Required Report - public distribution

**Date:** 1/22/2004

**GAIN Report Number:** RS4004

RS4004

**Russian Federation**

**Poultry and Products**

**Poultry Imports Lower, Production and Input Costs Higher**

**2004**

**Approved by:**

![](media/image1.wmf)Allan Mustard

U.S. Embassy

**Prepared by:**

Mark Petry and Mikhail Maximenko

**Report Highlights:**

Russian broiler production is forecast to continue to grow at a brisk
pace in 2004 (11 percent), even though high feed costs will reduce
production growth and temporarily decrease industry investment. Poultry
imports are forecast to reach only 1.05 MMT in 2004 due to the poultry
quota and will be ten percent lower than in 2003.

Includes PSD Changes: Yes

Includes Trade Matrix: No

Scheduled Report

Moscow \[RS1\]

\[RS\]

Table of Contents

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

[Production 3](#production)

[Feed Supply 3](#feed-supply)

[Table 1. Available Feed at Agricultural Organizations in December, 2002
and 2003.
4](#table-1.-available-feed-at-agricultural-organizations-in-december-2002-and-2003.)

[Consumption 4](#consumption)

[Meat Categorization 4](#meat-categorization)

[Trade 4](#trade)

[Table 2. Poultry Imports, 2001-2002 and January-October 2003.
5](#table-2.-poultry-imports-2001-2002-and-january-october-2003.)

[Table 3. Exporting Country Market Share of Total Poultry Imports,
2001-2002 and January-October 2003.
5](#table-3.-exporting-country-market-share-of-total-poultry-imports-2001-2002-and-january-october-2003.)

[Stocks 5](#stocks)

[Policy 5](#policy)

[Table 4. Moscow Wholesale Poultry Meat Prices, January -- January 2004.
6](#table-4.-moscow-wholesale-poultry-meat-prices-january-january-2004.)

[Ceiling on retail markup on "socially important" food products
6](#ceiling-on-retail-markup-on-socially-important-food-products)

[Sales and value added taxes 7](#sales-and-value-added-taxes)

# Executive Summary

Russian broiler production is forecast to continue to grow at a brisk
pace in 2004 (11 percent), marking the sixth straight year of increased
production. However, high feed costs due to the poor Russian grain
harvest of 2003 will reduce production growth and temporarily subdue the
high level of industry investment. Poultry imports are forecast to reach
only 1.05 MMT in 2004 due to the poultry quota. The 2004 poultry import
quota should be somewhat more flexible for exporters due to the
elimination of a requirement that 25 percent of imports in 2003 be
mechanically deboned meat. With demand expected to remain strong, the
poultry quota and, to a lesser extent, the feed shortage are expected to
maintain strong upward pressure on prices.

# Production

Russian production of broiler meat is forecast at 620,000 MT in 2004, an
11 percent increase over production in 2003, but three percent less than
the previous forecast. The broiler production estimate was decreased
slightly due to tight feed supplies throughout Russia. Though feed
supplies are short and feed grain prices are high, modern poultry
facilities continue to increase production. These efficient producers
also continue to buy low efficiency poultry farms, which remain
plentiful in many parts of Russia, and add new management techniques,
new equipment, and new production technologies. Increasing poultry
prices have helped the efficient producers remain profitable, despite
grain prices, and permitted further expansion. An additional factor for
investment remains the strong earnings for companies in the natural
resource export sector, several of which own and support poultry and
livestock subsidiaries. However, poultry industry profits are lower than
in recent years, subsequently reducing the rate of upgrading poultry
production in the old plants.

The Russian poultry flock increased by two percent in 2002 over 2001 and
decreased by 0.2 percent in 2003, compared with 2002. This is the result
of bankruptcy or production slow-downs among inefficient producers.
Nevertheless, more overall efficient production is causing increased
average daily weight gain and faster finishing times.

