One of the most prosperous sectors of the Russian agriculture – poultry production – has received unexpected support from Egypt. Cairo is clearly hoping that in exchange for the right to supply goods of Russian poultry in Egypt will return to the Russian tourists. However, not all so simple: poultry producers lose competition abroad. Why is this happening?
Russia received the right to export finished products from poultry meat in Egypt, according to Rosselkhoznadzor. According to the Agency, the General organization of the veterinary service of the Ministry of agriculture and land reclamation of Egypt was agreed the appropriate veterinary certificate. The talks were held in the framework of complex of measures on promotion of the Russian products of animal origin and live animals to foreign markets.
“The strengthening of the dollar for six rubles means the appreciation of our products by at least 10%”
In the past year, Russia has managed to get Egypt’s permission to export of meat (apart from poultry) for 12 Russian producers. Now Moscow has made Egypt and the opening of the market for processed products from poultry meat that at first glance looks even more interesting. For export of processed products should be more profitable than raw materials.
As loyal attitude of the Egyptians can be explained by their concessions for the sake of Russia quickly resolved the issue with the opening of tourist flights to Egypt for its citizens. “Of course, in addressing the issue of finished products from poultry meat could play a role and that Egypt is very important to improve relations with Russia” – does not preclude the managing partner Kirikov Group Daniil Kirikov.
However, in the case of poultry, all of these preferences, which Russia has been able to achieve from Egypt until brought the Russian producers significant effect. As with other export markets, however.
“The total exports of poultry meat amounted to slightly more than 100 tons, and most went to the CIS countries and in the DNI and LC. Foreign markets outside the Customs Union, that is, to the middle East and North Africa, exports were around 2 thousand tons”, – said the newspaper LOOK Vice-President of the International programme for the development of poultry farming albert Davleev. The total volume of meat production in 2016 amounted to more than 9 million tons, where nearly half occurred in poultry. And for poultry meat in Russia as a whole already more than 90% of provides itself. That is why talking about the saturation of the domestic meat market and the need to expand exports.
However, the Russian poultry producers lose price competition outside of their own country. There are several reasons.
First, the ruble. As explained by the interviewee, plans to sell to Egypt poultry were built on the basis of the ruble against the dollar in 67-68. This course made exports profitable. However, in the last year alone, the dollar fell to 58 rubles. “The strengthening of the dollar for six rubles means the appreciation of our products by at least 10%,” – said Vice-President of the International programme for the development of the poultry industry. As a consequence, the supply of poultry meat in 2016 was below profitability. To put higher prices of Russian producers can not, because the competition is cheaper.
For example, the main competitor – Brazil – benefited from the weakening of the local currency, the real. Coupled with a good grain harvest and soybeans the Brazilians managed to reduce the cost of their chicken for export sales on average by 15% per year. Russian chicken has risen in the past year by 10%, while the Brazilians, on the contrary, has lowered its price offer by 15%, the result was a difference of 25%. “For us it is impossible to reduce such a price gap,” says Davleev.
Permission for export of finished products is fundamentally not change the situation. “Finished goods manufactured by approximately the same equipment in all countries of the world. We have at some stage dropped the cost of labour, but its share in finished products is minimal, because the product is made mostly on machines. Therefore, the main competitive advantage comes from the raw materials. But Brazilian raw materials 20-25% cheaper than the Russian”, – said the source.
At first glance, it is logical to expect that at least from a logistical point of view, supplies from Russia could be more profitable than from Brazil. However Davleev says that it is not. “Most of the poultry comes from Russia via ports of St. Petersburg in containers. This container line calling at several ports not allows to dramatically reduce the cost of delivery of Russian poultry meat”, – the expert explains.
Finally, it should be clear why twice devalued the ruble does not become a serious tool for the export of Russian poultry meat, while less significant weakening of the Brazilian real helped the chicken cheaper.
The whole thing in a huge imported component in the production of poultry meat in Russia. Earlier Russia imported poultry meat itself, but now imports components for growing chickens. Thus, the share of imported components in the production of broiler meat is about 70%. Russian producers working on foreign equipment, import products of breeding, hatching eggs, veterinary products and even vitamins. Even in animal feed is imported component is soybean meal.
“Brazil has its own soy beans from which they make soybean meal. The chicken are grown on corn and soy sprote. To wheat or barley (a little on the corn) plus soy sprat, which we have. Poultry farmers buy soy beans in Brazil, then processed here. Out very expensive. Soy sprat is 20-25% in the feed composition and becomes gold to us. This undermines our competitive advantage,” explains the source.
Of course, the fact that Egypt has allowed Russian export of meat and finished products, is a big step for Russia, but only in the long term. “It is not excluded that, first, the ruble will weaken again, and secondly, over time by increasing competition domestically, the production costs will decline, and, accordingly, we will be able to offer a lower price,” says albert Davleev.
Important is the reduction of the import component in the production of poultry meat. However, it takes time and money. For example, in Russia seems to produce domestic equipment for plants, but prefer a small group, and large holdings do not trust their quality. Besides the existing imported equipment recently launched and is ready to work for decades, and create a new production based on Russian equipment now is risky.
Therefore, the forecast for this year in terms of growth of exports of poultry meat are not optimistic, despite the loyalty of the Egyptian authorities. “The basis and Foundation there, the gates are open, but what and how much we got to get this gate depends on at what price would be prepared to accept the Russian poultry a priority for us foreign markets”, – the expert concludes.
If Russia in exchange for Russian tourists knocked out from Cairo, not only the export permit, but also a promise to buy certain volumes of more expensive Russian chicken is Brazilian, then the deal will bear fruit for Russian producers now. The Egyptians can do a little to pay more for Russian chicken for the tourists. Egypt’s revenues from tourism over the past six years decreased from 12.5 to 6 billion dollars. This is only direct losses from shocks and terrorist attacks. And indirect losses of the country as a whole from the decline in international arrivals observers estimated at 50-70 billion dollars. Moreover, the current condition of the tourism sector threatens investment of 15 billion Egyptian pounds in the hotel sector of the country. The local hotels just can’t maintain the infrastructure at current damages. The return of Russian tourists would be a major boost for the Egyptian economy.