Voluntary Report - public distribution

**Date:** 3/1/2004

**GAIN Report Number:** RS4009

RS4009

**Russian Federation**

**Livestock and Products**

**Household Plots: Small Size, Big Impact**

**2004**

**Approved by:**

![](media/image1.wmf)Randall Hager

U.S. Embassy

**Prepared by:**

Mark Petry

**Report Highlights:**

Household plots have played a key role in Russian agriculture in the
past decade, especially in livestock production. These small producers
continue to produce almost 50 percent of all domestic meat, which
accounts for 35 percent of total Russian consumption of meat. While the
government continues to support large-scale farms, small-scale farms
make the best of scarce inputs and infrastructure. Though not closely
linked to the retail market or processors, small farmers are expected to
satisfy local demand for fresh meat in the regions and in smaller
population centers for years to come.

Includes PSD Changes: No

Includes Trade Matrix: No

Unscheduled Report

Moscow \[RS1\]

\[RS\]

Table of Contents

[**Executive Summary 3**](#executive-summary)

[Note: Definitions and Data 3](#note-definitions-and-data)

[Table 1. Number and Employment of Livestock Operations
4](#table-1.-number-and-employment-of-livestock-operations)

[Livestock and Meat Production 4](#livestock-and-meat-production)

[Structure and Production 4](#structure-and-production)

[Table 2. Structure of Production of Meat and Milk by Category of Farm
4](#table-2.-structure-of-production-of-meat-and-milk-by-category-of-farm)

[Table 3. Number of Animals on All Farms 5](#__RefHeading___Toc65908780)

[Table 4. Index of the Volume of Livestock Production Per Category of
Farm 6](#__RefHeading___Toc65908781)

[Table 5. Livestock Per Category of Farm
7](#table-5.-livestock-per-category-of-farm)

[Industry Growth 8](#industry-growth)

[Table 6. Production of Meat and Poultry on All Types of Farms
8](#table-6.-production-of-meat-and-poultry-on-all-types-of-farms)

[Infrastructure, Investment, and Taxes:
8](#infrastructure-investment-and-taxes)

[Efficiency 9](#efficiency)

[Table 7. Livestock Productivity on Ag. Organizations
10](#table-7.-livestock-productivity-on-agricultural-organizations)

[Table 8. Livestock Loss in Ag. Organizations
10](#table-8.-livestock-loss-in-agricultural-organizations)

[Secondary Businesses 10](#secondary-businesses)

[Feed 10](#feed)

[Table 8. Production of Meat and Meat Products
11](#table-8.-production-of-meat-and-meat-products)

[Markets and Processors 11](#markets-and-processors)

[Demand 12](#demand)

[Supply 12](#supply)

[Summary 13](#summary-1)

[Table 9. The Most Efficient Swine Farms of Russia, as an average of
1998-2002
15](#table-9.-the-most-efficient-swine-farms-of-russia-as-an-average-of-1998-2002)

# Executive Summary

Livestock production has changed significantly since the collapse of the
Soviet Union. One of the most enduring structural changes has been the
rise of the small farm (household plots) in terms of overall meat
production. Small farms now account for over 50 percent of the meat
produced in Russia, which is 35 percent of total Russian consumption.
While these producers are generally maintaining their size and
production volumes, many changes are going on around them as the larger
farms begin to use size and efficiency to reassert themselves in the
marketplace. Nevertheless, small farms are going to be a major force in
livestock production for at least a decade. Following the trends and
changes between small and large livestock producers is the key to
understanding the newly developing Russian livestock sector.

## Note: Definitions and Data

All of the data presented in this report come from the State Statistics
Committee of the Russian Federation. As such, understanding the
classification and definitions are crucial to understanding the data
available, especially as it relates to types of farms. As this is the
primary source of information in Russia on the structure of agricultural
producers and livestock holdings, other sources of data will not be used
in the sections relating to producer structure and livestock holdings
for consistency and clarity. Estimates from publications that present
differing information, such as the USDA/FAS Livestock and Poultry
Production, Supply, and Distribution estimates, will not be used in
order to maintain continuity in dealing with Russian statistics and
methodology and discussing overall industry trends.

Due to the development of the agricultural sector in Russia in the past
decade, defining and classification of agricultural producers is
difficult. The following three definitions are used by the State
Statistics Committee to define categories of agricultural producers:

[Agricultural Enterprises]{.underline}: includes collective and state
farms, joint stock companies and partnerships of all types, agricultural
cooperatives, farming units affiliated with industrial, transportation
and other enterprises, organizations and scientific research institutes.

[Private Households]{.underline}: includes rural households with land
estates, kitchen gardens, and horticultural partnerships. This includes
forms of agricultural production when an individual or a family
manufactures commodities to satisfy the family needs in foods or with
other purposes. Also called household plots or small farmers.
(Khozyaystvo Naselineya)

[Private Farming]{.underline}: a form of free enterprise. Using owned or
rented lands and other assets, a private farmer operates his business
unit to produce, process, and market agricultural commodities. However,
at this time, this group is also generally considered to be small
farmers. (Krest'yanskoe Khozyaystvo)

To summarize, the agricultural enterprise category includes the largest
farm holdings, such as the large former state and collective farms still
struggling with post Soviet realities and large, modern, and efficient
corporate-style holdings. Private households comprise individual and
family rural households that produce primarily for personal consumption,
but also market a certain percentage of its commodities to supplement
family income. Lastly, private farming is very similar to private
households, but the \"farm\" is registered as a business. It is easiest
to think of agricultural enterprises as large farms, while the other two
categories are small farms. In terms of livestock, production is roughly
split between agricultural organizations and small farms (mainly private
households, though private farming play a small role).

<table style="width:100%;">
<colgroup>
<col style="width: 15%" />
<col style="width: 15%" />
<col style="width: 1%" />
<col style="width: 8%" />
<col style="width: 8%" />
<col style="width: 8%" />
<col style="width: 8%" />
<col style="width: 8%" />
<col style="width: 8%" />
<col style="width: 8%" />
<col style="width: 8%" />
</colgroup>
<tbody>
<tr class="odd">
<td colspan="10"><h3
id="table-1.-number-and-employment-of-livestock-operations">Table 1.
Number and Employment of Livestock Operations</h3></td>
<td></td>
</tr>
<tr class="even">
<td></td>
<td></td>
<td></td>
<td>1995</td>
<td>1996</td>
<td>1997</td>
<td>1998</td>
<td>1999</td>
<td>2000</td>
<td>2001</td>
<td>2002</td>
</tr>
<tr class="odd">
<td colspan="3"><strong>Agricultural Organizations</strong></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr class="even">
<td colspan="2">Total Number</td>
<td></td>
<td>26,900</td>
<td>26,900</td>
<td>27,000</td>
<td>27,300</td>
<td>27,928</td>
<td>28,469</td>
<td>29,613</td>
<td>29,911</td>
</tr>
<tr class="odd">
<td colspan="3">Total Number of Workers (mln.)</td>
<td>6.7</td>
<td>6.2</td>
<td>5.7</td>
<td>5.3</td>
<td>5.1</td>
<td>4.7</td>
<td>4.2</td>
<td></td>
</tr>
<tr class="even">
<td colspan="3">Average Workers Per Farm</td>
<td>249</td>
<td>231</td>
<td>211</td>
<td>194</td>
<td>187</td>
<td>170</td>
<td>169</td>
<td></td>
</tr>
<tr class="odd">
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr class="even">
<td colspan="2"><strong>Private Households</strong></td>
<td><h3 id="section"></h3></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr class="odd">
<td colspan="3">Number of Families (mln.)</td>
<td>16.3</td>
<td>16.3</td>
<td>16.4</td>
<td>16.0</td>
<td>15.5</td>
<td>16.0</td>
<td>16.0</td>
<td>16</td>
</tr>
<tr class="even">
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr class="odd">
<td colspan="2"><strong>Private Farming</strong></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr class="even">
<td colspan="3">Number of Registered Farms (1,000)</td>
<td></td>
<td>280</td>
<td>279</td>
<td>274</td>
<td>270</td>
<td>261</td>
<td>266</td>
<td>264</td>
</tr>
<tr class="odd">
<td colspan="6">Source: Russian State Statistics Committee</td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
</tbody>
</table>

