""

Required Report - public distribution

**Date:** 8/22/2003

**GAIN Report Number:** RS3019

RS0000

**Russian Federation**

**Poultry and Products**

**Annual**

**2003**

**Approved by:**

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

U.S. Embassy, Russia

**Prepared by:**

Mark Petry and Mikhail Maximenko

**Report Highlights:**

Russian broiler production is forecast to grow by ten percent in 2004,
marking the seventh straight year of increased production and an over
300 percent increase since 1997. Investment and reconstruction of under
performing plants continue to boost Russian production capacity. Russian
imports in 2004 are forecast to decline by 11 percent due to the
safeguard quota established in May 2003. The poultry quota and
veterinary issues with several supplying countries are expected to also
reduce Russian imports in 2003, by 12 percent from the previous
estimate.

Includes PSD Changes: Yes

Includes Trade Matrix: No

Unscheduled Report

Moscow \[RS1\]

\[RS\]

**Table of Contents**

[Executive Summary 3](#executive-summary)

[Production 3](#production)

[Broiler Production 3](#broiler-production)

[Turkey Production 4](#turkey-production)

[Feed Supplies 5](#feed-supplies)

[Table 1: Feed Stocks Of Agricultural Organizations on July 1, 2003
6](#table-1-feed-stocks-of-agricultural-organizations-on-july-1-2003)

[Consumption 6](#consumption)

[Trade 6](#trade)

[Table 2: Russian Poultry Imports, 2000-2003, MT
7](#table-2-russian-poultry-imports-2000-2003-mt)

[Table 3: Market Share of Main Poultry Meat Exporters to Russia,
2000-2003, (% of volume, Excluding MDM)
7](#table-3-market-share-of-main-poultry-meat-exporters-to-russia-2000-2003-of-volume-excluding-mdm)

[Table 4: Market Share of Main MDM Exporters to Russia, 2000-2003 (% of
volume)
7](#table-4-market-share-of-main-mdm-exporters-to-russia-2000-2003-of-volume)

[Table 5: Market Share of Main Whole Chicken Exporters to Russia,
2000-2003 (% of volume)
8](#table-5-market-share-of-main-whole-chicken-exporters-to-russia-2000-2003-of-volume)

[Prices 8](#prices)

[Table 6: Retail Poultry Meat Prices in January -- July 2003, Russian
Federation
8](#table-6-retail-poultry-meat-prices-in-january-july-2003-russian-federation)

[Table 7: Wholesale Prices on Domestic Poultry Products, in June -- July
2003, Moscow
8](#table-7-wholesale-prices-on-domestic-poultry-products-in-june-july-2003-moscow)

[Stocks 9](#stocks)

[Policy 9](#policy)

[Country Quota Allocation 9](#country-quota-allocation)

["Historical Importers" 9](#historical-importers)

[Mechanically Deboned Meat (MDM) "Breakout"
10](#mechanically-deboned-meat-mdm-breakout)

[Re-distribution and Future of the Poultry Quota
10](#re-distribution-and-future-of-the-poultry-quota)

[Other Issues 10](#other-issues)

[Marketing -- Retailing Trends 11](#marketing-retailing-trends)

# Executive Summary

Russian broiler production is forecast to grow by ten percent in 2004,
to 640,000 MT, while turkey production is forecast to remain unchanged.
The growth in broiler production would mark the seventh straight year of
increased production and a 320 percent increase since the low point in
Russian production in 1997. Russian imports of broiler meat in 2004 are
forecast to decline by 11 percent in 2004, to 875,000 MT, due to the
safeguard quota established in May 2003. Russian imports of turkey meat
are forecast to fall by 18 percent as importers choose to use quota
licenses for chicken rather than turkey products. The poultry quota and
veterinary issues with several supplying countries are expected to also
reduce Russian imports of broiler meat in 2003, to 1.0 MMT or 12 percent
decrease from the previous estimate.

# Production

Farms of all categories produced 3.1 million tons of livestock and
poultry (live weight) in the first half of 2003, a six percent increase
over the same period of 2002 according to the Russian State Statistics
Committee. The greatest growth occurred in poultry and pork production.
Production of meat on small farms maintained its relative production
level, accounting for 50 percent or more of production of all meats
except poultry. In contrast to pork and beef, industrial production of
poultry is slowly and steadily outpacing small-scale producers.

## Broiler Production

Increasing investment and managerial experience is expected to help
Russian producers increase output by ten percent in 2004. This is
forecast to be the seventh straight year of increasing production.
According to the forecast, Russian production will have increased by 320
percent between 1997 and 2004. Russia has 450 egg and 150 broiler
complexes, which produce about 70 percent of all poultry meat, with an
average profitability of five percent. The remaining 30 percent of
production is on small and family farms.

