUSSIA by 63%, moved to the 4th position.

According to the DIRECTOR General of the National Union of Pig Breeders (NSS) Yuri Kovalev, back in 2012, Russia was the No. 1 pork importer, but 2018 was a turning point: the country reached the level of self-sufficiency in this type of MEAT. In 2019, the volume of exports exceeded the volume of imports, and a year later, the Russian Federation entered the TOP-10 suppliers of pork to the world market. 

AB-Center calculated that over the past five years, the production of all types of meat in Russia has increased by 1.7 million tons (+18%). Last year, it reached 11.2 million tons (+3.4% yoy), mainly due to pork (+8.9%). At the same time, the output of poultry and beef increased by 0.3%, and mutton - by 0.9%. The Expert Analytical Center explains this picture by the release of a significant market share previously occupied by imported products (last year pork imports practically disappeared).

Falling prices and rising consumption

Yuri Kovalev specified that in 2020 Russia produced 5.5 million tons of pork in live weight, where 4.8 million tons were obtained from large enterprises. The annual increase was 445 thousand tons in live weight and 350 thousand tons in carcass weight. According to the NSS, the volume of pork output at the enterprises of the "hot twenty" increased by 476 thousand tons, and their market share - by 3% (up to 71%).

Over the past six years, annual pork consumption in Russia has increased by more than 0.7 million tons due to a continuous decline in prices (in the first half of 2020, it left 10% in the wholesale sector). With the onset of the covid-19 pandemic, additional factors contributed to this: the closure of outbound tourism, cash transfers to the population and the formation of cash reserves due to the lack of spending on durables in the face of economic uncertainty. 

As a result, by the end of last year, pork consumption in Russia increased by 4.4% to 4 million tons. At the same time, beef consumption in 2020 decreased to 1.8 million tons (-2.1%), and poultry consumption to 4.9 million tons (-1.3%).

The fall in prices has become a serious test for the industry, Yuri Kovalev emphasized: in a year, 10% could result in a loss of about 50 billion rubles, but by the beginning of this year, the average wholesale price of pork returned to the level of 2019. Consumption rose by about 173,000 tons to 27.9 kilograms per capita per year, with the pork segment being the only one showing this growth. 

In general, annual meat consumption in 2020 amounted to 76.5 kilograms per person. The share of pork, which had been increasing for five years, increased to 36%.

Foreign markets: export diversification is required

Since 2018, exports have become one of the most powerful incentives for increasing pork production. Andrey Dalnov, HEAD of the Rosselkhozbank Center for Industry Expertise, explained that Russia has entered new markets, primarily in Asia, where many countries have felt a blow to pig production from the spread of ASF in 2018-2020.

Russian exports of pig products grew by 90% to more than 206 thousand tons ($344 million), where the share of meat increased by 118% and accounted for 65% of the total volume. The volume of supplies of pork offal increased by 45% due to the recovery in demand from Hong Kong and Vietnam.

According to the NSS, exports to Vietnam increased almost six times: up to 63.4 thousand tons. Russia and Brazil, almost in equal shares last year, provided almost 50% of pork supplies in this direction. Mongolia (+137%, 3.6 thousand tons) and Kazakhstan (+406%, 4.9 thousand tons) played an important role. Last year, half of the structure of external supplies came from the countries of East and Southeast Asia, and in January-April 2021, their share increased to 65%, Andrey Dalnov said.

The NSS report recorded that last year Russian pork was purchased by importers from 20 countries, where more than 85% (178 thousand tons) came from Vietnam, Hong Kong, Ukraine and Belarus. To reduce risks, export diversification is required.

New players are actively entering the Asian markets. Andrey Dalnov predicts that their development will continue until the importing countries make up for losses from ASF to the level of 2017-2018, that is, this is the most promising region in terms of logistics and demand for the development of an external supply system. It now accounts for 70% of global pork imports. If Russia succeeds in entering the Chinese market , then the volume of pork exports by the end of 2021 may grow by more than 50% and exceed 300 thousand tons. Last year, 32% of all exported pork in the world was shipped to the Chinese market.

Another promising region is Africa, says Dalnov. In January-April, deliveries of domestic pork to this continent increased 25 times - up to 674 tons. Now African countries buy a little less than 1% of this type of meat in the structure of Russian exports, but in the coming years their share may increase to 3-5%.

Changeable conditions: outside and inside

At the same time, AB-Center focuses on the ambiguity of perspectives. In the first quarter of 2021, the domestic meat industry saw the lowest growth over the past 10 years. The production of all types of meat in slaughter weight amounted to 2.5 million tons (-2.2% year on year). Analysts attribute this phenomenon to a rise in the price of feed and a high degree of saturation of the domestic market.

Yuri Kovalev confirmed the observations of his colleagues and expressed concern that due to the growth of feed costs, the marginality of the business could not only decrease several times, but also go into negative territory. At the same time, he expects pork prices to decline in the second half of 2021, which stimulates an increase in the utilization of production assets and an increase in exports.

In the first half of 2021, the total increase in pork output in Russia amounted to only 2.1%, which is the lowest figure in the last 10 years. The main obstacle was the epizootic situation of ASF.

According to the NSS forecast, by the end of the current year, production will increase by (150-170 thousand tons in carcass weight). Russia no longer imports pork, therefore, there are no reserves to reduce its import. The supply has grown, there are no resources to further increase demand, Yuri Kovalev argues, which means that the selling price of pork should, in theory, drop to 95 rubles per kilogram, but taking into account a combination of other factors, it can be set at 105-110 rubles per kilogram.

Competition between exporters in Vietnam and Hong Kong is growing, he added, and the lack of access to the Chinese market means that even in a positive scenario, exports will remain at the level of 200,000 tons, plus or minus 10%, meaning that significant growth is not expected. In the first half of the year, the volume of deliveries increased by 16% due to Vietnam: the growth rate fell noticeably compared to last year.

According to the NSS, pork consumption continues to grow in the first half of the year (+1.5%), although the growth rate is several times lower than in the first half of 2020 (+5.2%). The high level of domestic consumption of pork, which was formed under the influence of COVID-19, does not lose its relevance. Pork self-sufficiency has reached 100%. Domestic production is growing, the competitive environment is becoming denser, so wholesale prices should decrease or at least not rise, Kovalev believes. 

The processes taking place in the grain market guarantee an increase in the cost of raw materials for feed to more than 15 thousand rubles per ton, including VAT. The change in strategy from import substitution to expansion in foreign markets implies tougher competition with the world's leading suppliers, primarily in Southeast Asia. The combination of all these factors requires increasing the efficiency of production, the competitiveness of products and the industry as a whole. Sergey Mamontov, General Director of the Yubileiny agricultural holding, expressed the opinion that the production of semi-finished meat products of the fresh category will become a major point of growth. In addition, the leading players again spoke about the need for state support for the industry.