Russian red meat industry beefing up?

Russia has announced that its current import embargo has been extended until the end of 2018. Since the embargo, Russian beef and sheep meat imports have fallen considerably. The country also has a longer term objective to improve levels of self-sufficiency in agricultural products. With this in mind, we explore how Russian agriculture is shaping up in order to replace the lost food sources, as well as what this could mean for the global market.

At the end of June the Russian president signed a decree to extend Russia’s current import embargo until the end of 2018. Russia first placed an embargo on imported food products, including sheep meat and beef, from a number of origins including the EU and US in August 2014.

With the embargo being in place now for three years and set to remain for at least the next 16 months, Russia’s aim to become self-sufficient, has become a necessity. In 2010 Russia launched a program to move towards self-sufficiency in food production with the aim to become at least 80% self-sufficient in key products by 2020. The program has been updated as time has progressed and financial assistance has been offered to producers to boost output. Furthermore, currently elevated import prices are expected to be positive for domestic production.

Russian beef and veal imports

In the five years prior to the embargo in 2014, Russian beef imports averaged around 630,000 tonnes. However, since the restrictions, imports have fallen quite considerably. From 2014 to 2015 shipments fell by nearly a third, and in 2016 Russia imported 17% less beef year on year at 366 thousand tonnes. Although Russian beef imports for the first half of 2017 are relatively on par with year earlier levels at 163,000 tonnes, there were some shifts in import origin. Shipments from Uruguay, and carabeef shipments from India, both reported substantial increases year-on-year, albeit from a small base. Volumes were likely boosted by the increased price competitiveness of these two regions. This counteracted a 22% decline from Belarus, the second largest supplier, where unit prices were 4% higher year-on-year. Import prices have more expensive in general since the embargo was enforced, due to the weakness of the rouble.

Traditionally Russian beef came from dairy cull cows; most prime beef sold and consumed in the country was imported. However, once the sanctions and restrictions on importing foods were in place there was less beef available. Therefore, domestic supplies were in demand which encouraged Russian farmers to produce more beef. Aberdeen Angus bulls were imported from the US and to start with largely crossed with dairy cows and since then beef cows have been imported.

Russia has also increased milk production which as a by-product has also supported the increase in beef production. In May 2017, Russia’s Agricultural Minister, stated before 2020 Russia wishes to build 800 new dairy farms each designed to have a milking herd of 3,000 head. This would produce an extra 5 million tonnes of milk a year as well as additional beef. However, there has been some criticism about how these new farms will be funded amongst other factors. With this in mind, similar to sheep meat Russia could eventually have enough beef to satisfy domestic demand as well as growing an exportable surplus. Currently very little beef is exported from Russia with a total of 2,157 tonnes exported in 2016. However, in April 2017, Russia and Japan agreed a trade agreement allowing heat-treated beef from two Russian plants to be exported to Japan.

Russian sheep meat imports

In terms of sheep meat, between 2014 and 2015 Russian imports dropped by 61% to 3,793 tonnes and by a further 14% on the year in 2016. However, the fall in shipments wasn’t just driven by the embargo, as shipments from New Zealand and Australia, which are not restricted by any sanction, declined considerably as well. This could partly be due to New Zealand withdrawing from free trade discussions with Russia. In April 2017 plans were announced to build a 30 thousand head sheep farm in Kursk Oblast region on the western boarder of Russia with Europe. Should this one be successful there are plans for 10 more similar farms in the region, with a meat processing plant also planned. This development would drastically increase Russian production of sheep meat and would not only be capable of supplying the domestic market but would also lead to an exportable surplus.

Russian beef, veal and sheep meat production

So where might Russia’s surplus of beef and sheep meat go? It is likely that Russia will aim to trade any surplus with China; with China already the largest destination for other Russian agricultural products. However, this is very much dependant on a number of factors including price competitiveness and disease status. In a move towards giving Russian food a unique selling point, President Putin has stated he wishes to make Russia the World’s largest exporter of non-genetically modified organism (GMO) produce

Overall, if Russia increases beef and sheep meat production by the extent it wishes to it could weigh down the global markets for both. However, this is very much dependant on a number of factors. Firstly, the extent of Russia’s expansion will obviously influence supply and therefore its surplus for trade. Likewise, Russia will have to gain access to other markets, which will likely be dependent on its disease status as well as production systems. One thing that is less uncertain, is that any rise in domestic production will reduce the need for imports.

Rebecca Oborne