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How to lose the poultry market?

How to lose the poultry market?

03.03.2011 — Analysis

Since 2011, Russia has reduced her import quotas on poultry by almost half, down to 350,000 tons. This country used to buy 1.5 million tons of chicken every year from the US.

Then quotas were put in place in 2003, to support domestic chicken producers. Russian chicken production has doubled in the last five years, and now local suppliers can meet 85% of public demand, estimated to be 3.5 million tons a year. Poultry farms have been helped by rising inflation, which has forced consumers to forgo pork and beef in favor of the more economical chicken. Poultry production is predicted to increase 60% by 2013. It would seem that this would be ideal time to "spread one's wings," but as this correspondent for "RusBusinessNews" has determined, not everyone is ready to play their economic trump cards. 

Enough to make a chicken laugh

The Sverdlovsk region used to be the crown jewel of poultry farming in the Urals, but it is rapidly losing ground. The Reftinskaya poultry farm was one of the top three Russian chicken producers between 2000-2002, but in 2006-2008 it moved down to 14th place.

This showing is all the more dismal if one takes into account the many millions of rubles of public money that have gone into the regional poultry industry. Hundreds of millions of rubles were invested on paper, but in reality, their technology and equipment is from the last century. The production facilities at four regional poultry farms, the Pervouralskaya, the Sredneuralskaya, the Sverdlovskskaya, and the Reftinskaya, are between 25 to 70 years old. The Sverdlovskaya has the most worn-out equipment - 88% of it.

One gets the sense that the poultry industry in the Central Urals is not living, so much as getting ready to die. But in recent years, there has been the appearance of feverish activity. In a move reminiscent of Soviet times, strong companies were harnessed to struggling ones. As a result, the leaders fell back to the middle of the pack and failed to save the weaker ones. In addition to this "ballast", these Siamese-twin companies "schemed" against the profitable players on the market. Government officials and senior managers used them to transfer state property into private hands for mere kopecks, and pulled off speculative deals with the products. In this manner, the Sredneuralskaya poultry farm has been thoroughly "plucked". The management of the Reftinskaya poultry farm also got entangled in some economically unprofitable deals for their business. 

How do they do it in Chelyabinsk? 

The team working for the new governor of the Sverdlovsk region, Aleksandr Misharin, is thinking about how to establish a toehold in the poultry market. They're planning to transform regional companies into joint-stock enterprises and bring in private capital. But the major players from other regions are not interested in this stagnating business.

For example, in recent years, poultry farms in the Chelyabinsk region have modernized their existing operations and outlined some new projects. This is good thinking - it's easier to start from scratch than to fix someone else's mistakes. Over the past five years, 15.7 billion rubles has been invested to build and modernize regional poultry farms. This money is a combination of equity and loans, and includes 1.9 billion rubles of federal and regional subsidies. Thanks to this, the Chelyabinsk region now has nine new sites for raising broiler chickens and young chicks, as well as a breeding farm.

The poultry industry in the South Urals has tripled its meat production and leads the entire Urals federal district. About a third of what they produce is exported outside the region - to anywhere from St. Petersburg to Novosibirsk, as well as throughout the Urals. According to predictions from the regional Ministry of Agriculture, poultry production will increase by 50% in the next five years - to 250,000 tons. Approximately another 15 billion rubles will be invested during this time. Agrokholding Uralbroiler, the Ravis-Sosnovskaya poultry farm, the Sitno company, and Chebarkulskaya Ptitsa are working on the biggest projects.

According to Evgeny Narukov, the general director of Agrokholding Uralbroiler, his company shipped more poultry to Ekaterinburg than it sold in the entire Chelyabinsk region. According to its production figures, the Argayashskaya poultry farm, which is part of the holding company, is the top producer in the Urals federal district and is the seventh largest in Russia. And the farm is planning to soon increase its capacity by almost 50% - to 80,000 tons of chicken per year. In addition, Agrokholding is planning to put a new poultry farm into operation by 2012, capable of producing 50,000 tons of meat per year.

The Ravis-Sosnovskaya poultry farm also has ambitious plans to install new technical equipment in order to double its chicken production in the next three years - from 50,000 to 100,000 tons. The business's primary operations are being programmed - from precisely measuring the birds' feed to processing their carcasses.

It is worth mentioning that products from poultry farms in the Chelyabinsk region are 25% cheaper than those of its competitors in the Sverdlovsk region. The use of technology "from the field to the grocery counter" helps lower the cost of production. This economic "autonomy" can help optimize production and reduce dependence on external factors. For example, poultry farms in the South Urals that grow their own feed are shielded from rising grain prices in years of drought. But poultry farms in the Sverdlovsk region produce only 10-15% of their own feed, and the quality of this feed leaves much to be desired. 

Squandering their ace 

In addition to their economic effect, these projects in the South Urals also have social repercussions. They will help create more than 7,000 new jobs, and the developed infrastructure will help economically depressed areas to begin growing again. But the reverse is happening in the Sverdlovsk region. Towns that were doing fairly well, living off the profitable poultry farms, are now in danger of falling off a cliff. The Kirovgradskaya poultry farm already has one foot in the grave, and if it shuts down, it will be the kiss of death for the whole village.

But instead of rescuing companies that whole towns have been built around, the Sverdlovsk region is discussing the problems of ... processing chicken manure. In fact, the food industry is throwing away its last ace - its poultry farms. The region can only grow 10% of its own grain and beef is mostly imported as well. In a nutshell, on the threshold of a global food-security crisis, the Sverdlovsk region finds itself in peril. 

Lyudmila Maslova

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