# Livestock and Meat Production

## Structure and Production

The structure of the Russian livestock sector differs significantly from
the grains sector due to role played by the small farms. While
agricultural organizations produce approximately 80 percent of all
grains, they produce less then 50 percent of animal products and milk.

Table 2 shows the rough distribution of meat and milk production among
the three types of farms. This simple table illustrates the evolution of
the Russian livestock sector in recent years and also provides a look at
the problems that face further development of livestock production in
Russia. The best way to follow the post-Soviet trend and to understand
the future of livestock production is to look at the largest farms, the
agricultural organizations.

Agricultural organizations were the lifeblood of the Soviet agricultural
system and the category of farm that is still struggling to come to
terms with this legacy. This type of farm went from producing 80 percent
of all meat to less than 50 percent today. These organizations acted as
the main commercial producers and led in all areas relating to
efficiency, research, and management.

+--------+-------+-------+-------+------+------+------+------+------+
| #      |       |       |       |      |      |      |      |      |
| ## Tab |       |       |       |      |      |      |      |      |
| le 2.  |       |       |       |      |      |      |      |      |
| Struct |       |       |       |      |      |      |      |      |
| ure of |       |       |       |      |      |      |      |      |
|  Produ |       |       |       |      |      |      |      |      |
| ction  |       |       |       |      |      |      |      |      |
| of Mea |       |       |       |      |      |      |      |      |
| t and  |       |       |       |      |      |      |      |      |
| Milk b |       |       |       |      |      |      |      |      |
| y Cate |       |       |       |      |      |      |      |      |
| gory o |       |       |       |      |      |      |      |      |
| f Farm |       |       |       |      |      |      |      |      |
+--------+-------+-------+-------+------+------+------+------+------+
|        | **1   | **1   | **1   | **19 | **19 | **20 | **20 | **20 |
|        | 995** | 996** | 997** | 98** | 99** | 00** | 01** | 02** |
+--------+-------+-------+-------+------+------+------+------+------+
|        | as %  |       |       |      |      |      |      |      |
|        | of    |       |       |      |      |      |      |      |
|        | all   |       |       |      |      |      |      |      |
|        | types |       |       |      |      |      |      |      |
|        | of    |       |       |      |      |      |      |      |
|        | farms |       |       |      |      |      |      |      |
+--------+-------+-------+-------+------+------+------+------+------+
| **     |       |       |       |      |      |      |      |      |
| Agricu |       |       |       |      |      |      |      |      |
| ltural |       |       |       |      |      |      |      |      |
| Org    |       |       |       |      |      |      |      |      |
| anizat |       |       |       |      |      |      |      |      |
| ions** |       |       |       |      |      |      |      |      |
+--------+-------+-------+-------+------+------+------+------+------+
| Meat\* | 49.9  | 46.7  | 42.5  | 41.5 | 38.9 | 40.3 | 41.0 | 42.6 |
+--------+-------+-------+-------+------+------+------+------+------+
| Milk   | 57.1  | 53.1  | 51.3  | 50.1 | 48.6 | 47.3 | 47.2 | 47.7 |
+--------+-------+-------+-------+------+------+------+------+------+
| **P    |       |       |       |      |      |      |      |      |
| rivate |       |       |       |      |      |      |      |      |
| Househ |       |       |       |      |      |      |      |      |
| olds** |       |       |       |      |      |      |      |      |
+--------+-------+-------+-------+------+------+------+------+------+
| Meat\* | 48.6  | 51.6  | 55.9  | 56.9 | 59.4 | 57.9 | 57.1 | 55.3 |
+--------+-------+-------+-------+------+------+------+------+------+
| Milk   | 41.4  | 45.4  | 47.2  | 48.3 | 49.7 | 50.9 | 50.9 | 50.3 |
+--------+-------+-------+-------+------+------+------+------+------+
| **P    |       |       |       |      |      |      |      |      |
| rivate |       |       |       |      |      |      |      |      |
| Far    |       |       |       |      |      |      |      |      |
| ming** |       |       |       |      |      |      |      |      |
+--------+-------+-------+-------+------+------+------+------+------+
| Meat\* | 1.5   | 1.7   | 1.6   | 1.6  | 1.7  | 1.8  | 1.9  | 2.1  |
+--------+-------+-------+-------+------+------+------+------+------+
| Milk   | 1.5   | 1.5   | 1.5   | 1.6  | 1.7  | 1.8  | 1.9  | 2.0  |
+--------+-------+-------+-------+------+------+------+------+------+
|        |       |       |       |      |      |      |      |      |
+--------+-------+-------+-------+------+------+------+------+------+
| \*     |       |       |       |      |      |      |      |      |
| Sla    |       |       |       |      |      |      |      |      |
| ughter |       |       |       |      |      |      |      |      |
| weight |       |       |       |      |      |      |      |      |
+--------+-------+-------+-------+------+------+------+------+------+
| S      |       |       |       |      |      |      |      |      |
| ource: |       |       |       |      |      |      |      |      |
| R      |       |       |       |      |      |      |      |      |
| ussian |       |       |       |      |      |      |      |      |
| State  |       |       |       |      |      |      |      |      |
| Stat   |       |       |       |      |      |      |      |      |
| istics |       |       |       |      |      |      |      |      |
| Com    |       |       |       |      |      |      |      |      |
| mittee |       |       |       |      |      |      |      |      |
+--------+-------+-------+-------+------+------+------+------+------+

However, the withdrawal of massive Soviet subsidies to the livestock
sector is still taking its toll. The entire sector went through the
trauma in the 1990\'s in terms of debt, re-structuring, and bankruptcy.
This had serious repercussions for the rural population, causing
dislocation and joblessness. The rural population was forced to rely
even more heavily on its own production of meat, i.e. household plots.
This transition was a continuous and dynamic process that played out
through the 1990\'s, but has now stabilized. It is considered stabilized
because most former collective or state farm workers or rural people
have long been forced to supplement the family's food and income with
this small-scale and low-technology production. The people making this
transition were either past or even active workers on the larger farms.
In fact, these past and present employees often took advantage of the
disarray on the larger farm to utilize inputs from the nearby
agricultural organization or to put in more work on the family plot.
However, the last major jump in the share of total production associated
with an increase in herd size from private households can be associated
with the 1998 Russian economic crisis. While Table 5 notes the increase
in herd size, it is not translated into an increased volume of
production (Table 2). This is explained by the fact that the years after
the crisis also correspond to the start of efficiency increases on the
larger farms.