# Feed Supply

Increasing poultry production demands increased feed supplies. The low
2003 grain harvest, increased grain export volumes, and increased feed
consumption by poultry and livestock producers created feed shortages in
the Russian Federation at the end of 2003 and will continue through the
first half of 2004. Thus, prices have skyrocketed. The price of one
metric ton of feed wheat has reached about \$160, barley \$130, and corn
\$175. The data presented in Table 1 shows significant feed stock
reduction in 2003 in comparison with 2002. However, despite the very
high prices, the feed price effect has been mitigated to some degree by
the very high profitability (per kilo of meat) of leading producers,
increasing efficiency of feed utilization, and use of non-traditional
feeds (or feed not accounted for by national statistics) by small
farmers. Nonetheless, producers are experiencing difficulties in
obtaining the volume and quality of grain (mostly wheat) necessary in
some regions due to the poor inter-regional transportation of grains.
Artificial administrative or other barriers to free transit of grain
inside Russia have forced many producers to shift from the traditional
predominately wheat ration to other components, including imported soy
and other feed ingredients.

## 

## Table 1. Available Feed at Agricultural Organizations in December, 2002 and 2003. 

  ----------------------- ----------------------- -----------------------
                          2003                    2002

  Available feeds,        24.1                    29.1
  million tons feed units                         

  Including grain feeds   6.9                     9.2

  Tons of feed units per  1.34                    1.48
  one standard animal                             
  ----------------------- ----------------------- -----------------------

Source: Russian State Statistics Committee

# Consumption

Poultry consumption in 2004 is forecast to decrease by three percent
over 2003 because local production will not be able to fill the gap
between supply and demand caused by the poultry quota. Prices will
continue to rise on all types of poultry products. As prices continue to
increase, consumption will be held to a lower level.

## Meat Categorization

There is a clear distinction between the meat of broilers and spent
hens: meat from layers is sold in grocery stores and labeled as "soup
chicken" with a price about 30 percent lower than broiler meat. Layer
meat is especially popular with pensioners and other low-income
customers who buy them to prepare chicken broth or soup and cutlets made
from tenderized or ground chicken. The layer meat market is a secondary
market expected to grow only at the rate of the egg industry.

# Trade

Russian poultry imports are expected to be 1.05 MMT in 2004, the same as
the previous forecast because the quota volume remains unchanged.
(Please see Policy section below for details.)

Total Russian poultry imports in 2003 were about 100,000 MT lower than
2002. Overall poultry trade saw two peaks in 2003, the first (February
-- April) before the poultry import quota was enforced and second
(November-December) when poultry traders where trying to import the
remainder of their quota before the 2003 licenses expired. High import
volumes in the pre-quota period softened the negative impact of the
protective measures on poultry imports and buoyed poultry availability
and supply throughout the remainder of 2003. Turkey imports in 2003 were
higher than expected because the country allocation allowed certain
importers to seek to maximize the value of their quota license by
importing higher priced turkey parts.

The trade in 2004 has got off to a slow start due to delays in import
quota allocation. The Ministry of Economic Development and Trade
announced the eligible importers on January 26, 2004, after publishing
and then revising two earlier versions. Assuming a minimum processing
time for license applications of five working days, the first shipments
of U.S. poultry would not arrive prior to March 1^st^. While this is a
frustrating delay, many traders were subdued because they still held
large stocks as a result of the rush of product prior to the expiration
of the 2003 licenses in late 2003.

## Table 2. Poultry Imports, 2001-2002 and January-October 2003.

  ------------ ------------------------- ------- ----------- ----------- ---------- ---------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
                                                                         **2003**                                                                                              

               **Quantity (MT)**                 **2001**    **2002**    **Jan.**   **Feb.**   **Mar**   **Apr**   **May**   **Jun**   **Jul**   **Aug**   **Sep**   **Oct**   **YTD**

  **0207**     **POULTRY MEAT,OFFAL**            1,375,025   1,375,039   80,206     81,516     138,391   219,301   16,666    46,270    74,265    99,383    76,006    83,938    915,941

  ** **                                                                                                                                                                         

  **020714**   **CHCK CUT+ED OFL,FRZ**           1,147,949   1,056,599   61,448     67,631     116,166   177,965   10,674    39,053    62,337    86,358    63,721    73,570    758,924

