INTERVIEW: Russia’s Turkey Industry Aims to Be More Competitive
XX April 2014 — Turkey meat is not particularly popular in Russia today — per capita consumption stands at only 0.9 kg, compared with 3.3 kg in the E.U., or 8.0 kg in the U. S. Last year, local production amounted to a little more than 130 thousand tonnes, representing 4% of the local poultry meat production. There are, however, some indications that things could change. Investors and food companies see turkey meat as an increasingly dynamic and lucrative market segment. Future growth, they argue, will be driven by turkey meat’s outstanding nutritional properties, including high protein, B vitamins, zinc, and magnesium content.
Over the last decade, Russia’s turkey meat production increased by 170%. The Russian Agriculture Ministry expects the trend to continue, predicting that domestic production will rise by a significant 132% by 2020 (from 105,000 MT today). Several market players have announced plans to build new facilities, or expand their production capacity (according to the Russian Union of Poultry Producers, nine large turkey establishments are under construction in Russia). Cherkizovo, Russia’s largest agro-industrial group, and Spain’s Grupo Fuertes are currently building a RUB 7.5 billion turkey-production complex in the Tambov region. The plant, which will open later this year, is expected to reach full capacity of 30,000 tonnes per year by mid-2015.
Feedinfo News Service spoke with Yuri Markov, President of Russia’s National Turkey Association (NTA), about the industry’s future prospects and challenges.
[Feedinfo News Service] Mr. Markov, according to the U.S. government, Russian turkey meat consumption will increase by roughly 5% in 2014, from 130,000 tonnes last year. What can you tell us about the current consumption trends?
[Yuri Markov] There are several factors, which influence (and will influence) turkey meat consumption in Russia — the most important being price, quality and assortment. In many Russian regions, the turkey market is based on specific rules: it is not the demand that creates the supply, but vice versa.
The reason for this is the absence of turkey meat products (whether imported or local) in retail outlets. If high quality turkey meat was available at affordable prices, buyers would surely prefer turkey to chicken meat. In this respect, Russian consumers are not very different from European or American consumers.
The good news is that domestic turkey meat producers understand this and take it into account. A lot has been done to improve the taste properties of turkey products, and companies have developed a wide variety of products. The assortment is far superior, in my opinion, to the one offered by European producers. Generally speaking, one can say that we have already learnt how to sell turkey products, including in regions where they hadn’t been sold before.
[Feedinfo News Service] In 2013, the Russian broiler production industry was expected to grow at a slower pace compared to previous years, mainly due to difficulties in acquiring affordable feed grains. Do you agree with this analysis?
[Yuri Markov] Feed prices have been and will continue to be the most important factor influencing the meat industry. Stagnation has affected everyone, not only broilers producers. Just look at what is happening within the Russian pig breeding industry. The poultry and pig sectors are obviously interdependent. The pig industry is a huge consumer of grains; when farmers feel that, for some reason, the demand for their products is about to plunge, they tend to lower their grain production. And this often results in prices going up.
Other factors, such as crop failure, fuel and fertilizers price growth, lower subsidies for agricultural producers, higher tariffs or feed-milling costs — caused by the rocketing currency exchange rate, which influences the price of imported premixes — can also push the prices even higher.
Because of these factors, turkey meat producers have to find new ways to optimize their expenses. They can choose to revise their feeding programs and diets, or pay more attention to the issues of feed conversion and food digestibility. As strange as it may seem, it is easier for small producers to address this challenge; until a few years ago, small turkey firms could not purchase finished feed, because of high prices and/or because large feed mills were reluctant to sell small quantities to them. As a result, almost all small turkey producers have their own compound mills.
Nutritionists working with the NTA have helped farmers adapt feeding rations to their specific needs. The cost price of compound feed produced by small farmers is 40% lower than the feed cost of larger enterprises. Some large enterprises have already showed interest in this matter, and are now working on implementing the «farmers’ feeding model». In my opinion, this will greatly help them keep production costs stable.
[Feedinfo News Service] In 2012, six companies — ZAO Prioskoliye, OAO Cherkizovo group, GAP Resurs, Severnaya, OAO Belgrankorm, and OOO Prodo-Trade — produced more than 50% of Russia’s domestic broiler meat. What is your view of the competition within the Russian turkey market?
[Yuri Markov] In my opinion, «competition within the market» implies that the customer can choose from a wide range of turkey meat products, provided by several companies. This is true when we talk about broiler meat, but when it comes to turkey, things are quite different.