The poultry quota applied in May 2003 is expected to support the
existing trend of increasing profitability by raising overall prices in
2003 and 2004. Though poultry production remains the most profitable and
attractive meat sector, many producers still face problems. Poultry
farms must still recover from bad debts from the late 1990's and are
under increasing pressure to expand their contribution to local social
institutions and infrastructure. Successful farms are now trying to
build vertically integrated structures in order to gain a consistent and
reliable source of inputs. For most, this first entails the acquisition
of a feed mill or some level of grain production. The largest farms now
comprise the entire production cycle: feed, breeding, hatcheries,
broiler production, slaughter, and retail sales.

Several large Russian agricultural corporations are continuing to buy
idle or inefficient farms in order to create nation-wide production.
Several of these companies now hold more than 10 separate broiler
producers and processors in different regions of the country. These
investment companies, often formed by oil companies, have significant
resources that can finance the reconstruction and re-equipment of
existing facilities. Refitting existing facilities is much cheaper than
constructing new facilities at this time. Many of these companies have
been investing millions of dollars in renovated housing facilities and
processing lines. In fact, this is creating two tiers of producers. The
first tier is state-of-the-art in terms of processing and feeding
technology. The other group is still using the same equipment and
methods as in the Soviet period. While most in the second group would
like to be folded into more modern corporate structures at some point,
most of the poultry producers still remain in a state of near
bankruptcy.

## Turkey Production

Turkey production is forecast to remain stagnant in 2004. While demand
remains strong for turkey and prices will rise due to the poultry quota,
Russian turkey production is not expected to increase due to the lack of
expertise and specialized production facilities.

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

  **Country**        **Russian                                                  
                     Federation**                                               

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

                     2002           Revised    2003       Estimate   2004       Forecast

                     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
  Begin**                                                                       

  Inventory          0              0          0          0          0          0
  (Reference)                                                                   

  Slaughter          0              0          0          0          0          0
  (Reference)                                                                   

  Beginning Stocks   120            120        130        130        80         80

  Production         500            500        600        580        0          640

  Whole, Imports     150            150        65         75         0          50

  Parts, Imports     1058           1058       1060       925        0          825

  Intra EC Imports   0              0          0          0          0          0

  Other Imports      0              0          0          0          0          0

  TOTAL Imports      1208           1208       1125       1000       0          875

  TOTAL SUPPLY       1828           1828       1855       1710       80         1595

  Whole, Exports     1              1          0          0          0          0

  Parts, Exports     0              0          1          1          0          1

  Intra EC Exports   0              0          0          0          0          0

  Other Exports      0              0          0          0          0          0

  TOTAL Exports      1              1          1          1          0          1

  Human Consumption  1675           1675       1755       1610       0          1565

  Other Use, Losses  22             22         19         19         0          0

  Total Dom.         1697           1697       1774       1629       0          1565
  Consumption                                                                   

  TOTAL Use          1698           1698       1775       1630       0          1566

  Ending Stocks      130            130        80         80         0          29

  TOTAL DISTRIBUTION 1828           1828       1855       1710       0          1595
  ------------------ -------------- ---------- ---------- ---------- ---------- ----------

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

  **Country**        **Russian                                                  
                     Federation**                                               

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

                     2002           Revised    2003       Estimate   2004       Forecast

                     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
  Begin**                                                                       

  Inventory          0              0          0          0          0          0
  (Reference)                                                                   

  Slaughter          0              0          0          0          0          0
  (Reference)                                                                   

  Beginning Stocks   0              0          0          0          0          0

  Production         9              9          11         12         0          12

  Whole, Imports     5              5          5          3          0          5

  Parts, Imports     155            155        70         70         0          55

  Intra EC Imports   0              0          0          0          0          0

  Other Imports      0              0          0          0          0          0

  TOTAL Imports      160            160        75         73         0          60

  TOTAL SUPPLY       169            169        86         85         0          72

  Whole, Exports     0              0          0          0          0          0

  Parts, Exports     0              0          0          0          0          0

  Intra EC Exports   0              0          0          0          0          0

  Other Exports      0              0          0          0          0          0

  TOTAL Exports      0              0          0          0          0          0

  Human Consumption  168            168        85         84         0          71

  Other Use, Losses  1              1          1          1          0          1

  Total Dom.         169            169        86         85         0          72
  Consumption                                                                   

  TOTAL Use          169            169        86         85         0          72

  Ending Stocks      0              0          0          0          0          0

  TOTAL DISTRIBUTION 169            169        86         85         0          72
  ------------------ -------------- ---------- ---------- ---------- ---------- ----------