Overall, the number of workers on the agricultural organizations has
decreased by about 35 percent from 1995-2001, while the number of
organizations decreased by only eight percent. During that same period,
the agricultural organization's share of total Russian production went
down by nine percent in meat products and by ten percent in milk. The
private households captured almost that entire production share. At
first this seems like quite an achievement, but Table 5 shows that this
is really only attributable to the collapse of the agricultural
organizations, not the growth of the private households.

The agricultural organizations decreased their beef cattle herds from
approximately 17 million head in 1996 to only 9.7 million in 2002. More
dramatically, the beef herd on the large agricultural organizations is
down from over 33 million in 1990. The private households actually
increased their beef cattle herd size by a total of nine percent from
1996-2003. This growth represented the only herd increase in either beef
or dairy categories by either agricultural organizations or private
households between 1996-2002. The overall drop in the beef cattle herd
was the greatest of all key livestock sectors. Naturally, the main
reasons beef cattle were least preferred during this period (and remain
so) is the slow return on investment versus dairy cows, swine, and
poultry due to the natural lag time in providing meat products. Thus,
when decisions were being made regarding the use of scarce fodder
resources during hard winters or needing to slaughter animals to
maintain cash flow, beef cattle were the first animals on the farm to be
sold. Conversely, the slow reproduction and growth rate also continue to
re-direct investment and resources to sectors that present lower
long-term risk (price/market risk). While the long-term risk aspect is
less important in 2003 due to a stable currency, lower interest rates,
and increasing consumer demand, during most of the post-Soviet period
these risks made beef production less attractive.

Moreover, as the process of transition continued, the production of beef
started to fall at a faster rate than the other meats. This is the
result of the continued crisis decision making that forced farms to cut
animal numbers, under which beef cattle were often the least profitable
option. During the second half of the 1990\'s, beef production fell a
further 32 percent. At that point, poultry production was already on the
rise and pork production had bottomed out, making either a much better
investment. Moreover, this trend in beef cattle has continued up to 2004
due to stiff competition from the other meats and several recent poor
years of fodder production.

The dairy herd suffered the same fate as the beef herd in the period
1996-2002 for most of the same reasons, though the drop in the large
farm herd size was greater. This is due to the faster rate of return on
milk products and fewer competitive food products. Large cities were a
lifeline to dairy producers due to the consistent demand for dairy
products. Moreover, dairies were also able to get a consistent supply
from smaller producers and old milk cows could at any time be used for
meat, which increased their value as a store of wealth. Last, milk could
act as currency or barter in the rural communities. Though milk can
provide a consistent revenue stream, rural communities lack the
infrastructure to take full advantage of large supplies of fluid milk.
Very few of the private households have the equipment to store and
preserve milk and there are relatively few customers in the surrounding
village. The lack of transportation (few poor households would have
independent transportation suitable for daily trips to the market) and
storage would also reduce the prices received. Thus, a milk cow's value
would be relatively higher than a beef cow, but lower than poultry and
swine.

In contrast to the beef and dairy industries, the pork industry has been
growing since 2001. Swine production has a rate of return on investment
second only to poultry production. As Table 6 shows, poultry production
started to rebound in 1997 and pork production looks set to follow the
same trend, only starting in 2001. Profitable pork production is unlike
poultry in that it is still profitable and accessible for small farmers.
Thus, Table 5 shows that swine numbers are on the rise in both the large
and small farms. Swine production also offers advantages over cattle
production due to the smaller amount of space needed, the higher number
of offspring, and quicker growth. These natural advantages make swine
production much more flexible and a more attractive place to invest
small amounts of money.

However, over time production of pork on large farms seems more likely
to overtake small farm production due to the return of large-scale
investments in technology and infrastructure (described below and in
Tables 7 and 8). As capital-intensive operations have shown that
significant profits can be made in pork production, investments have
begun to flow into pork producers with a production base but not the
capital and expertise to break into truly modern production. As in
poultry, there is a period when a critical mass of companies with
capital and talented managers expand and turn floundering operations
into successful ones. This critical mass also applies to demand for
inputs such as high quality feeds, veterinary medicine, and managerial
knowledge. Table 9 shows the ten most profitable pork producers in
Russia and the large profits that can be made under efficient
management. Given the payback period for investments into the pork
industry are much shorter than in beef and dairy, the high profit
generated by top firms is an obvious magnet for those willing to invest
in livestock or poultry.

