How is import substitution affecting Russian agriculture?

How is import substitution affecting Russian agriculture?

Russian agrifood producers are taking advantage of the import substitution measures put in place by the federal government when it imposed a ban on imports of food from many of its previous suppliers a year ago.

Food imports look likely to be down by half this year, according to the Ministry of Agriculture for the Russian Federation, from US$41 billion in 2014 to an estimated US$25 billion this year.

The Minister, Alexander Tkachev, has reported that the government program of import substitution and increased state support for Russian agribusiness have resulted in a 3.7 percent increase in output in 2014, and that this has continued with a further rise of 2.9 percent in the first half of 2015. The meat and meat products sector has achieved growth of 9 percent.

The country’s yearlong ban has affected the sources of imported food products as increased trade has been achieved by CIS countries, Latin America and Asia. Belarus has almost doubled its dairy product exports to Russia and more fish has been imported from China, Chile and the Faroe Islands. The authorities are clamping down on illegal trade and destroying seized goods.

According to Prime Minister Dmitry Medvedev, the number of investment projects aimed at import substitution in the agrifood sector has totaled 460 with a value of RUB265 billion (US$3.83 billion).

With the import restrictions in place for another year and the successes to date, Medvedev is encouraging domestic agribusinesses to take advantage of the situation, which will not last indefinitely. He said that while full replacement of imports by domestic producers has not yet been achieved, there have been no shortages of meat, milk, fruit or vegetables on the Russian market.

In August, the Ministry of Agriculture announced new rules for state support of agricultural production, including dairy and livestock production and processing. Part of the federal budget has been set aside to reimburse the cost of interest on loans taken by agrifood businesses from Russian credit institutions and agricultural cooperatives.

Cherkizovo reports improved output, further investments

Russia’s largest meat and animal feed producer, Cherkizovo Group, is an example of an organization taking advantage of the current trading situation. Its latest financial results reveal a 19 percent increase in revenue for the first half of 2015 compared with the same period last year. Total revenue was RUB36.2 billion (US$525 million), while gross profit increased 13 percent to RUB10.0 billion (US$145 million). Gross margin was one percentage point lower at 28 percent.

“In the first half of this year, Cherkizovo Group produced and sold more than 430,000 metric tons of meat products on a falling market in a challenging economic environment, exceeding the result for the same period of the previous year,” said Sergei Mikhailov, the group’s CEO. “Performance was strong in all divisions. In poultry, we increased our sales due to the full integration of Lisko and organic growth. In pork, the inevitable production decrease after the African swine fever outbreak in January was compensated by a very favorable pricing environment that helped to increase sales and profits. In meat processing, sales increased substantially due to strengthening of vertical integration, and our grain production is growing year by year.”

Over the past six months, Cherkizovo Group has sourced RUB19 billion (US$275 million) to invest in pig production so that, by 2022, the company will have increased its pork production by 70 percent, adding 140,000 metric tons of capacity in the regions of Lipetsk and Voronezh regions. It has also renovated a meat processing plant in Lipetsk, and acquired a pork finisher in the same region.

For its poultry division, the company has completed hatcheries at Eletsprom and Tambov and, in 2016, it plans to launch a parent flock site and replacement flock site, bringing to an end its reliance on imported hatching eggs.

“Cherkizovo Group is steadily raising its level of vertical integration at all stages of the production chain, from grain cultivation to slaughtering and processing,” said Mikhailov. “This year, we increased our cultivated land bank by 50 percent to 90,000 hectares, which will help to increase our grain self-sufficiency to 25-30 percent. The company’s grain storage capacity is now close to a million metric tons.” A new feedmill in Voronezh region is scheduled for launch before the end of this year.

Cherkizovo Group’s Chairman of the Board of Directors, Igor Babaev, has recently met with Acting Governor of Penza Region, Ivan Belozertsev, to discuss Cherkizovo’s intention to develop its business in that region, where it already operates the Vasilievsky Poultry Factory and a Cherkizovsky Meat Processing Plant.