In Russia, turkey meat products are hard to find, not only in the Eastern part of the country, but also in the Western regions of central Russia. The major battlefields for turkey producers, however, are located in the megacities, where consumers are ready to pay higher prices for premium products.
Things are different outside of the big cities, where household disposable income is much lower. Therefore, in my opinion, competition should be developed in the regions. This might happen soon, as production continues to grow, and urban markets become saturated.
[Feedinfo News Service] What are your thoughts on the industry’s competitiveness compared to pork?
[Yuri Markov] Even if turkey meat consumption trails behind chicken and pork meat consumption, things can change rapidly.
In order for turkey meat products to be competitive, producers must find a way to lower cost prices and maintain high quality standards at the same time. If production is managed competently, and if companies manage to gain their customers’ loyalty, etc., turkey meat production volumes will continue to grow.
Russia is a multi-confessional country, with large Muslim and Jewish populations. Providing Halal and Kosher meals to these religious communities is very important, and turkey meat can benefit from that demand.
Of course, it is not easy to convince customers to buy chilled turkey fillet instead of a kilo of pork sausages (which are very popular in Russia), but food consumption trends in the country are changing. Most customers are willing to buy delicious and affordable products, especially on special occasions, which are numerous in Russia. At the same time, turkey meat is best placed to benefit from consumers’ growing interest in «healthy food».
[Feedinfo News Service] In 2012, a survey carried out by the State Veterinary Service of the Russian Federation found that 45% of the meat production companies surveyed did not meet EU standards. What steps have been taken to improve that situation?
[Yuri Markov] The fact that Russian products did not meet EU standards does not mean that the companies producing them did not meet any quality standard at all. A few decades ago, USSR products did not meet the standards of the Western community either, but the quality of our products was similar and in some cases even exceeded that of foreign products. In my opinion, the Russian Federation’s product quality standards are one of the most efficient in the world.
As far as existing turkey companies are concerned, due to the close business cooperation between Russia and the European Union as well as the United States, most of them have already implemented these rules, which allow them to produce safe and high quality products.
[Feedinfo News Service] Is the Russian turkey industry affected in any way by the current situation in Ukraine?
[Yuri Markov] No, it isn’t. Our relations with Ukraine’s producers has always been, and will remain, very close. I am sure that our countries will continue to organize exhibitions, conferences and seminars together. If Ukraine enters the Eurasian Economic Community customs union, Ukrainian turkey producers will be able to sell their products not only at home but also in the Western regions of Russia, such as Smolensk, Bryansk, Belgorod and other regions faced with a shortage of turkey products. I am sure that this will contribute to the development of the Ukrainian turkey industry, and at the same time encourage Russian investors to enter new business opportunities.
[Feedinfo News Service] Russia has recently lifted its ban on imports of turkey from the U. S. What impact do you expect the move to have on your country’s producers?
[Yuri Markov] The move, which affects the frozen meat sector, is a direct reaction to the decrease in Russia’s pork production. Processing companies have experienced a shortage of raw materials, and frozen turkey meat from the U.S. is supposed to fill that gap. Local producers should not be affected, however, since frozen turkey cannot compete with fresh products distributed by retailers.
Russia has imported U.S. turkey meat before, and that didn’t prevent local producers from developing their businesses. It is of course necessary to monitor the situation closely and make sure that imported products do not harm national producers.
[Feedinfo News Service] Analysts expect a 20% hike in poultry prices this year, due to a weaker rouble and a general deficit on Russia’s meat market. Can you comment on that?
[Yuri Markov] The Russian turkey industry is quite sensitive to fluctuating currency exchange rates. This is because Russian turkey producers depend on foreign suppliers for hatching eggs, day-old chicks, or processing equipment. A significant part of premixes and veterinary products also come from abroad.
[Feedinfo News Service] What are the main challenges faced by the industry today?
[Yuri Markov] From an investor’s point of view, the turkey industry remains a dynamic but also challenging segment. The risks are important, especially now that many investors are forced to reevaluate their commercial expectations because of fluctuating exchange rates.
Another distressing factor is the lack of qualified staff. The agriculture sector in general has been experiencing a shortage in personnel for some time now, but turkey firms find it particularly hard to find good veterinarians, processing technologists, managers, etc.
The difficulty in securing loans is also slowing down the development of the turkey industry. Banks are seldom willing to finance new projects, and most investors prefer to put their money in ‘safer’ sectors.
However, I trust that Russian turkey producers will successfully cope with all these challenges. Our Association will continue to support them in any way it can.