  **020727**   **TRKY CUT+ED OFL,FRZ**           160,854     163,730     10,698     7,062      13,998    22,011    1,089     5,426     8,402     6,747     5,926     5,417     86,775

  **020712**   **CHICKEN,WHOLE,FROZN**           62,636      147,032     7,651      6,567      7,831     18,775    4,799     1,573     3,019     5,653     5,724     4,006     65,597

  ** **        **OTHER**                 ** **   3,587       7,677       60         0          37        140       37        216       453       569       534       698       2,744
  ------------ ------------------------- ------- ----------- ----------- ---------- ---------- --------- --------- --------- --------- --------- --------- --------- --------- ---------

Source: World Trade Atlas

## 

## Table 3. Exporting Country Market Share of Total Poultry Imports, 2001-2002 and January-October 2003.

  ---------- ----------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
  **0207**   **Mkt.              2001    2002    Jan.    Feb.    Mar     Apr     May     Jun     Jul     Aug     Sep     Oct     YTD
             Share (% of                                                                                                         
             Qty.)**                                                                                                             

  **1**      United              77.3%   54.5%   32.5%   55.7%   55.7%   54.1%   36.5%   72.2%   69.8%   78.0%   69.2%   77.2%   60.4%
             States                                                                                                              

  **2**      Germany             3.2%    4.1%    3.5%    4.8%    3.8%    3.7%    3.0%    0.4%    4.8%    3.9%    7.1%    6.2%    4.2%

  **3**      Brazil              6.8%    21.5%   39.8%   18.3%   22.2%   26.1%   41.0%   10.0%   6.2%    4.5%    10.1%   5.2%    18.3%

  **4**      France              5.2%    6.6%    8.4%    3.8%    6.2%    5.2%    1.8%    7.0%    10.6%   7.9%    4.9%    4.0%    6.1%

  **5**      Poland              0.2%    0.3%    0.3%    0.4%    0.3%    0.4%    6.5%    4.0%    2.7%    2.0%    2.9%    2.7%    1.5%

  **6**      Spain               0.2%    0.3%    0.5%    0.6%    0.2%    0.5%    1.2%    2.2%    1.3%    0.7%    0.6%    1.4%    0.8%

  **7**      Canada              0.5%    1.6%    1.7%    1.7%    0.8%    1.7%    0.5%    0.8%    0.9%    0.5%    1.5%    1.0%    1.2%

  **8**      Sweden              0.0%    0.0%    0.0%    0.0%    0.0%    0.1%    0.2%    0.1%    0.2%    0.4%    0.9%    0.5%    0.2%

  **9**      China               0.6%    2.2%    6.0%    4.4%    3.0%    3.9%    1.9%    0.0%    0.3%    0.2%    0.4%    0.5%    2.5%

  **10**     Finland     ** **   0.1%    0.3%    0.2%    0.3%    0.2%    0.3%    0.7%    0.3%    0.4%    0.5%    0.3%    0.4%    0.3%
  ---------- ----------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- -------

Source: World Trade Atlas

**Poultry prices**

Prices for domestic poultry frozen carcasses and boneless breasts
decreased in November, as did prices for the popular imported chicken
leg quarters and all other imported poultry. November was the only month
to exhibit an across-the-board price decrease in 2003. This decline in
prices is attributed to the large amount of poultry that was entering
Russia or had been booked for shipment during the last two months of the
year, prior to the expiration of the 2003 quota licenses. Clearly, this
shows how influential imported poultry remains in Russia. It is
important because it fills a significant portion of demand, but it also
plays a price setting role as domestic producers maintain a relative
ratio between their prices and imported poultry prices.

# Stocks

Large volumes of poultry shipments in December 2003 created temporary
large stocks of poultry meat at the end of the year. The trade estimates
that stocks will be exhausted by the end of February and return to
normal levels when imports resume. There is concern that 2004 ending
stocks might be much lower if the poultry quota is not used evenly
throughout the year.

