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New opportunities for Russian feed industry

Russian feed production has been increasing for more than two decades, and all forecasts expect this trend to continue for the foreseeable future with record-breaking state aid promised to the feed industry by the federal government and many avenues to increase domestic grain production.

In 2017, Russian companies manufactured 27.6 million tonnes of feed, the Russian State Statistical Service Rosstat estimated. For this purpose, last year the country used 45.3 million tonnes of grain, primarily wheat and barley, or 33% of overall grain production in 2017, a research conducted by the federal Agricultural Ministry showed. The actual figures, however, are higher as some parts of the industry remains in shadow.

 
“We estimated that in 2017 Russia produced from 31 million to 33 million tonnes of feed,” said Valery Afanasiev, president of the Russian Union of Feed Producers. “We expect to see the gradual growth in production in the coming years, with CAGR between 3.5% and 4% per year. This will be adding 1.5 million to 2 million tonnes of additional production quantities to the market per year. By 2025 we will officially manufacture from 38 million to 40 million tonnes of feed per year.”

Insufficient feedstuffs

In 2017, the average price of feed in Russia declined for the first time in 15 years, Rosstat revealed. This was because of the unprecedented harvest, as the country produced 134.1 million tonnes of grain — the highest figure ever. Despite this achievement, the industry still lacks feedstuffs, such as corn and soybean meal, on the domestic market.

“One of the main problems seen in the industry today is the imbalance of protein and amino acid composition of feed,” commented Nadezhda Dyurigina, deputy head of livestock of the Russian Agricultural Ministry. “This is associated with the lack of certain feedstuffs, and negatively affects the feed conversion ratio in the industry.”

For instance, this ratio improved from 2.35 in 2014 to 2.15 in 2017 in the poultry industry, from 3.69 to 3.6 in the pig industry, and from 10 to 9.8 in the beef industry. However, when it comes to feeding efficiency, Russia still lags behind the European Union and other developed countries, Dyurigina said.

Afanasiev said the Russian feed industry alone needs 14 million tonnes of corn, and this is exactly how much the country harvested in 2017.

“Some part of production was used in the food industry, and 1 million tonnes was exported,” Afanasiev said. “The picture is very similar for soybeans. Despite the strong growth, as the country increased soybean production from 200,000 tonnes in 2013 to 3.7 million tonnes in 2017, it is still in short supply. The feed industry alone in Russia needs 7 million tonnes of soybeans per year.”

By using more corn and soybeans, Russian feed producers could improve the average feed conversion ratio in the industry and cut the overall grain consumption, according to Afanasiev. In 2017 on average, grain accounted for 65% to 70% of feed composition, while in developed countries this figure is closer to 45%. Simple calculations show that embarking on better feeding practices and replacing some feedstuffs with the others, Russian feed producers could save around 5 million to 6 million tonnes of grain per year.

Ongoing consolidation

While in the 2000s around 70% production capacity in the industry belonged to independent feed mills, now almost 90% of feed in Russia is manufactured by agricultural holdings, according to the Russian Union of Feed Producers. In 2017, the biggest feed producers were Cherkizovo with 1.67 million tonnes, Miratorg with 1.46 million tonnes, and Prioskolie with 1.27 million tonnes, marketing research conducted by the Russian magazine Agroinvestor showed.

It is expected that independent feed mills will be closed one by one during the coming years, according to the Russian Institute of Agricultural Market Studies (IKAR). In the end, only a dozen independent feed mills will remain in the industry, those with the production capacities ranging from 250,000 to 300,000 tonnes and rather big clients located nearby, IKAR forecasted.

There were 276 feed mills in Russia in 2017, including 59 with the annual production capacity between 100,000 tonnes and 300,000 tonnes, and 82 with the production capacity from 50,000 to 100,000 tonnes, according to the Russian Union of Feed Producers. The feed mills located in European Russia, where the biggest agricultural holdings are operating, in 2017 manufactured 19.5 million tonnes of feed, or 70% from overall production in the country, according to Rosstat.