+-----------------------------+----+----+----+----+----+----+----+----+
| ### Table 5. Liv            |    |    |    |    |    |    |    |    |
| estock Per Category of Farm |    |    |    |    |    |    |    |    |
+-----------------------------+----+----+----+----+----+----+----+----+
|                             |    |    |    |    |    |    |    |    |
+-----------------------------+----+----+----+----+----+----+----+----+
| As of 1 Jan., thousand head | ** | ** | ** | ** | ** | ** | ** | ** |
|                             | 19 | 19 | 19 | 19 | 20 | 20 | 20 | 20 |
|                             | 96 | 97 | 98 | 99 | 00 | 01 | 02 | 03 |
|                             | ** | ** | ** | ** | ** | ** | ** | ** |
+-----------------------------+----+----+----+----+----+----+----+----+
| **Ag. Organizations**       |    |    |    |    |    |    |    |    |
+-----------------------------+----+----+----+----+----+----+----+----+
| Beef Cattle                 | 17 | 14 | 12 | 10 | 10 | 10 | 9  | 9  |
|                             | ,2 | ,5 | ,5 | ,8 | ,5 | ,0 | ,7 | ,7 |
|                             | 70 | 45 | 43 | 14 | 46 | 23 | 28 | 28 |
+-----------------------------+----+----+----+----+----+----+----+----+
| Dairy Cows                  | 10 | 9  | 8  | 7  | 6  | 6  | 6  | 5  |
|                             | ,4 | ,1 | ,0 | ,2 | ,9 | ,4 | ,0 | ,6 |
|                             | 55 | 39 | 49 | 40 | 07 | 86 | 89 | 32 |
+-----------------------------+----+----+----+----+----+----+----+----+
| Swine                       | 14 | 11 | 10 | 9  | 9  | 8  | 8  | 9  |
|                             | ,7 | ,5 | ,0 | ,4 | ,9 | ,5 | ,6 | ,1 |
|                             | 14 | 41 | 68 | 76 | 71 | 18 | 78 | 48 |
+-----------------------------+----+----+----+----+----+----+----+----+
| **Private Households**      |    |    |    |    |    |    |    |    |
+-----------------------------+----+----+----+----+----+----+----+----+
| Beef Cattle                 | 4  | 4  | 4  | 3  | 4  | 4  | 4  | 5  |
|                             | ,6 | ,4 | ,1 | ,9 | ,0 | ,3 | ,8 | ,1 |
|                             | 89 | 18 | 88 | 40 | 81 | 34 | 41 | 17 |
+-----------------------------+----+----+----+----+----+----+----+----+
| Dairy Cows                  | 6  | 6  | 6  | 5  | 5  | 5  | 5  | 5  |
|                             | ,7 | ,4 | ,2 | ,9 | ,9 | ,9 | ,8 | ,7 |
|                             | 05 | 83 | 37 | 79 | 84 | 18 | 49 | 97 |
+-----------------------------+----+----+----+----+----+----+----+----+
| Swine                       | 7  | 7  | 6  | 7  | 7  | 6  | 6  | 7  |
|                             | ,5 | ,2 | ,9 | ,3 | ,8 | ,7 | ,9 | ,3 |
|                             | 56 | 46 | 62 | 93 | 34 | 91 | 24 | 52 |
+-----------------------------+----+----+----+----+----+----+----+----+
| **Private Farming**         |    |    |    |    |    |    |    |    |
+-----------------------------+----+----+----+----+----+----+----+----+
| Beef Cattle                 | 3  | 2  | 2  | 2  | 2  | 2  | 3  | 3  |
|                             | 01 | 66 | 53 | 55 | 62 | 77 | 22 | 79 |
+-----------------------------+----+----+----+----+----+----+----+----+
| Dairy Cows                  | 2  | 2  | 2  | 2  | 2  | 2  | 2  | 3  |
|                             | 76 | 52 | 50 | 53 | 52 | 56 | 78 | 00 |
+-----------------------------+----+----+----+----+----+----+----+----+
| Swine                       | 3  | 3  | 3  | 3  | 4  | 3  | 4  | 4  |
|                             | 61 | 28 | 18 | 79 | 66 | 98 | 46 | 73 |
+-----------------------------+----+----+----+----+----+----+----+----+
|                             |    |    |    |    |    |    |    |    |
+-----------------------------+----+----+----+----+----+----+----+----+
| **Total**                   |    |    |    |    |    |    |    |    |
+-----------------------------+----+----+----+----+----+----+----+----+
| Beef Cattle                 | 22 | 19 | 16 | 15 | 14 | 14 | 14 | 15 |
|                             | ,2 | ,2 | ,9 | ,0 | ,8 | ,6 | ,8 | ,2 |
|                             | 60 | 29 | 84 | 09 | 89 | 34 | 91 | 24 |
+-----------------------------+----+----+----+----+----+----+----+----+
| Dairy Cows                  | 17 | 15 | 14 | 13 | 13 | 12 | 12 | 11 |
|                             | ,4 | ,8 | ,5 | ,4 | ,1 | ,6 | ,2 | ,7 |
|                             | 36 | 74 | 36 | 72 | 43 | 60 | 16 | 29 |
+-----------------------------+----+----+----+----+----+----+----+----+
| Swine                       | 22 | 19 | 17 | 17 | 18 | 15 | 16 | 16 |
|                             | ,6 | ,1 | ,3 | ,2 | ,2 | ,7 | ,0 | ,9 |
|                             | 31 | 15 | 48 | 48 | 71 | 07 | 48 | 73 |
+-----------------------------+----+----+----+----+----+----+----+----+
|                             |    |    |    |    |    |    |    |    |
+-----------------------------+----+----+----+----+----+----+----+----+
| Percent of Total Herd       | ** | ** | ** | ** | ** | ** | ** | ** |
|                             | 19 | 19 | 19 | 19 | 20 | 20 | 20 | 20 |
|                             | 96 | 97 | 98 | 99 | 00 | 01 | 02 | 03 |
|                             | ** | ** | ** | ** | ** | ** | ** | ** |
+-----------------------------+----+----+----+----+----+----+----+----+
| **Ag. Organizations**       |    |    |    |    |    |    |    |    |
+-----------------------------+----+----+----+----+----+----+----+----+
| Beef Cattle                 | 7  | 7  | 7  | 7  | 7  | 6  | 6  | 6  |
|                             | 7. | 5. | 3. | 2. | 0. | 8. | 5. | 3. |
|                             | 6% | 6% | 9% | 1% | 8% | 5% | 3% | 9% |
+-----------------------------+----+----+----+----+----+----+----+----+
| Dairy Cows                  | 6  | 5  | 5  | 5  | 5  | 5  | 4  | 4  |
|                             | 0. | 7. | 5. | 3. | 2. | 1. | 9. | 8. |
|                             | 0% | 6% | 4% | 7% | 6% | 2% | 8% | 0% |
+-----------------------------+----+----+----+----+----+----+----+----+
| Swine                       | 6  | 6  | 5  | 5  | 5  | 5  | 5  | 5  |
|                             | 5. | 0. | 8. | 4. | 4. | 4. | 4. | 3. |
|                             | 0% | 4% | 0% | 9% | 6% | 2% | 1% | 9% |
+-----------------------------+----+----+----+----+----+----+----+----+
| **Private Households**      |    |    |    |    |    |    |    |    |
+-----------------------------+----+----+----+----+----+----+----+----+
| Beef Cattle                 | 2  | 2  | 2  | 2  | 2  | 2  | 3  | 3  |
|                             | 1. | 3. | 4. | 6. | 7. | 9. | 2. | 3. |
|                             | 1% | 0% | 7% | 3% | 4% | 6% | 5% | 6% |
+-----------------------------+----+----+----+----+----+----+----+----+
| Dairy Cows                  | 3  | 4  | 4  | 4  | 4  | 4  | 4  | 4  |
|                             | 8. | 0. | 2. | 4. | 5. | 6. | 7. | 9. |
|                             | 5% | 8% | 9% | 4% | 5% | 7% | 9% | 4% |
+-----------------------------+----+----+----+----+----+----+----+----+
| Swine                       | 3  | 3  | 4  | 4  | 4  | 4  | 4  | 4  |
|                             | 3. | 7. | 0. | 2. | 2. | 3. | 3. | 3. |
|                             | 4% | 9% | 1% | 9% | 9% | 2% | 1% | 3% |
+-----------------------------+----+----+----+----+----+----+----+----+
| **Private Farming**         |    |    |    |    |    |    |    |    |
+-----------------------------+----+----+----+----+----+----+----+----+
| Beef Cattle                 | 1. | 1. | 1. | 1. | 1. | 1. | 2. | 2. |
|                             | 4% | 4% | 5% | 7% | 8% | 9% | 2% | 5% |
+-----------------------------+----+----+----+----+----+----+----+----+
| Dairy Cows                  | 1. | 1. | 1. | 1. | 1. | 2. | 2. | 2. |
|                             | 6% | 6% | 7% | 9% | 9% | 0% | 3% | 6% |
+-----------------------------+----+----+----+----+----+----+----+----+
| Swine                       | 1. | 1. | 1. | 2. | 2. | 2. | 2. | 2. |
|                             | 6% | 7% | 8% | 2% | 6% | 5% | 8% | 8% |
+-----------------------------+----+----+----+----+----+----+----+----+
| Source: Russian State       |    |    |    |    |    |    |    |    |
| Statistics Committee        |    |    |    |    |    |    |    |    |
+-----------------------------+----+----+----+----+----+----+----+----+

Note: In reviewing and comparing the production and herd data on
agricultural organizations versus the small farms, there is a large
difference between the herd size and the actual meat production. For
example, agricultural organizations kept over 50 percent both beef
cattle and swine, but produced only 43 percent of the animal products
from those animals in 2002. The discrepancy is believed to be due to a
combination of several factors influencing the actual marketing of the
animals for slaughter. The main reason is most likely that private
farmers slaughter at a higher weight, as small farmers are less impacted
by feed shortages (they have so few animals and feed them various
non-traditional feedstuffs) and sell older (heavier) milk cows and
bulls. Agricultural organizations are more likely to use various methods
to reduce the number of officially marketed animals in order to reduce
taxes (by reducing sales and revenues), may be involved in barter
arrangements with input suppliers, or have their own slaughter houses
which underreport capacity and pay employees in-kind.

