Cherkizovo stops pig investments ahead of Russia’s WTO accession
The company’s CEO Sergey Mikhailov said: “The WTO is currently the main issue that shapes our plans. There are still several questions around it, mostly on pork production and meat processing. Due to the decrease in Customs duties, the prices on the national market will be under severe pressure. This is quite a negative factor – not only for existing, but also for new pig complexes.”
Experts predict that other major players in the Russian agricultural market could follow Cherkizovo’s example, as the future of pig production is still largely undetermined, while other livestock sectors, and poultry in particular, continue to offer good profitability and stability.
“Investing [in new pig projects] is probably not profitable: at present we achieve returns on such projects in seven years, but when the price falls [it is projected that the price may drop by almost 1.5 times, to RUB65-RUB70 (US$2.16–US$2.32) with VAT] this period will expand to over 10 years, which makes the projects uninteresting. Cherkizovo still has a number of projects for further development in pig production. But we are holding them, and taking a small ‘investment vacation’ for a few quarters in order to better understand what will happen,” added Mikhailov.
In the short term, the pig breeding “investment vacation” will not affect the group’s position on the Russian pork market. “We have a large number of projects already running. Regardless of new investments, we already have a level of production of about 100,000 tonnes (t), with installed capacity at 180,000t to date. So no matter what, we will see significant growth in pork production at Cherkizovo this year and next year. [WTO accession] will have a greater effect on prospects of future revenues in three to five years. We will continue to build pig complexes (after 2012) and their capacity will depend on government policy in general and on WTO in particular,” the CEO said.
At the same time Cherkizovo leaders expressed confidence that the state will continue to help pig farmers, even after the entry into WTO, as the industry is currently very vulnerable, the share of imports in the Russian market still exceeds 50%, and it is impossible to suspend investments overnight. “To complete the programme of import substitution in the industry, we have to invest further during the next five years. We intuitively understand that something will be done, because it would be counterproductive to freeze the market right now and put running investments at risk,” concluded Mikhailov.