## Feed Supplies

There will be no abundant supply of cheap grain in 2003 as was the case
in 2001 and 2002. According to the first reports from the harvested
regions, grain output will be significantly lower than in 2002. Lower
grain stocks because of high grain exports in the 2002-2003 campaign
will exaggerate the situation with poultry feed supplies in late 2003
and early 2004. The short feed supply will raise prices and the less
developed poultry farms with low conversion rate will suffer. The
producers that have new, efficient Western feeding systems will be able
to weather the higher feed prices better than the older facilities. Feed
prices are the main component of the final price of the poultry meat and
there is often a 50 percent difference in feed efficiency between the
new and old farms. Additionally, wheat makes up greater than 50 percent
of the Russian poultry feed ration, thus the local prices for the
reduced Russian grain crop will have a large impact on profitability in
the coming year.

Some regions are already taking measures to ensure sufficient grain
supplies for poultry facilities. For example, farmers in some of the
southern regions of the Russian Federation are being recommended by the
regional government to pay land taxes with grain. This grain collection
would then go into an emergency poultry feed fund.

## Table 1: Feed Stocks Of Agricultural Organizations on July 1, 2003

  ----------------- ----------------- ----------------- -----------------
                    2002              2003              2003 as % of 2002

  Planted and       3.3               2.3               67.9
  natural grasses,                                      
  mln hectares                                          

  Hay               1.9               1.1               61.0

  Non-Dried Fodder  3.3               2.3               69.2

  Silage            1.2               1.0               83.9

  Prepared Feeds                                        

  Total, mln tons   2.1               1.4               67.6
  feed units                                            

  Per single        0.16              0.11              68.2
  standard animal,                                      
  tons of feed                                          
  units                                                 
  ----------------- ----------------- ----------------- -----------------

Source: Russian State Statistic Committee

# Consumption

The poultry quota is forecast to decrease consumption of broiler meat by
three percent in 2004. Additionally, the consumption estimate for 2003
was decreased by eight percent from the previous forecast because of
lower than expected imports during the period prior to the quota. Though
domestic production has continued its strong growth, it cannot replace
the import volumes in one year. Moreover, industry contacts feel that
there will be significant excess demand that will also not be satisfied
by domestic production. Russian incomes are growing at a steady pace and
the demand otherwise associated with that cannot be fulfilled by
domestic producers at the current time.

# Trade

Russia's broiler imports are forecast to fall for the third straight
year in 2004, to 875,000 MT, or 11 percent less than 2003. Russian
broiler imports in 2003 were very unpredictable in the first part of the
year and are estimated to decrease by 12 percent from the previous
estimate. Combination of problems created by the poultry import quota
and veterinary issues of numerous countries made poultry imports uneven
over the year.

At this time, the quota will restrain Russian imports of poultry in 2004
for the entire year at the level of 1.05 MMT. This is a quota with a
strict volume limitation and no over-quota imports are allowed. (Note:
Post forecasts for combined broiler and turkey imports equal 935,000 MT
in 2004. Mechanically deboned meat (MDM) is part of the quota but not
included in the either the broiler or turkey PSDs due to the nature of
its composition. Thus, part of total Russian poultry imports is not
reflected in Post forecasts.)

According to the GOR Resolution N. 48, which established the poultry
quota volumes, the import quota for poultry meat was fixed at the level
of 744,000 tons for May-December 2003. This includes 553,500 tons from
United States, 139,900 tons from the European Union, 33,300 tons from
Brazil, and 3,100 tons from China. The remaining 14,200 MT are allocated
competitively among any other supplier to the Russian market. The quota
is divided between MDM and other poultry, namely chicken leg quarters
and whole birds and turkey meat. In 2003, importers were required to
import a 75/25 ratio of poultry meat to MDM.

According to Russian statistics, from January - April 2003 approximately
520,000 MT of poultry products were shipped to the Russian Federation
before introduction of poultry imports quota. The May -- December 2003
poultry import structure is expected to change due to the restrictions
of the quota. Namely, the share of poultry leg quarters will increase
and the share of whole birds will decrease. This will occur because the
United States was allocated 75 percent of the quota, while Brazil was
allocated about five percent. The change in trade is expected to occur
because the United States is traditionally the supplier of chicken leg
quarters to Russia, while Brazil supplied primarily the whole bird
market. This specific export structure is mainly due to the domestic
markets of each of these two supplying countries.