## Industry Growth

The description of the structure of Russian livestock production is very
important in understanding the future trends in meat and dairy
production in Russia. Specifically, it illustrates the hurdles facing
Russia in terms of increasing overall meat production. Namely, the small
producer structure and capacity are not expected to grow due to the
capital, time, and area constraints of these very small farmers. While
co-ops exist in Russia, their development has unfortunately been very
slow and has a small overall impact. Thus, despite the overall size of
production attributed to the small farmers, they play little role in
developing and increasing Russian meat production in the medium to long
term. It should be thought more as a social safety net in terms of
providing the farmers, their families, and the local population with a
relatively stable and consistent supply of basic protein.

While providing a social safety net is extremely valuable, the
alternative problem is that small farmers do not add value to the
agricultural economy in the way larger farms can. This means that the
small farmers are a relatively unorganized section of productive
capacity that does not create a multiplier effect in the
agricultural/rural sectors. Key differences between large and small
farms can be accounted for in several broad areas: infrastructure and
investment; efficiency; taxes; secondary businesses; and development of
the processing sector.

<table style="width:100%;">
<colgroup>
<col style="width: 10%" />
<col style="width: 14%" />
<col style="width: 14%" />
<col style="width: 7%" />
<col style="width: 7%" />
<col style="width: 7%" />
<col style="width: 7%" />
<col style="width: 7%" />
<col style="width: 7%" />
<col style="width: 7%" />
<col style="width: 8%" />
</colgroup>
<tbody>
<tr class="odd">
<td colspan="10"><h3
id="table-6.-production-of-meat-and-poultry-on-all-types-of-farms">Table
6. Production of Meat and Poultry on All Types of Farms</h3></td>
<td></td>
</tr>
<tr class="even">
<td></td>
<td><strong>Average</strong></td>
<td><strong>Average</strong></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr class="odd">
<td></td>
<td><strong>1991-1995</strong></td>
<td><strong>1996-2000</strong></td>
<td><strong>1995</strong></td>
<td><strong>1996</strong></td>
<td><strong>1997</strong></td>
<td><strong>1998</strong></td>
<td><strong>1999</strong></td>
<td><strong>2000</strong></td>
<td><strong>2001</strong></td>
<td><strong>2002</strong></td>
</tr>
<tr class="even">
<td colspan="3">slaughter weight, thousand tons</td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr class="odd">
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr class="even">
<td><strong>Beef</strong></td>
<td>3,391</td>
<td>2,207</td>
<td>2,734</td>
<td>2,630</td>
<td>2,395</td>
<td>2,247</td>
<td>1,868</td>
<td>1,895</td>
<td>1,872</td>
<td>1,957</td>
</tr>
<tr class="odd">
<td><strong>Pork</strong></td>
<td>2,475</td>
<td>1,562</td>
<td>1,865</td>
<td>1,705</td>
<td>1,546</td>
<td>1,505</td>
<td>1,485</td>
<td>1,569</td>
<td>1,498</td>
<td>1,583</td>
</tr>
<tr class="even">
<td><strong>Poultry</strong></td>
<td>1,277</td>
<td>705</td>
<td>859</td>
<td>690</td>
<td>630</td>
<td>690</td>
<td>748</td>
<td>766</td>
<td>884</td>
<td>953</td>
</tr>
<tr class="odd">
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr class="even">
<td colspan="4">Source: Russian State Statistics Committee</td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
</tbody>
</table>

##  {#section-1}

## Infrastructure, Investment, and Taxes:

Large businesses in rural Russia play an important role in maintaining
and creating infrastructure. This applies to the businesses' own
property, as well as roads, bridges, and other public infrastructure
which may be adjacent or even fairly far from the production site. These
companies take this responsibility in order to maintain sufficient
infrastructure to maintain their own business in the absence of local
and regional government assistance in creating the necessary
infrastructure to conduct business over relatively long distances and
sometimes sparsely populated areas. This practice is usually focused on
transportation and input supplies (feed and fuel). Often, this also
takes the form of continuing to own secondary businesses to ensure the
provision of basic supplies and services. Large farms often focus on
maintaining social programs in order to retain good workers, a large
problem due to urban migration.

The small farmers are often practicing close to subsistence farming and
do not have the resources to devote to non-essential projects. Each
private farmer is struggling to make ends meet and cannot focus on
investments in areas that will boost the productive capacity of his
village or region.

Similarly, many of the small farmers are not in the mainstream of the
Russian economy and their production and sales are not always reflected
in the collection of various taxes. While this is a problem that Russia
is facing on a larger scale both in and out of agriculture, the tax base
of rural areas is so small that this is a significant issue. As a
result, local and regional governments with a heavily rural character
generally have difficulty providing local services and supporting
businesses. Alternatively, those few regions that have other natural
resources (oil, gas, metals) often cross-subsidize the agricultural
sector.

## Efficiency 

Large farms play a vital role in linking practical management knowledge
and scientific research to the livestock sector. Small farms are not
able to play this role because these farmers do not have the capital,
time, or space to act as sources or implementers of modern animal
management techniques. Therefore, essentially only half of the Russian
livestock herd/sector (agricultural organizations) is participating in
the creation and dissemination of western and Russian modern livestock
management techniques. The deficiencies come primarily in the areas of
research/extension and breeding.

The small farmers do not have the resources to participate in breeding
programs and are limited in their ability to purchase superior quality
replacement livestock. This means that generally 34 percent of the beef
herd, 48 percent of the dairy herd, and 43 percent of the swine herd is
neither participating in efficient genetic improvement programs nor
providing information to researchers and breeders (this percentage is
probably much higher considering the large number of near bankrupt
agricultural organizations). This decreases the market for those
breeders that are working to improve the quality of the Russian
livestock herd and does not provide scientific knowledge regarding the
breed and characteristics that prosper in the various climates of such a
large country. While the private farmers clearly do the best they can
under the circumstances, they do not add much to the livestock
management and breeding programs that are necessary for the rebuilding
of the Russian livestock industry.

Alternatively, the agriculture organizations have shown great strides in
the past few years in improving efficiency on the farm. As Tables 7 and
8 show, agricultural organizations have been successful in recent
attempts at remedying possibly one of the biggest problems with Soviet
livestock production, lack of efficiency. While beef cattle weight gain
has only increased 16 percent in the last four years, swine weight gain
is up 49 percent. Improvements in swine productivity show up across the
board, while beef cattle productivity clearly lags behind. The areas
that are crucial for increasing efficiency are those that are difficult
for the private farmers; feed, management techniques, infrastructure,
and veterinary medicines. Though these factors increase efficiency, they
are capital intensive and difficult for the private farmers to afford.
The tables show that the areas that are weakest for small producers are
where the larger agricultural organizations are making efficiency
strides. While these efficiency gains are impressive, it also
illustrates how far Russia has fallen behind in overall industry
productivity.

