Consolidation trend forecasted for Russian meat industry

That's according to Sergey Chumak, head of department for strategic and organisational development for Russian meat company Cherkizovo. 
Speaking at a Russian-French roundtable discussion about agricultural business cooperation in Moscow, Chumak predicted that weak growth in the industry, high production costs and significant fluctuations in income levels among market players will be the main drivers of consolidation over coming years.

“The Russian [meat] market is characterised by significant volatility in earnings. This fact will force the most inefficient producers to leave, as well as cause a wave of mergers and acquisitions. As a result, 20% of companies will either leave the market completely or to be sold. In the first place, this applies to poultry producers and meat-processing businesses,​” he said.

“The market in Russia is not fully consolidated, so we expect this process to continue. For instance, the top three companies in the poultry sector occupy 30% of the market; for pork it’s 25%. The figure for both markets in the US is higher than 50%,​” he added.

Effect of sanctions exhaust​

Meanwhile, Chumak said, the positive effect of the food embargo on domestic meat manufacturers was nearly fully exhausted, with the market close to saturation with domestic meat. This will significantly constrain any further rise in prices.

“We expect the growth of real meat prices will slow down. The rise in prices [this year] will be lower than the rate of inflation. The meat market is saturated, and thus it is becoming more competitive.​

“Future trends on the market will put pressure on prices and production costs, and we need to be ready for this.​”

He noted that 2014 was ‘abnormally good​’ in the Russian meat market due to an excess of demand and lack of supply, while current economic difficulties are hampering the level of demand among Russian consumers. At the same time, the country’s producers face rising competition from regional meat manufacturers which are ramping up production capacities.

Market saturation​

With nearly 60% of Russian citizens having had to cut spending on food, according to numerous market researches over the past two years, the home meat market has experienced a drop in demand of close to 15%. As the result, the country has almost reached self-sufficiency in meat production.

“This situation has led to the fact that saturation of the meat market has happened sooner than was expected. We previously assumed it would happen in 2018, but it’s happening now. We used to have imports of 15% for poultry and 20% for pork. This is now standing at about 7%,​” Chumak explained.

In addition, he says the fall of the Russian ruble is likely to affect future development in the industry. The country’s meat manufacturers still have to import products such as vaccines, and the collapse of the ruble has significantly boosted prices for these.