## Table 2: Russian Poultry Imports, 2000-2003, MT

  ------------ ------------------------- ------- ---------- ---------- ---------- ---------- ---------- --------- --------- --------- ---------
  **HSC**      **Product**                       **2000**   **2001**   **2002**   2003                                                

                                                                                  **Jan.**   **Feb.**   **Mar**   **Apr**   **May**   **YTD**

  **0207**     **POULTRY MEAT & OFFAL**          687 898    1 374 756  1 375 039  80 206     81 515     138 391   219 300   16 607    536 019

  ** **                                                                                                                                

  **020714**   **CHCK CUT+ED OFL,FRZ**           558 539    1 147 949  1 056 599  61 448     67 631     116 166   177 965   10 615    433 825

  **020712**   **CHICKEN,WHOLE,FROZN**           21 255     62 636     147 032    7 651      6 567      7 831     18 775    4 799     45 622

  **020727**   **TRKY CUT+ED OFL,FRZ**           104 698    160 854    163 730    10 698     7 062      13 998    22 011    1 089     54 857

  ** **        **OTHER**                 ** **   3 407      3 318      7 677      319        208        323       242       67        1 160
  ------------ ------------------------- ------- ---------- ---------- ---------- ---------- ---------- --------- --------- --------- ---------

Source: World Trade Atlas

## Table 3: Market Share of Main Poultry Meat Exporters to Russia, 2000-2003, (% of volume, Excluding MDM)

  ---------- --------------------- -- ------- ------- ------- ------- ------- ------- ------- ------- -------
  **020714                            2000    2001    2002    2003                                    
  (LQS &                                                                                              
  parts,                                                                                              
  excl.                                                                                               
  MDM)**                                                                                              

  ** **      **Mkt. Share (% of                               Jan.    Feb.    Mar     Apr     May     YTD
             Qty.)**                                                                                  

  **1**      United States            94.4%   95.1%   80.2%   51.3%   82.9%   76.7%   75.2%   64.4%   73.2%

  **2**      Brazil                   0.0%    2.9%    15.7%   45.8%   13.6%   21.4%   22.8%   18.6%   24.1%

  **3**      Poland                   0.1%    0.0%    0.1%    0.1%    0.3%    0.1%    0.2%    8.8%    0.4%

  **4**      Germany                  0.9%    0.7%    1.1%    0.9%    0.8%    0.3%    0.6%    4.3%    0.7%

  **5**      Belgium                  0.4%    0.4%    0.6%    0.5%    0.8%    0.4%    0.3%    2.6%    0.5%
  ---------- --------------------- -- ------- ------- ------- ------- ------- ------- ------- ------- -------

Source: World Trade Atlas

## Table 4: Market Share of Main MDM Exporters to Russia, 2000-2003 (% of volume)

<table style="width:100%;">
<colgroup>
<col style="width: 2%" />
<col style="width: 16%" />
<col style="width: 11%" />
<col style="width: 7%" />
<col style="width: 8%" />
<col style="width: 9%" />
<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="2"><strong>02071410</strong></td>
<td><strong>MDM</strong></td>
<td>2000</td>
<td>2001</td>
<td>2002</td>
<td>Jan.</td>
<td>Feb.</td>
<td>Mar</td>
<td>Apr</td>
<td>May</td>
<td><p>YTD</p>
<p>2003</p></td>
</tr>
<tr class="even">
<td><strong> </strong></td>
<td colspan="2"><strong>Mkt. Share (% of Qty.)</strong></td>
<td></td>
<td></td>
<td></td>
<td> </td>
<td></td>
<td></td>
<td></td>
<td></td>
<td> </td>
</tr>
<tr class="odd">
<td><strong>1</strong></td>
<td>Belgium</td>
<td></td>
<td>5.2%</td>
<td>8.9%</td>
<td>12.9%</td>
<td>5.6%</td>
<td>5.0%</td>
<td>12.6%</td>
<td>3.1%</td>
<td>25.0%</td>
<td>6.8%</td>
</tr>
<tr class="even">
<td><strong>2</strong></td>
<td>China</td>
<td></td>
<td>0.6%</td>
<td>5.3%</td>
<td>15.8%</td>
<td>38.8%</td>
<td>24.4%</td>
<td>21.5%</td>
<td>34.2%</td>
<td>16.7%</td>
<td>29.4%</td>
</tr>
<tr class="odd">
<td><strong>3</strong></td>
<td>Spain</td>
<td></td>
<td>0.5%</td>
<td>0.7%</td>
<td>0.9%</td>
<td>0.2%</td>
<td>2.3%</td>
<td>0.4%</td>
<td>1.3%</td>
<td>13.4%</td>
<td>1.3%</td>
</tr>
<tr class="even">
<td><strong>4</strong></td>
<td colspan="2">United Kingdom</td>
<td>16.3%</td>
<td>2.7%</td>
<td>16.4%</td>
<td>12.2%</td>
<td>19.7%</td>
<td>16.5%</td>
<td>15.3%</td>
<td>7.1%</td>
<td>15.8%</td>
</tr>
<tr class="odd">
<td><strong>5</strong></td>
<td colspan="2">United States</td>
<td>35.1%</td>
<td>42.1%</td>
<td>5.4%</td>
<td>0.2%</td>
<td>0.0%</td>
<td>1.5%</td>
<td>4.4%</td>
<td>7.0%</td>
<td>2.1%</td>
</tr>
</tbody>
</table>

