WTO accession could cost Russian pork sector US$68.9m per year
As Russia has agreed to reduce import duties for live pigs by eight times – from 40% to 5% – and to cancel all import duties on pork upon entering the WTO, the country’s National Meat Association predicts losses of US$200m a year in the federal budget, with total losses for domestic producers reaching RUB30bn (US$1.03bn) a year.
CEO of the Russian union of pig farmers Yuri Kovalev said changes in tariff policy will result in a significant RUB10-RUB15/kg (US$0.3-$0.5/kg) drop in the price of live pigs in the domestic market. As a result, he estimated that large manufacturers alone could reach losses of RUB20bn (US$68.9m) per year. This figure is currently considered official forecast by experts.
Head of the National Meat Association Sergey Yushin estimated that the price drop could be even bigger, reaching RUB15-RUB20/kg (U$0.5-$0.75/kg), as in addition to direct losses, the changing game conditions may reduce the investment attractiveness of the industry and increase the payback period of the large pork production projects from eight to 12 years.
Many leading Russian manufacturers, including processing giant Rusagro, have already expressed their intention to freeze some of their major pig plant projects until the consequences of the WTO accession are clearer.
Entering the WTO will also substantially change Russian market conditions, with the share of large enterprises in pork production expected to rise from about 60% to 92% by 2020.
“The big players will face a decline in profitability rate from the current 40-45% to 25-30%, but they will be able to benefit from market consolidation, and therefore they could possibly double the volume of production,” said experts at Russian analytical company Troika Dialog.
At a meeting with agricultural unions recently, Prime Minister Vladimir Putin said that the poultry and pork industries are among the most sensitive agricultural sectors in Russia, and that they would require additional support.
“After entering the WTO, this sector [pig farming] will need special attention. It’s requiring subtle protection measures,” he added.
At the end of February, Russia approved a subsidy programme for the pork industry, which involves the allocation of RUB6bn (US$20.6m) a year over the next three years. However, experts say this money cannot completely compensate the losses, especially taking into account the fact that, in the future, Russia should significantly reduce state support for agriculture.