Current live-weight price is 113 Roubles/kg ($2.09). Current grain prices put cost of food per kg for the efficient producers at 47 Roubles / kg ($0.87). Assuming feed at 60 per cent of cost for newish farms with high levels of borrowing, cost of production is about 79 Roubles / kg ($1.46) making profit on a 120kg live weight pig 4,072 Roubles ($75.60), writes Simon Gray, General Manager Russia, CIS and EU.
Add to this the fact that many producers are fully integrated. In Russia this means a single business owns the process from growing crops, right through to retail outlets. In Russia the pig business is a good business to be in.
With current investment costs building a new pig farm will deliver a return on investment in the region of 25 per cent per annum.
With sanctions on imported food from EU announced for another year and reports of crops growing well it looks like it will be another very good year for Russia’s pig producers.
Incredibly however there are producers today losing money. These are primarily old farms that remain from the state farming system. They suffer from little investment, old genetics, poor health, bad management and rampant stealing.
Russian state policy of inward investment to replace imports is having an impact. Virtually all of the new pig producers are talking of expansion, with some of the top 10 producers looking at more than doubling their existing production over the next 4 or 5 years. This is not only new pig farms, it will be new feed mills and slaughter and processing plants also.
All of this expansion is today being driven by domestic demand. Replacing imports and also replacing back yard production which is declining quite rapidly.
With the new producers, heavier weights and meat quality are the in thing. Many companies are now killing at over 120kg live weight. This has changed dramatically over the past 4 or 5 years from slaughter plants wanting 105kg pigs.
Meat eating quality is also becoming an issue for the new producers. When the new Russian pig industry was built the requirement was for lean meat. Traditional Russian breeds were very fat. The trend was to use very lean European terminal boar lines.
Today there is a shortage of pig fat in Russia, and fat is virtually the same price as lean meat. Russians like to eat cured pig fat (Sala). Russians also spend a relatively high proportion of their income of food and meat. They therefore like it to be good quality. Sashlik (kebab) made with pork neck is very popular. Russians do not like dry tasteless pork.
All of the above mean Russian producers looking at very fast growing terminal boar lines, to get the weight and with high levels of intramuscular fat for good eating quality.
New world order is pushing Russia closer to China. For Russian pig production this will create more opportunities. Russia and China share a land border of 4,195 km. Russia has a vast area of land that can produce crops. Today only a fraction of this is at full production, with large areas today not being cultivated at all, or producing very low yields.
A land border means the ability to move product cheaply by train. China has a massive domestic demand for pig meat, but a very high domestic cost of production and little available land for building the new efficient pig farms it needs. Russia is a very logical place to produce pig meat for China. Russia potentially has a very low cost of production. It can build large modern farms that are not blighted with animal welfare rules which increase cost of production.
Today, there is a lot of talk. If it becomes a reality over the next 10 years we could see levels of expansion of the Russian pig industry at even faster levels than have been seen over the past 10 years. Watch this space!
The challenge for the industry will be managing at low margins, which eventually it will have to do. At some point the Russian production will meet local demand and prices will reduce. A lot of the older farms with poor performance will not survive. For the new fully integrated companies the problem will be the mental adjustment from making very high margins and having to effectively control costs.