Source: World Trade Atlas

## 

## 

## Table 5: Market Share of Main Whole Chicken Exporters to Russia, 2000-2003 (% of volume)

<table style="width:100%;">
<colgroup>
<col style="width: 6%" />
<col style="width: 32%" />
<col style="width: 1%" />
<col style="width: 6%" />
<col style="width: 6%" />
<col style="width: 6%" />
<col style="width: 6%" />
<col style="width: 6%" />
<col style="width: 6%" />
<col style="width: 6%" />
<col style="width: 6%" />
<col style="width: 6%" />
</colgroup>
<tbody>
<tr class="odd">
<td colspan="2"><p><strong>HSC</strong></p>
<p><strong>020712 CHICKEN,WHOLE,FROZN</strong></p>
<p><strong>Mkt. Share (% of Qty.)</strong></p></td>
<td></td>
<td>2000</td>
<td>2001</td>
<td>2002</td>
<td>Jan.</td>
<td>Feb.</td>
<td>Mar</td>
<td>Apr</td>
<td>May</td>
<td><p>YTD</p>
<p>2003</p></td>
</tr>
<tr class="even">
<td><strong>1</strong></td>
<td>Brazil</td>
<td></td>
<td>58.0%</td>
<td>84.5%</td>
<td>89.9%</td>
<td>88.3%</td>
<td>84.2%</td>
<td>89.1%</td>
<td>96.2%</td>
<td>98.3%</td>
<td>92.2%</td>
</tr>
<tr class="odd">
<td><strong>2</strong></td>
<td>Sweden</td>
<td></td>
<td>0.0%</td>
<td>0.0%</td>
<td>0.0%</td>
<td>0.5%</td>
<td>0.0%</td>
<td>0.8%</td>
<td>0.5%</td>
<td>0.8%</td>
<td>0.5%</td>
</tr>
<tr class="even">
<td><strong>3</strong></td>
<td>China</td>
<td></td>
<td>0.0%</td>
<td>0.8%</td>
<td>0.7%</td>
<td>1.9%</td>
<td>0.7%</td>
<td>2.6%</td>
<td>2.0%</td>
<td>0.5%</td>
<td>1.7%</td>
</tr>
<tr class="odd">
<td><strong>4</strong></td>
<td>Finland</td>
<td></td>
<td>0.0%</td>
<td>0.2%</td>
<td>0.1%</td>
<td>0.3%</td>
<td>0.6%</td>
<td>1.0%</td>
<td>0.0%</td>
<td>0.4%</td>
<td>0.4%</td>
</tr>
<tr class="even">
<td><strong>5</strong></td>
<td colspan="2">Czech Republic</td>
<td>0.0%</td>
<td>0.0%</td>
<td>0.0%</td>
<td>0.0%</td>
<td>0.0%</td>
<td>0.0%</td>
<td>0.0%</td>
<td>0.0%</td>
<td>0.0%</td>
</tr>
</tbody>
</table>

Source: World Trade Atlas

# Prices

Though actual shortages of poultry products have not become apparent as
of the middle August, market prices have risen on the prospect of
limited imports during the fall and winter of 2003. Tables 6 and 7 show
the dramatic changes in prices in 2003. All prices declined in the
period of large imports prior to the quota and then started to grow
again in June and July. A simple price comparison shows that beginning
in July, all chicken products are growing in price.

## Table 6: Retail Poultry Meat Prices in January -- July 2003, Russian Federation 

  ----------- ------------ -------------- -------------- -------------- -------------- -------------- --------------
  **Date**    **Rate of    **Domestic     **Domestic     **Domestic     **Foreign      **Foreign      **Foreign
              exchange     chicken frozen chicken frozen chicken frozen chicken frozen chicken frozen chicken frozen
              ruble/\$**   carcass prices breast         legs prices    carcass prices breast         legs prices
                           (ruble/kg)**   boneless       (ruble/kg)**   (ruble/kg)**   boneless       (ruble/kg)**
                                          prices                                       prices         
                                          (ruble/kg)**                                 (ruble/kg)**   

  1/30/2003   31.8000      42.81          58.28          47.05          38.55          55.47          34.69