“We believe that the biggest agricultural holdings will be driving the further growth in the feed industry,” Afanasiev said. “Today, nearly 60% of production capacity in the Russian feed industry belongs to the 20 biggest holdings, so the companies like Miratorg or AgroEko are running the most advanced feed mills and they determine the main trends in the feed industry.”

Almost all agricultural holdings in Russia harbor plans to expand feed production capacity during the coming years. For example, Miratorg plans to build one of the biggest feed mills in Russia in Orlov Oblast with production capacity of 800,000 tonnes per year by 2021, said Dmitry Sergeev, press secretary of the company.

Export focus

The Russian government plans to allocate R3.42 trillion ($51 billion) to support the domestic agricultural industry from 2019 to 2025. Though the domestic livestock industry already has beaten the goals of the food security doctrine, taking the country’s self-sufficiency on meat and dairy products to above 90%, the state aid is still nearly three times higher as compared to the period from 2012 to 2018.

The ultimate goal is to boost the country’s volume of meat and dairy exports, primarily to the Middle East and Asia. Russian government agencies earlier estimated that Russia could export around 1 million tonnes of meat per year in 2030. The increase in exports could drive growth in domestic meat and feed production.

“The physical and technological capacity of the Russian meat and poultry industries has considerably increased for the last decade, theoretically allowing it to achieve and even overcome the most ambitious target volumes,” said Albert Davleyev, president of the Russian analytical agency Agrifood Strategies. “However, there are serious issues that still must be addressed as ‘bottlenecks’ in realizing this potential. One challenge is a high product production cost, which makes Russian meat uncompetitive against similar products from other suppliers.”

The Russian meat industry expects that in the coming years state aid will be allocated more as direct subsidies to agricultural producers aimed to cut the production costs, said Sergey Yushin, chairman of the Russian National Meat Association. This could involve subsidies on feed purchasing, as feed accounts for around 70% of the overall cost of meat.

Afanasiev said the pledged state aid is good news for the Russian feed industry, and the anticipated growth in exports would also push up demand for feed domestically.

“We believe that the Russian feed industry could also establish some export supplies,” Afanasiev said. “The country exports more than 30 million tonnes of grain per year, and there is an obvious question: Why can we not export products with high added value, such as feed?

“In general, we believe that exports will be playing a more important role in the Russian agricultural industry, giving the growth in the world’s population and our vast abilities to boost production volumes, in order to assist in solving the future challenges on the global food and feed market.”

More added value

In the coming years Russia could capitalize on producing organic feed and the products obtained from the “deep processing of grain,” the Russian Union of Feed Producers said.

“Russia is the only country in the world with land resources sufficient to feed half of the world with the clean organic products, the demand for which is on the rise on the global market,” Afanasiev said. “In the first place, all our products are GMO-free, and as our Prime Minister Dmitry Medvedev said, Russia can afford to never use GMO grains in the domestic agricultural industry.”

In July 2018, Russian State Duma, the lower chamber of the Federal Parliament, adopted a bill on organic products, introducing the first domestic standards for food and feed that could carry an eco-label. Speaking at a press conference earlier this year, Medvedev stressed that Russia could take up to 25% of the world’s organic market, producing clean grain and therefore feeding its animals with clean feed.

It is believed that Russian agricultural producers could enjoy better margins by operating in the organic market, since the prices in this segment in the world are noticeably higher, as compared to the conventional livestock products market, according to the Russian Organic Union.

“The main challenge of the Russian feed industry is the almost complete absence of the deep processing of grain,” Afanasiev said. “We are fully dependent on import of feed vitamins, amino acids, enzymes and most feed additives. There are certain steps considered by the government to solve that problem. As the result of the fluctuations at the global market, including the fire at the BASF plant in Germany and the environment-protecting campaign in China, the Russian feed industry faced a sharp rise in prices for feed vitamins in 2017.”

Russia has so much grain these days that it sometimes has no idea what to do with it, while there’s an obvious demand for deep processed grain products on the global market. Given the abilities to produce vast amounts of grain, Russia eventually could start exporting these products, but the imminent task now is to meet the domestic demand, Afanasiev concluded.


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