Russian pig price is currently recovering from the lows of a few weeks ago. Prices have increased by 10 Roubles per kg in both of the last 2 weeks and this week are at 112 Roubles per live kg, writes Simon Grey, Sales & Service Genesus Russia.
The recent price dip was caused by several factors. The major reasons was Lent where many Russian’s do not eat meat, which obviously reduced demand in a market that is nearing self-sufficiency, on top of a general reduction in spending across the country. Today lent is coming to an end and temperatures are rising and people are again buying more pig meat.
As always, being Russia there are conspiracy theories of the large producers fixing prices to drive smaller producers out of business and meat being brought into Russia illegally!
On the ground there seems to be no slowing down of planned expansion, not only by large producers and even new entrants looking at building or buying empty farms.
The truth in Russia as in every market is that the large producers, although being large still have only a relatively small total market share. They are certainly not monopolies that could affect market price! Another obvious fact is that when establisher, monopolies actually increase the market price for the goods they sell – not reduce! That is sort of the point of trying to become a monopoly in the first place and why governments around the world have anti-monopoly legislation.
Generally large companies are large because they have good management and good control of their costs.
The 2 subjects that are on top of the discussion lists today are meat quality and cost of production. For the majority of Russian’s meat quality means tasty to eat. This means intra muscular fat which means Duroc as a terminal sire.
Real cost control is something very new for Russian pig producers and will take some serious and cultural rethinking to come into effect. There are 3 main reasons for this.
1. Russian pig business are very top heavy in management and administration. On many farms there are more support staff, drivers, book keepers, accountants, managers, lawyers etc… than production workers actually looking after pigs.
This is cultural and will be very difficult to change – but change it must!
Most Russian companies I speak to are interested in the number of production staff on farms but never even think to ask about non-production workers, book keepers, economists, accountants and managers etc…..
2. Russia has taken Europe as its model for pig production. European farms are small and have many legal limitations on them for animal welfare and the environment. Other than being connected to Europe, Russia has nothing in common. It is much nearer to North America, where there is large scale business mentality, and in the northern states and Canada, a similar climate!
It is no surprise that production costs for pigmeat in USA and Canada are the lowest in the world (except for Brazil, which is heavily influenced by north American production systems).
For 2014, average cost of production per kg deadweight was $1.552 in USA and Canada Vs $2.144 / kg average in the EU, with the lowest cost producer in the EU being Spain at $1.904 / kg. Not surprisingly the Spanish pig industry is the nearest to the North American in structure and management!
Russia needs to look across the Atlantic Ocean for its pig business models rather than Europe if it wants to be globally competitive.
3. Russian business want to control everything in-house rather than outsource. It is true that today it would be difficult to outsource much in Russia, but to really increase efficiency and cut cost outsourcing needs to become the norm.
Genetic supply is one of the first to outsource. Why do the majority of pig producers in North America buy all of their boars or semen and either GP or F1 gilts, rather than wanting to produce all of these themselves – because it is more effective and actually lower cost! History says in house genetic programs fail to deliver genetic progress and in many cases genetic regression (the pigs get worse)!
Doing things in house means no competition. No competition means complacency and poor standards. Outsourcing creates competition. Competition reduces cost and creates improvement by continual inventiveness.
There are still many farms in Russia that are managed in exactly the same way as they were in Soviet times (closed systems controlling everything in house). Not surprisingly these farms have the poorest performance and highest production cost!