# Policy

The measures taken by the Russian Government to protect the interests of
domestic producers in 2003 created a lot of logistical complications for
importers and exporters. It is difficult for importers to get through
the complicated system of regulations and procedures prepared in the
rush to initiate the quota. Obtaining an import license from MEDT and
import permit from Ministry of Agriculture remains a time consuming and
onerous problem. Moreover, new importers are now effectively barred from
participating in the trade of poultry and supply problems are being
encountered by firms that need to find additional import volumes but
cannot increase their share of the licenses.

## Table 4. Moscow Wholesale Poultry Meat Prices, January -- January 2004. 

+--------+-------+-------+-------+-------+-------+-------+-------+
| **     | **Exc | **Dom |       |       | **Imp |       |       |
| Date** | hange | estic |       |       | orted |       |       |
|        | Rate, | chic  |       |       | chic  |       |       |
|        | ruble | ken** |       |       | ken** |       |       |
|        | /\$** |       |       |       |       |       |       |
+--------+-------+-------+-------+-------+-------+-------+-------+
|        |       | **F   | **F   | **F   | **F   | **F   | **F   |
|        |       | rozen | rozen | rozen | rozen | rozen | rozen |
|        |       | c     | br    | leg   | c     | br    | leg** |
|        |       | arcas | east, | quart | arcas | east, |       |
|        |       | ses** | bonel | ers** | ses** | bonel | **    |
|        |       |       | ess** |       |       | ess** | Quart |
|        |       |       |       |       |       |       | ers** |
+--------+-------+-------+-------+-------+-------+-------+-------+
| 01/3   | 31.80 | 42.81 | 58.28 | 47.05 | 38.55 | 55.47 | 34.69 |
| 0/2003 |       |       |       |       |       |       |       |
+--------+-------+-------+-------+-------+-------+-------+-------+
| 02/2   | 31.58 | 42.32 | 56.28 | 41.16 | 40.81 | 54.89 | 35.04 |
| 8/2003 |       |       |       |       |       |       |       |
+--------+-------+-------+-------+-------+-------+-------+-------+
| 03/3   | 31.38 | 41.68 | 55.17 | 42.27 | 42.15 | 54.15 | 34.92 |
| 0/2003 |       |       |       |       |       |       |       |
+--------+-------+-------+-------+-------+-------+-------+-------+
| 04/3   | 31.10 | 41.77 | 55.67 | 44.50 | 41.90 | 56.38 | 34.42 |
| 0/2003 |       |       |       |       |       |       |       |
+--------+-------+-------+-------+-------+-------+-------+-------+
| 05/3   | 30.67 | 43.93 | 57.62 | 45.00 | 43.76 | 62.17 | 39.55 |
| 0/2003 |       |       |       |       |       |       |       |
+--------+-------+-------+-------+-------+-------+-------+-------+
| 06/3   | 30.35 | 49.07 | 59.32 | 49.50 | 48.27 | 73.08 | 39.77 |
| 0/2003 |       |       |       |       |       |       |       |
+--------+-------+-------+-------+-------+-------+-------+-------+
| 07/3   | 30.25 | 53.55 | 78.00 | 50.83 | 55.78 | 81.69 | 41.76 |
| 0/2003 |       |       |       |       |       |       |       |
+--------+-------+-------+-------+-------+-------+-------+-------+
| 08/3   | 30.50 | 59.04 | 99.67 | 59.62 | 59.09 | 1     | 44.81 |
| 0/2003 |       |       |       |       |       | 01.00 |       |
+--------+-------+-------+-------+-------+-------+-------+-------+
| 09/3   | 30.61 | 59.96 | 1     | 61.09 | 58.58 | 1     | 45.45 |
| 0/2003 |       |       | 08.00 |       |       | 07.77 |       |
+--------+-------+-------+-------+-------+-------+-------+-------+
| 10/3   | 29.82 | 58.77 | 1     | 57.23 | 58.21 | 1     | 47.08 |
| 0/2003 |       |       | 05.50 |       |       | 03.48 |       |
+--------+-------+-------+-------+-------+-------+-------+-------+
| 11/3   | 29.74 | 57.96 | 1     | 61.13 | 56.42 | 95.08 | 47.11 |
| 0/2003 |       |       | 01.00 |       |       |       |       |
+--------+-------+-------+-------+-------+-------+-------+-------+
| 12/3   | 29.25 | 56.02 | 93.33 | 60.63 | 55.65 | 88.32 | 45.39 |
| 0/2003 |       |       |       |       |       |       |       |
+--------+-------+-------+-------+-------+-------+-------+-------+
| 01/3   | 28.49 | 54.96 | 92.67 | 57.88 | 53.98 | 82.58 | 45.85 |
| 0/2004 |       |       |       |       |       |       |       |
+--------+-------+-------+-------+-------+-------+-------+-------+