  2/28/2003   31.5762      42.32          56.28          41.16          40.81          54.89          35.04

  3/30/2003   31.3805      41.68          55.17          42.27          42.15          54.15          34.92

  4/30/2003   31.1000      41.77          55.67          44.50          41.90          56.38          34.42

  5/30/2003   30.6691      43.93          57.62          45.00          43.76          62.17          39.55

  6/30/2003   30.3483      49.07          59.32          49.50          48.27          73.08          39.77

  7/30/2003   30.2450      53.55          78.00          50.83          55.78          81.69          41.76
  ----------- ------------ -------------- -------------- -------------- -------------- -------------- --------------

Source: Russian Institute for Agricultural Marketing (IKAR)

## Table 7: Wholesale Prices on Domestic Poultry Products, in June -- July 2003, Moscow 

  --------------- ----------------- -------------- -------------- --------------
  **Date**        **Rate of         **Domestic     **Domestic     **Domestic
                  exchange          chicken frozen chicken frozen chicken frozen
                  ruble/\$**        carcass prices breast         legs prices
                                    (ruble/kg)**   boneless       (ruble/kg)**
                                                   prices         
                                                   (ruble/kg)**   

  6/20/2003       30.38             47.32          57.93          46.65

  6/30/2003       30.35             49.07          59.32          49.50

  7/10/2003       30.42             50.71          65.97          47.25

  7/20/2003       30.43             51.31          77.67          48.00

  7/30/2003       30.25             53.55          78.00          50.83

                                                                   

  **Alteration in **-0.61**         **4.37**       **0.42**       **5.90**
  price (%)**                                                     
  --------------- ----------------- -------------- -------------- --------------

Source: Russian Institute for Agricultural Marketing (IKAR)

# Stocks

###### 

###### Poultry stocks will decrease at the end of 2003 and continue decreasing in 2004 due to the poultry quota. 

# Policy

### 

In accordance with the GOR Resolution No. 48 "On Protection of the
Russian Poultry Breeding," poultry import quotas were introduced. The
quota is effective from May -- December 2003 (744,000 MT), 2004 and 2005
(1.05 MMT per year), and January -- April 2006 (306,000 MT). Only the
tariff code 0207 is included in the quota. The quota is the result of a
safeguard investigation undertaken at the request of the Russian poultry
producers. According to Russian Ministry of Agricultural officials, the
poultry quota was aimed at guaranteeing that poultry production in
Russia is profitable and making investment in the poultry industry
attractive.

## Country Quota Allocation 

The import quota was distributed between importing countries in
accordance with the historical trade during the period 1999-2001, as
calculated by the Russian Custom committee. According to this reference
period, the United States was allotted the largest share (74 percent),
followed by the European Union (19 percent), Brazil (four percent), and
China (less than one percent). A small "Other Country" allocation was
also competitively available to any other country that did not receive a
quota allocation, but still wanted to export to Russia. The allocations
are a maximum allocation to each country and the shares are
non-transferable. In the event of a disease outbreak or other reason a
country could not fulfill its allocation, the share would be
re-allocated among the other countries.

## "Historical Importers"

The poultry quota is being distributed through a licensing system that
allows only historical importers to participate. Importers that were
active during 2000-2002 form this group and each company's relative
share of imports during that reference period determines its share of
the quota. For example, if Company X imported two percent of Russian
poultry imports from 2000-2002, the company will receive two percent of
the TRQ licenses. Each company in the historical importer category was
registered prior to the start of the quota and had to indicate that they
were a legal entity and wanted to participate. After that was
established and the company was registered by the Russian Government as
a participant, the company was required to show a valid sales contract
in order to import a volume that corresponded to the license.

As noted above, each company's import license was also restricted by
country of origin of the product. Therefore, a company had a license
that indicated specific volumes for each of the supplier countries.

The final issuance of poultry import quota licenses to companies was
originally scheduled for April 29, then it was postponed until July 1
and finally July 29, 2003. The extension of the date of issuance was due
to lingering problems with certification of U.S. poultry facilities and
confusion about the system. After the closing of the July date,
approximately 80 percent of the poultry licenses had been distributed.

## Mechanically Deboned Meat (MDM) "Breakout"

###### Each country's quota was also delimited by an MDM "breakout." This means that a minimum of 25 percent of each country's total exports were required to be MDM. Thus, the trade was split between 75 percent chicken leg quarters, breast meat, whole birds, or other parts and 25 percent MDM. 

###### 

###### This means that each importer has a license that specifies the total volume available, the specific percentage that comes from each country, and the specific volume of MDM and non-MDM from each country.