+--------------------------+----+----+----+----+----+----+----+----+
| ### Table 7. Live        |    |    |    |    |    |    |    |    |
| stock Productivity on Ag |    |    |    |    |    |    |    |    |
| ricultural Organizations |    |    |    |    |    |    |    |    |
+--------------------------+----+----+----+----+----+----+----+----+
|                          | ** | ** | ** | ** | ** | ** | ** | ** |
|                          | 19 | 19 | 19 | 19 | 19 | 20 | 20 | 20 |
|                          | 95 | 96 | 97 | 98 | 99 | 00 | 01 | 02 |
|                          | ** | ** | ** | ** | ** | ** | ** | ** |
+--------------------------+----+----+----+----+----+----+----+----+
|                          |    |    |    |    |    |    |    |    |
+--------------------------+----+----+----+----+----+----+----+----+
| Annual Milk Yield per    | 2  | 2  | 2  | 2  | 2  | 2  | 2  | 2  |
| Cow (Kg)                 | ,1 | ,1 | ,2 | ,3 | ,4 | ,3 | ,5 | ,8 |
|                          | 53 | 44 | 39 | 81 | 32 | 41 | 51 | 78 |
+--------------------------+----+----+----+----+----+----+----+----+
| Beef Cattle - Daily      |    |    |    |    | 3  | 3  | 3  | 3  |
| Weight Gain (g)          |    |    |    |    | 31 | 33 | 61 | 85 |
+--------------------------+----+----+----+----+----+----+----+----+
| Swine - Daily Weight     |    |    |    |    | 1  | 1  | 2  | 2  |
| Gain (g)                 |    |    |    |    | 71 | 87 | 32 | 54 |
+--------------------------+----+----+----+----+----+----+----+----+
|                          |    |    |    |    |    |    |    |    |
+--------------------------+----+----+----+----+----+----+----+----+
| ### Table                |    |    |    |    |    |    |    |    |
|  8. Livestock Loss in Ag |    |    |    |    |    |    |    |    |
| ricultural Organizations |    |    |    |    |    |    |    |    |
+--------------------------+----+----+----+----+----+----+----+----+
|                          | ** | ** | ** | ** | ** | ** | ** | ** |
|                          | 19 | 19 | 19 | 19 | 19 | 20 | 20 | 20 |
|                          | 95 | 96 | 97 | 98 | 99 | 00 | 01 | 02 |
|                          | ** | ** | ** | ** | ** | ** | ** | ** |
+--------------------------+----+----+----+----+----+----+----+----+
| **Productivity\***       |    |    |    |    |    |    |    |    |
+--------------------------+----+----+----+----+----+----+----+----+
| Calves                   | 73 | 70 | 72 | 74 | 76 | 77 | 76 | 78 |
+--------------------------+----+----+----+----+----+----+----+----+
| Piglets                  | 9  | 8  | 1  | 1  | 1  | 1  | 1  | 1  |
|                          | 73 | 99 | ,0 | ,1 | ,2 | ,1 | ,3 | ,4 |
|                          |    |    | 29 | 36 | 61 | 55 | 60 | 16 |
+--------------------------+----+----+----+----+----+----+----+----+
| **Loss as a Percent of   |    |    |    |    |    |    |    |    |
| Herd**                   |    |    |    |    |    |    |    |    |
+--------------------------+----+----+----+----+----+----+----+----+
| Beef Cattle              | 6  | 6  | 5  | 5  | 4  | 3  | 3  | 3  |
|                          |    | .4 | .5 |    | .2 | .9 | .2 |    |
+--------------------------+----+----+----+----+----+----+----+----+
| Swine                    | 15 | 14 | 12 | 11 | 11 | 11 | 9  | 9  |
|                          | .5 | .9 | .7 | .6 | .5 | .3 | .9 | .6 |
+--------------------------+----+----+----+----+----+----+----+----+
|                          |    |    |    |    |    |    |    |    |
+--------------------------+----+----+----+----+----+----+----+----+
| \*Surviving offspring    |    |    |    |    |    |    |    |    |
| per 100 females per      |    |    |    |    |    |    |    |    |
| year.                    |    |    |    |    |    |    |    |    |
+--------------------------+----+----+----+----+----+----+----+----+
| Source: Russian State    |    |    |    |    |    |    |    |    |
| Statistics Committee     |    |    |    |    |    |    |    |    |
+--------------------------+----+----+----+----+----+----+----+----+

##  {#section-2}

## Secondary Businesses

The creation of secondary agribusiness companies is similar to the
efficiency issue in that the private farmers do not have the capital and
resources to create a market for secondary products and inputs. Only the
agricultural organizations have the scale and demand to support
secondary businesses that provide inputs or specialized services.
However, as there often are relatively few financially strong
agricultural enterprises in close proximity, they often own the second
business rather than buy inputs or services from independent companies
(though this tendency seems less strong in the grain sector). The lack
of a fully competitive market for goods and services often means that
farms have little or no choice from whom to buy inputs and services,
which artificially raises prices on inputs. The development of secondary
businesses is taking place in some regions and it has helped to lower
input costs, offer a broader array of services, and increased knowledge
to those areas.

##  {#section-3}

## Feed

A very difficult question relating to livestock production today
revolves around feed usage. This question is difficult due to the
changing efficiency and size of large agricultural organizations and the
heterogeneity of the small producers and how they operate. The question
of large producers is clearer; they either produce their own feed or
purchase it. These activities allow for rather transparent accounting in
terms of supply, use, and demand for grain and feeds.

Small farmers pose a much more difficult statistical problem because
they are often below the market "radar screen." It is clear that these
farmers feed their animals a much wider variety of feeds, from
traditional feed to table scraps. What is unknown is the overall,
average feed composition. However, it is generally assumed that small
farmers get a majority of their feed from non-market sources. This means
that the farmer is raising some grain, buying it in kind from neighbors,
feeding higher rates of easily grown or collected feed like hay and
straw, or stealing or buying in-kind from the local agricultural
organization. Regardless of the origin, most of this feed is non-market
(and not accounted for by statistical agencies).