Source: Russian Institute for Agricultural Market Studies (IKAR)

Prices are in rubles per kilogram.

The Russian government established the rules for 2004 poultry imports on
November 29, 2003. The resolution sets the poultry meat import quota at
1.05 million tons. This varies from the previous year in that it is not
separated into meat and ground meat (mechanically deboned meat). The
2003 quota required that about 25 percent of imports from each country
must be mechanically deboned meat. For 2004, the United States received
a quota of 771,900 tons, EU and future EU countries (Poland, the Czech
Republic, Hungary, Slovakia, Slovenia, Lithuania, Latvia, Estonia,
Cyprus and Malta) 205,000 tons, Paraguay 5,000 tons, and other countries
68,100 tons. Please reference GAIN Report RS3050 for the text of the
poultry import quota resolution.

In particular, Brazilian suppliers were dissatisfied that there was no
separate quota on meat imports to Russia, but that its quota falls under
the category \"Other Countries." Following a visit by top Brazilian
officials in January 2004, the Russian Government stated that it will
consider submitting a proposal to allocate a separate quota for
Brazilian meat supplies to Russia, which would probably be subtracted
from the "Other Countries" category.

## Ceiling on retail markup on "socially important" food products

Aleksey Gordeyev, Deputy Prime Minister and Minister of Agriculture,
said that the Russian Government is considering setting a ceiling on the
markup retailers can charge on "socially important" food products,
including some meat products. The government legally cannot set such
limits currently, but officials are reviewing foreign experience in this
area. If the idea is approved, the proposal may be included in a draft
law that would likely be submitted for consideration in the first
quarter of 2004. This was part of the continuing effort of the Russian
Government to ensure that food prices remain moderate, so that
low-income consumers are not disadvantaged.

## Sales and value added taxes

Russia canceled one sales tax beginning January 2004 and reduced the
value added tax (VAT) from 20 to 18 percent on most products. However,
meat products will remain subject to a ten percent VAT, as they are
considered "socially important" products. The Russian Government plans
to further reduce the general VAT, while "socially important" products
will remain at the lower VAT level.

  --------------- -------------- ---------- ---------- ---------- ---------- ---------- ---------
  **PSD Table**                                                                         

  **Country**     **Russian                                                             
                  Federation**                                                          

  **Commodity**   **Poultry,                                      (1000                 
                  Meat,                                           MT)(MIL               
                  Broiler**                                       HEAD)                 

                  2002           Revised    2003       Estimate   2004       Forecast   UOM

                  USDA Official  Post       USDA       Post       USDA       Post       
                  \[Old\]        Estimate   Official   Estimate   Official   Estimate   
                                 \[New\]    \[Old\]    \[New\]    \[Old\]    \[New\]    

  **Market Year                  01/2002               01/2003               01/2004    MM/YYYY
  Begin**                                                                               

  Inventory       0              0          0          0          0          0          (MIL
  (Reference)                                                                           HEAD)

  Slaughter       0              0          0          0          0          0          (MIL
  (Reference)                                                                           HEAD)

  Beginning       120            120        130        130        80         90         (1000 MT)
  Stocks                                                                                

  Production      500            500        580        560        640        620        (1000 MT)

  Whole, Imports  150            150        80         75         50         50         (1000 MT)

  Parts, Imports  1058           1058       1100       1025       940        940        (1000 MT)

  Intra EC        0              0          0          0          0          0          (1000 MT)
  Imports                                                                               