## Re-distribution and Future of the Poultry Quota

## 

As it is mentioned in the historical importer section, 20 percent of the
poultry quota remains unclaimed as of August. The Ministry of Economic
Development and Trade (MEDT), the Ministry charged with managing and
overseeing the quota, plans to re-distribute this volume in the third
quarter of 2003. Several changes have been suggested and only two
publicly acknowledged by MEDT, though not adopted officially. MEDT
states that it intends to re-calculate the MDM share of each country
based on MDM's actual share of trade for that country during the
reference period. This would decrease the MDM share for certain
counties, including the United States. Secondly, MEDT has stated that it
will revise the historical importer list to include companies that
imported in the first quarter of 2003. Though this would change the
company shares, it should not change the country allocation or the
volume of the quota. (Note: Only these two policy changes were
incorporated into Post forecasts for 2003 and 2004.)

Various producer, importer, and consumer groups have asked for other
changes to the quota. Namely, they have requested changes to the
historical importer principle, country allocation, and MDM breakout. At
this time it is unclear whether additional changes will be made.
Depending on the change considered, Russian import structure could
change in terms of exporter market share and product mix.

## 

## Other Issues

Subsidies

At the same time as the quotas are limiting market access, the poultry
producer lobby insists that the Russian poultry industry needs
substantial support from the State, as interest rates are high and
prices on inputs are growing. At this point, federal direct support
looks unlikely. There are currently many different programs that assist
with obtaining credit or reducing credit risk. Direct subsidies still
appear to be too expensive for the Russian budget.

Veterinary Issues

Throughout the first half of 2003, doubt hung over the continued ability
of the United States to export poultry to Russia due to veterinary
issues. The remaining differences over the criteria that Russian
veterinarians would use to conduct inspections of U.S. plants was
finally ironed out in April. In May, ten teams of Russian veterinarians
visited the United States to conduct reviews of processing plants and
cold storage facilities that wanted to participate in the export trade
to Russia. The new list of inspected plants approved by the Russian
Federation went into effect on August 1, with additional plants approved
by FSIS re-inspection in late July and early August.

Recently, the Russian Federation and EU agreed to use EU-wide veterinary
certificate for exports of meat to replace the bilateral agreements with
each EU country. Russia has announced it is tightening rules for imports
of poultry and poultry products from the European Union after the
European Commission lifted veterinary restrictions on imports of poultry
meat from Belgium and the Netherlands that were imposed due to an
outbreak of avian influenza (AI) in these countries. The veterinary
restrictions were lifted because AI in these countries has been
eliminated. In case of detecting sick poultry in one of the European
countries, the Russian Veterinary Service has stated that it will close
off not only this country, but all those bordering it. Before lifting
the ban, Russia will send veterinary specialists to these countries and
inspect the area. From the Russian point of view, this allows greater
flexibility in ensuring that disease outbreaks are not spread via trade
to Russia***.***

# Marketing -- Retailing Trends

Open-air markets are still estimated to sell over 90 percent of all
poultry in Russia. A large enclosed building or an open area with many
small stalls that sell different types of fresh food typifies these
markets. Poultry is usually sold from small freezer/refrigerator cases.
The product is usually thawed only sufficiently to break apart the
chicken from the 20 kg trade package. Very rarely is imported poultry in
consumer packaging or branded. Sellers often post the origin of the
product along with the price, though this information is not always
correct. Most consumers are price conscious, especially with poultry
because it makes up one of the biggest sources of protein for most
low-income families.

While open-air markets still account for the bulk of domestic and
imported poultry sales, significant changes are occurring in Russia's
larger cities. These changes are generally in product differentiation
and sales outlet. Both of these changes are occurring due to the
increasing incomes of most strata of Russia's population. This applies
to the emerging middle classes and also to people who work in the public
sector and retirees due to increasing industrial production and
increasing government salaries and pensions.

Product differentiation is coming about as consumers exhibit their
natural preference for chilled poultry products. Consumers have
expressed a preference for the chilled product's texture and freshness.
People also often have a more positive attitude toward chilled product
because of past experiences with mishandled or improperly stored frozen
meat sold in the open-air markets. As chilled product in Russia is sold
within one or two days of slaughter, this product is fresh and is less
likely to be mishandled over that short period. Moreover, as sellers
receive a premium, they tend to handle it better and more carefully than
frozen poultry. Lastly, chilled poultry is often sold in the producer's
own stall at open air markets or in supermarkets that regulate food
handling better and more consistently. Naturally, these reasons
translate into demand for local production.