<table>
<colgroup>
<col style="width: 12%" />
<col style="width: 28%" />
<col style="width: 7%" />
<col style="width: 7%" />
<col style="width: 7%" />
<col style="width: 7%" />
<col style="width: 7%" />
<col style="width: 7%" />
<col style="width: 7%" />
<col style="width: 7%" />
</colgroup>
<tbody>
<tr class="odd">
<td colspan="9"><h3
id="table-8.-production-of-meat-and-meat-products">Table 8. Production
of Meat and Meat Products</h3></td>
<td></td>
</tr>
<tr class="even">
<td></td>
<td></td>
<td><strong>1995</strong></td>
<td><strong>1996</strong></td>
<td><strong>1997</strong></td>
<td><strong>1998</strong></td>
<td><strong>1999</strong></td>
<td><strong>2000</strong></td>
<td><strong>2001</strong></td>
<td><strong>2002</strong></td>
</tr>
<tr class="odd">
<td colspan="2">Canned Meat (mln. Cans)</td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr class="even">
<td></td>
<td>Meat</td>
<td>348</td>
<td>380</td>
<td>326</td>
<td>344</td>
<td>500</td>
<td>437</td>
<td>464</td>
<td>495</td>
</tr>
<tr class="odd">
<td></td>
<td>Dairy</td>
<td>527</td>
<td>544</td>
<td>569</td>
<td>615</td>
<td>538</td>
<td>620</td>
<td>677</td>
<td>714</td>
</tr>
<tr class="even">
<td colspan="2">Meat (thousand ton) cat. 1</td>
<td></td>
<td></td>
<td></td>
<td></td>
<td>1,113</td>
<td>1,193</td>
<td>1,284</td>
<td>1,390</td>
</tr>
<tr class="odd">
<td></td>
<td>beef and veal</td>
<td>1,106</td>
<td>901</td>
<td>705</td>
<td>553</td>
<td>404</td>
<td>389</td>
<td>382</td>
<td>NA</td>
</tr>
<tr class="even">
<td></td>
<td>lamb</td>
<td>36.5</td>
<td>20.6</td>
<td>13.4</td>
<td>8</td>
<td>6.5</td>
<td>5.2</td>
<td>5.4</td>
<td>NA</td>
</tr>
<tr class="odd">
<td></td>
<td>pork</td>
<td>612</td>
<td>480</td>
<td>366</td>
<td>288</td>
<td>232</td>
<td>279</td>
<td>275</td>
<td>NA</td>
</tr>
<tr class="even">
<td></td>
<td>poultry</td>
<td>497</td>
<td>378</td>
<td>333</td>
<td>390</td>
<td>427</td>
<td>476</td>
<td>573</td>
<td>NA</td>
</tr>
<tr class="odd">
<td></td>
<td>other or sub-products</td>
<td>110</td>
<td>96.2</td>
<td>76.2</td>
<td>38.8</td>
<td>35.2</td>
<td>40.2</td>
<td>48.1</td>
<td>NA</td>
</tr>
<tr class="even">
<td>Sausage</td>
<td></td>
<td>1,293</td>
<td>1,296</td>
<td>1,147</td>
<td>1,087</td>
<td>948</td>
<td>1,052</td>
<td>1,224</td>
<td>1,443</td>
</tr>
<tr class="odd">
<td colspan="2">Semi-finished meat products</td>
<td>268</td>
<td>255</td>
<td>226</td>
<td>219</td>
<td>198</td>
<td>244</td>
<td>338</td>
<td>NA</td>
</tr>
<tr class="even">
<td>Butter</td>
<td></td>
<td>218</td>
<td>193</td>
<td>174</td>
<td>185</td>
<td>185</td>
<td>221</td>
<td>255</td>
<td>NA</td>
</tr>
<tr class="odd">
<td>Dry Milk</td>
<td></td>
<td>3.4</td>
<td>3.3</td>
<td>3</td>
<td>3.1</td>
<td>3.8</td>
<td>4</td>
<td>5.3</td>
<td>NA</td>
</tr>
<tr class="even">
<td colspan="2">Meat and Bone meal</td>
<td>303</td>
<td>245</td>
<td>192</td>
<td>198</td>
<td>174</td>
<td>189</td>
<td>238</td>
<td>NA</td>
</tr>
<tr class="odd">
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr class="even">
<td colspan="3">Source: Russian State Statistics Committee</td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
</tbody>
</table>

Having largely non-market feed supplies has unusual ramifications. As
historical data shows (Table 5), small farmers have not really shown
significant production variability as a result of either economic
meltdowns or overall Russian feed production declines. First, this
indicates that these farmers are not going away in terms of overall
number of participants (Table 1) or production (Table 5). Secondly, to
be able to keep a relatively stable production, they seem very capable
of finding feed supplies under dire economic or agronomic circumstances.
Most likely, much of this can be explained simply that it is easier to
consistently find feed for ten animals for the winter than 10,000. It
remains to be seen whether these farmers will ever be drawn wholly into
the input market due to supply constraints in far villages and existing
non-market feed networks.

Lastly, this has important implications for the evaluation of the
Russian grain market. First, the feed being used by these farmers is not
well understood and probably varies greatly from year to year and among
regions. The questions that remains is how much feed is being produced
and consumed in Russia that is not statistically being accounted for and
how much feed will be needed if these farmers eventually make the shift
into the commercial feed market? Regardless, from a domestic policy
standpoint, it is concerning that as much as one half of Russian
livestock production is essentially outside of the commercial feed
market. The above problem, in addition to the general grain market
problems with transparency, interregional administrative barriers, and
transportation infrastructure, make setting grain trade policy very
difficult.

# Markets and Processors 

Having this dichotomous situation between the agricultural organizations
and the private farmers also distorts and retards the meat market. The
current structure favors sales directly to the wet markets and to small
traders and processors. It is very difficult and time consuming for the
large processors to work with the small producers and most are striving
to build and maintain supplier networks amongst the agricultural
enterprises and even the small farmers. Most of the larger processors
feel that the small private farmers cannot supply the volume, quality,
or consistency that they require. Over time, this will favor
agricultural organizations or the development of a type of co-op
structure.

# Demand

Considering Tables 6 and 8, it is clear that Russian consumption and
demand for meat are growing. General consumption of pork, beef, and
poultry have increased 18, eight, and 39 percent, respectively, since
1999. Since 1999, consumption of the primary meat product, sausage
products, increased by 52 percent. However, a look at a longer time
frame shows that Russian consumption is actually still trying to catch
up to its level from the mid-1990\'s. It is still quite far behind
Soviet meat consumption levels. This just shows that most Russians feel
that their optimal meat consumption level is still well above current
consumption. Thus, growth will continue to climb for some time as long
as the income levels and supply can support the consumption.

Recent growth is clearly linked to the sustained upswing that the
Russian economy has exhibited since the economic crisis of 1998. The
growth in government budgets shows up in one particularly vulnerable
group: pensioners. This group is important because of the origin of
their incomes and the way that it is spent.

Pensioners form the most vulnerable group of consumers in terms of
income. Obviously, these people rely on government pension payments and
this is the key, if not only, source of disposable income. This class
generally had all its savings wiped out during the 1990\'s and now must
make vary careful spending decisions. They are a class that will be very
heavily influenced by the state of the Russian Government and its
ability to pay full and adequate pensions on time. When this does not
happen, these people cut the area that encompasses most of their budget,
food. (Alternatively, rural pensioners increase livestock holdings.)
During the last several years the Russian Government has been able to
pay pensions on time and been raising the level with some frequency.
This has allowed the older section of the population to put this extra
purchasing power into their food budgets. Meat purchases by this group
grow significantly with each extra dollar of disposable income. However,
this group is still very budget conscience and the lowest cost meat item
remains sausage products. Sausage products are much more likely to
attract the extra disposable income because sausage is cheaper, has a
longer shelf life, and requires little preparation. All these factors
make sausage demand especially strong among older Russian consumers.
Other forms of meat generally form a secondary function for most
pensioners. Canned meat is generally of lower quality and price than
sausage and not as popular. Fresh, chilled, or frozen cuts of meat are
not consumed as frequently as sausage and are usually purchased from wet
markets or small local food stores.

Overall income growth is more straightforward for the rest of the urban
population, as it spurs increased expenditures on food, especially meat
products. Seemingly, most average Russians use meat consumption as a
type of barometer of their own economic state. These people remember
that consumption was much higher in Soviet times, often discuss the
availability and quality of meat currently on the market, and clearly
buy more meat products as their income rises. This pattern is
essentially the same as exhibited in other countries.