  Other Imports   0              0          0          0          0          0          (1000 MT)

  TOTAL Imports   1208           1208       1180       1100       990        990        (1000 MT)

  TOTAL SUPPLY    1828           1828       1890       1790       1710       1700       (1000 MT)

  Whole, Exports  1              1          0          0          0          0          (1000 MT)

  Parts, Exports  0              0          1          1          1          1          (1000 MT)

  Intra EC        0              0          0          0          0          0          (1000 MT)
  Exports                                                                               

  Other Exports   0              0          0          0          0          0          (1000 MT)

  TOTAL Exports   1              1          1          1          1          1          (1000 MT)

  Human           1675           1675       1790       1680       1709       1670       (1000 MT)
  Consumption                                                                           

  Other Use,      22             22         19         19         0          0          (1000 MT)
  Losses                                                                                

  Total Dom.      1697           1697       1809       1699       1709       1670       (1000 MT)
  Consumption                                                                           

  TOTAL Use       1698           1698       1810       1700       1710       1671       (1000 MT)

  Ending Stocks   130            130        80         90         0          29         (1000 MT)

  TOTAL           1828           1828       1890       1790       1710       1700       (1000 MT)
  DISTRIBUTION                                                                          

  Calendar Yr.    0              0          0          0          0          0          (1000 MT)
  Imp. from U.S.                                                                        
  --------------- -------------- ---------- ---------- ---------- ---------- ---------- ---------

  ---------------- -------------- ---------- ---------- ---------- ---------- ---------- ---------
  **PSD Table**                                                                          

  **Country**      **Russian                                                             
                   Federation**                                                          

  **Commodity**    **Poultry,                                      (1000                 
                   Meat, Turkey**                                  MT)(MIL               
                                                                   HEAD)                 

                   2002           Revised    2003       Estimate   2004       Forecast   UOM

                   USDA Official  Post       USDA       Post       USDA       Post       
                   \[Old\]        Estimate   Official   Estimate   Official   Estimate   
                                  \[New\]    \[Old\]    \[New\]    \[Old\]    \[New\]    

  **Market Year                   01/2002               01/2003               01/2004    MM/YYYY
  Begin**                                                                                

  Inventory        0              0          0          0          0          0          (MIL
  (Reference)                                                                            HEAD)

  Slaughter        0              0          0          0          0          0          (MIL
  (Reference)                                                                            HEAD)

  Beginning Stocks 0              0          0          0          0          0          (1000 MT)

  Production       9              9          12         12         12         12         (1000 MT)

  Whole, Imports   5              5          3          3          5          5          (1000 MT)

  Parts, Imports   160            155        77         100        55         55         (1000 MT)

  Intra EC Imports 0              0          0          0          0          0          (1000 MT)

  Other Imports    0              0          0          0          0          0          (1000 MT)

  TOTAL Imports    165            160        80         103        60         60         (1000 MT)

  TOTAL SUPPLY     174            169        92         115        72         72         (1000 MT)

  Whole, Exports   0              0          0          0          0          0          (1000 MT)

  Parts, Exports   0              0          0          0          0          0          (1000 MT)

  Intra EC Exports 0              0          0          0          0          0          (1000 MT)

  Other Exports    0              0          0          0          0          0          (1000 MT)

  TOTAL Exports    0              0          0          0          0          0          (1000 MT)

  Human            173            168        91         114        71         71         (1000 MT)
  Consumption                                                                            

  Other Use,       1              1          1          1          1          1          (1000 MT)
  Losses                                                                                 

  Total Dom.       174            169        92         115        72         72         (1000 MT)
  Consumption                                                                            

  TOTAL Use        174            169        92         115        72         72         (1000 MT)

  Ending Stocks    0              0          0          0          0          0          (1000 MT)

  TOTAL            174            169        92         115        72         72         (1000 MT)
  DISTRIBUTION                                                                           

  Calendar Yr.     0              0          0          0          0          0          (1000 MT)
  Imp. from U.S.                                                                         
  ---------------- -------------- ---------- ---------- ---------- ---------- ---------- ---------