Russian meat processing industry on the brink of going under

The National Union of Meat Processors (NUMP) has sent an open letter to the country’s President, Vladimir Putin, asking for urgent assistance as, since import restrictions were implemented by the heads of government in early August, almost all meat processors have become unprofitable.

"In the meat processing industry there is now a crisis, thanks to high commodity prices, which threaten to escalate into ‘industry default’. Since 6 August, pork and poultry producers have raised their selling prices by 12-14%. So, taking into account the earlier rise in prices this year, the jump in the price of raw meat during 2014 is estimated at to have gone up by 62-67%,"​ according to the open letter.

The problems have arisen not just because of the increasing price of raw meat, but also because the government has unofficially banned any rise in the price of finished meat products in the retail sector, in order to avoid any social unrest.

"The large retailers froze any adoption of new prices for sausages and other finished meat products, based on the recommendations of the Russian government,"​ the open letter stated.

"To return to a minimum level of profitability, large meat processors would need around a 10-15% increase in the selling prices of finished meat products. But right now, it is impossible to raise prices even by a couple of percentage points, as the government has promised its population that the prices of products that fall under the sanctions will not be raised. So retailers will not increase prices without certain signals from government representatives,"​ said an industry insider, who wished to remain anonymous.   

As a result of the sharp increase in the cost of raw materials, meat processors have said they "have no prospect of avoiding serious losses in the long run. This will lead to some businesses going bankrupt, with a reduction in budget revenues and social tension likely to follow",​ read the letter.

"But within all this, we understand that a sharp rise in the price of meat products, including finished meat products, could lead to a decline in sales. We have to sacrifice part of our profitability to smoothe the rise in prices, so that consumers can adapt to the new conditions,"​ said Anatoli Kosinsky, head of the NUMP.

One measure that should be implemented immediately is tax breaks, according to the NUMP.

The situation is particularly difficult in the far east of Russia, where meat processors have been left with almost no raw meat, following the import restrictions, according to Patvel Ketaeve, president of the Association of Meat Processing Enterprises of Primorsky Krai. "If we talk about the far east, then the share of imported raw materials is not less than 95%. In contrast to the western part of Russia, where breeding is well developed, in the far east, it is poorly developed,"​ he said, adding that meat processors here are now urgently looking to purchase meat from new markets, in the first instance Argentina and Brazil.