# Supply

While highlighting the role of domestic producers is clearly important,
overall market supply can only be considered with the inclusion of
imports. Since 2000, imports of pork and beef make up about 30 percent
of the overall market. Moreover, the government has taken active
measures to limit the size of imports since 2003 and has stated that it
wants to maintain some level of restriction possibly up to 2010. (For
details of the current meat import policy, see reports RS3018 and
RS3050). The government is capping overall import levels, while
permitting domestic producers to capture the steady consumption growth.
However, imports will likely continue to play a significant role as the
Russian production slowly increases.

Therefore, the market is essentially split into three almost equal
pieces, with agricultural organizations and small farmers each taking
about 35 percent of the total supply and imports 30 percent. As
mentioned above, household plots produce meat that is usually sold at
local markets, but not to processors and retail outlets.

Considering all the factors mentioned above, the production of small
farmers combines with imports to allow for a surprisingly flexible
supply of meat (65 percent of the market), even in times of uncertain
production on industrial farms. While imports can easily fill supply
gaps, the government has made it clear that domestic production is a
priority. Thus, large domestic producers (agricultural organizations)
are realistically the only group that will continue production/herd
increases over the long term. Over the next decade or more, agricultural
organizations, with the government's support, will slowly increase their
share of total production in comparison to household plots.

Meanwhile, Table 5 shows that the number of animals (swine and beef
cattle) on household plots has remained steady or increased over both
good and bad economic and agronomic periods. The trend seems to indicate
that these families are going to keep some livestock over the long term
as a store of wealth because the overall macroeconomic improvement does
not filter quickly to the rural poor. By extension, this means that the
household plot will remain the main source of animal protein for rural
families and for small towns and cities, especially those that are
farther from the main ports of entry for imported meat.

Household plots also provide the overall Russian market with a service
by providing a buffer stock of low input meat. As mentioned above in the
feed section, household plots are outside the regular input cycle and
will not sharply fall when commercial feedstocks are low or there are
localized input difficulties. Alternatively, household livestock
production becomes more stable or grows as rural residents seek a hedge
against an uncertain rural economy. In the future, the question is if
the market can incorporate and foster these small farmers (their
initiative and hardiness) in terms of input supplies and outputs in the
form of coops or other sales vehicles.

# Summary {#summary-1}

The supply section quickly outlined some important observations which
show how the three supply components can change and also provide a clue
as to potential price effects due supply shocks.

The small farmers act as a supply buffer also seem to act as price
takers because each of these individuals is making input and slaughter
decisions on a small scale and essentially independent of each other. As
individual decisions, the fact that the animals are a store wealth as
well as an income stream has shown that these farmers have not made
mass, drastic decisions (such as a huge herd cull or complete withdrawal
from the market). As such, the data seems to point out that all these
individual decisions has led to an amazing amount of consistency and
continuity. That is very important when this accounts for 50 percent of
domestic production and 35 percent of total supply.

Imports are much easier to analyze and quantify than Russian domestic
production, yet the influence of imports cannot be discounted. When the
government assumed complete control (import TRQs) over 30 percent of
total supply and makes this "supply decision" once per year, it is
taking a serious chance regarding its assumptions about the changes in
this far from mature and stable market. Of the three sectors, this
rigid, non-market decision would seem to bring the greatest risk of
shorting supply and rising prices.

Lastly, the slow re-emergence of agricultural enterprises is clearly the
hope (and intention) of Russian industry and government. However, many
of these enterprises are facing tough times (an estimated 92 percent are
unprofitable) and this revival has many hurdles to overcome to become
the main supplier of meat to the Russian consumer. These companies are
the most difficult to analyze in terms of price because sales price and
production cost can vary significantly. Sales prices often vary based on
the relationship producers have with processors and if that processor
produces a wide range (including high quality) products and if there is
direct competition with imports. Thus, imports and large domestic
producers are the overwhelming competitors and price setters on the
wholesale markets and with processors. As shown above, agricultural
enterprises have such a wide range of variables built into the
production cost (feed, social, labor, infrastructure), effective
management has an enormous impact on the cost of production.

In summary, the fortitude and resilience of the small household farmers
in the Russian livestock sector is not in doubt. These people will
continue to be the primary source of meat for a large portion of the
Russian population for many years to come. However, the slow
re-emergence of medium and large-scale industrial production of meat is
the key the future of the livestock sector in Russia.

###  Table 9. The Most Efficient Swine Farms of Russia, as an average of 1998-2002 

+------------------+------------+------------+------------+------------+
| Farm             | Number of  | Production | Farm meat  | Pro        |
|                  | swine      | cost,      | price,     | fitability |
|                  |            | rubles per | rubles per | of sold    |
|                  |            | 100 kilos  | 100 kilos  | meat, % \* |
+------------------+------------+------------+------------+------------+
| OAO\" Omskiy     | 211,281    | 1,762      | 2,857      | 62.1       |
| Bekon\", Omsk    |            |            |            |            |
+------------------+------------+------------+------------+------------+
| S                | 128,993    | 2,140      | 2,299      | 7.4        |
| VKh\"Permskiy\", |            |            |            |            |
| Perm             |            |            |            |            |
+------------------+------------+------------+------------+------------+
| ZAO              | 67,057     | 2,235      | 2,609      | 16.7       |
| \"Volzhskoye\",  |            |            |            |            |
| Tver             |            |            |            |            |
+------------------+------------+------------+------------+------------+
| KPH, \"Frunze\", | 30,498     | 1,074      | 2,060      | 91.7       |
| Belgorod         |            |            |            |            |
+------------------+------------+------------+------------+------------+
| ZAO SK           | 67,001     | 1,687      | 2,149      | 27.4       |
| \"               |            |            |            |            |
| Industrial'niy\" |            |            |            |            |
|                  |            |            |            |            |
| Krasnodar        |            |            |            |            |
+------------------+------------+------------+------------+------------+
| ZAO\"K           | 55,803     | 1,707      | 2,095      | 22.7       |
| rasnodonskoye\", |            |            |            |            |
| Volgograd        |            |            |            |            |
+------------------+------------+------------+------------+------------+
| SkhPK \"Usolskii | 63,515     | 2,019      | 2,289      | 13.4       |
| Pork Farm\",     |            |            |            |            |
| Irkutsk          |            |            |            |            |
+------------------+------------+------------+------------+------------+
| State Farm       | 19,618     | 1,685      | 2,570      | 52.5       |
| \                |            |            |            |            |
| "Zvenigovskiy\", |            |            |            |            |
| Mariy-El, Rep.   |            |            |            |            |
+------------------+------------+------------+------------+------------+
| State Farm       | 38,552     | 2,088      | 2,259      | 8.2        |
| \                |            |            |            |            |
| "Roshchinskiy\", |            |            |            |            |
| Bashkordostan    |            |            |            |            |
+------------------+------------+------------+------------+------------+
| Pedigree Farm    | 44,833     | 1,275      | 2,301      | 80.4       |
| \"Yubileyniy\",  |            |            |            |            |
| Tumen            |            |            |            |            |
+------------------+------------+------------+------------+------------+

Source: Krestiyanskiye Vedomosty, January 2002.

\* Ratio between profits from meat sold and average number of head.

#  {#section-4}