This differentiation then translates into the specific products that are
purchased. Whole chickens are often preferred in Russia if price is not
the main object. Additionally, unlike many Western countries there is
not a large price differentiation between white and dark meat so a whole
bird is very versatile. In Russia, boneless breast meat is less than 50
percent more expensive than dark meat, where in the United States the
difference can be over five times greater. On the other hand, frozen
chicken leg quarters are the item of choice if price is the main object,
due to its low price in comparison to chilled product and other frozen
cuts. Thus, as people move up the economic scale or can more often have
a special dinner where they may spend more than normal, consumers would
choose chilled whole birds.

The differentiation is so great between chilled and frozen poultry, that
in many areas they are only indirect competitors. For example, if a
person has enough money they would almost always buy chilled poultry.
Frozen poultry is only a competitor with chilled product when chilled
product is in very short supply (very high price) or the consumer is
unsure if they can spend the extra money to get the chilled poultry
product. Direct competition between imported frozen product and domestic
poultry comes when the domestic poultry is frozen in order to increase
storage life. At this point, though most consumers often prefer
domestic/local poultry over imported poultry, the premium consumers will
spend reduces significantly.

Changes in retailing are starting to have an important impact on Russian
purchasing decisions in urban areas, which are also changing the
direction of poultry sales. In the past several years, domestic and
foreign retail chains have been establishing themselves in Moscow and
St. Petersburg. These supermarket and hypermarket formats account for an
increasing share of food sales in these cities, as much as 25 percent of
total sales by some accounts. Generally, the people that go to these
markets are middle to upper-middle class shoppers who value convenience,
selection, and moderate prices.

Tellingly, the poultry in these stores is almost exclusively
fresh/chilled domestic production. In a representative store,
approximately 30 meters of shelf space was devoted to poultry products.
Of this space, 25 meters were devoted to fresh poultry and five meters
to frozen poultry. Of the fresh poultry, approximately three-fours of
this space was whole birds or various cuts. The remaining portion was to
highly processed poultry products (such as chicken nuggets) or
semi-processed poultry products (such as chilled poultry in a marinate
or with spices). The five meters of shelf space for frozen poultry was
devoted to whole birds, game birds, and exotic meats. One small area of
prepared food was also reserved for slow roasted chicken. In terms of
supply, the fresh/chilled product was all local production (within 150
km) and only some of the whole, frozen chicken and frozen turkey was
imported. Lastly, it is important to note that all the chilled poultry
was sold under the producers' own label.

While this retailing trend is generally confined to only the largest
cities due to the lack of distribution infrastructure and high incomes
in the large urban areas, the growth of larger retailers is inevitable
and has serious implications. First, these retailers have the
infrastructure to sell chilled poultry, where open-air markets generally
do not. Secondly, these retailers are aware of the demand for chilled
poultry and can sell chilled product for a premium. Third, these stores
introduce a real and perceived jump in the food safety and food
handling, which enhances the brand appeal of the local producers that
supply the poultry. Lastly, by providing long-term contracts and
relationships to producers, these stores increase the financial
viability and investment potential of local producers.

This trend creates an even more distinct divide between frozen and fresh
poultry and the type of retail outlet. Fresh poultry obviously gains
from the development of retail chain in terms of a market free of
competition from imported frozen poultry, a consistent demand, and a
location that allows for the very positive development of brands.

On the other hand, this also poses challenges to importers of frozen
poultry. The traditional model is the importation of a bulk packed,
unbranded product that sells as a commodity to a series of middlemen.
After coming through numerous middlemen, the product ends up in the
open-air markets. Occasionally, problems occur in storage or handling
which can degrade the quality due to negligence by the various
middlemen. As with most commodities, it is purchased based on price and
secondly by a vague perception of quality based on the point of origin.

While this comparison implies trouble for imported poultry, it is in the
medium-run perspective that the commodity approach of importers becomes
problematic. This is mainly due to the consistent, yet slow increase of
incomes in the regions outside the handful of major cities. However,
without a change to this approach, the negative image of imported frozen
poultry only sold to very low income consumers at open-air markets will
remain and become reinforced, as more consumers are able to opt for the
supermarket.

Most exporters have not yet reached the decision point in terms of
economics. Namely, for the near future most exporters will still be able
to find a market for trade packed, bulk poultry products. However, some
exporters have changed their approach. For example, the Brazilian
company Sadia markets poultry of different cuts in consumer packaging
and under its own brand. Certain companies also use bulk packaging of
leg quarters, but arrange the cuts in a linear format so that they gain
a better and more orderly appearance when sold. Regardless of the
approach taken, the extra labor or packaging increases production costs.
While many Russian consumers remain price driven, a large shift in the
marketing policies of exporters will not change. However, in the long
term, both domestic producers and exporters will respond to the changing
dynamics of the Russian poultry market.

###