Cherkizovo may cancel major pig project in Russia

By Vladislav Vorotnikov

- Last updated on GMT

Cherkizovo could cancel the implementation of a major pork project in the Voronezh Oblast
Cherkizovo could cancel the implementation of a major pork project in the Voronezh Oblast

Related tags Meat Livestock Pork

The current economic crisis in Russia may force the country’s largest meat operator - Cherkizovo - to cancel the implementation of major pork project in the Voronezh Oblast, according to a recent statement by the company’s chief executive Sergei Mikhailov. 

Official information indicates that the number of pig farms proposed for construction, as part of the project, would have a total capacity of 37,000 tonnes (t) of pork per year.

However recent events in Russia have made all such projects more costly. “Initially, the total amount of investment in the project was estimated at RUB 4 billion (US$ 71 million), but now they might grow to RUB 4.5-4.6 billion (US$ 80-82 million),”​ stated Mikhailov.

At the same time, the country’s authorities are still keen that the project is implemented, as it has an important role in the recently declared Russian import-substitution strategy. According to the deputy head of the Department of Agrarian Policy of the Voronezh Oblast, Oleg Lakhov, “currently it [the company] continues with the selection of construction sites for the project in Semiluksky area of Voronezh Oblast”​.

“We make every effort to create good conditions [for the implementation of the project] for Cherkizovo. So far, there is nothing we are aware of about the possible cancellation of the project,”​ he added.

According to expert opinion the main reason for the increase in the project cost may be the recent jump in the interest rates on loans in Russia, which happened in response to the currency crisis, and, to a lesser extent, the rising cost of equipment due to the fall in the exchange rate of the Russian ruble against the euro.

“The increase of the investment cost by 15% is a good reason to take a break. All agricultural projects today have relatively low profitability. Despite the fact that the Cherkizovo’s figure [of profitability] recently increased, the margin still didn’t exceed 20%. In such context, the significant increase of investment cost can make the project impractical,”​ commented an expert from the Russian Institute for Agricultural Market Studies Daniel Khotko.

In addition, Cherkizovo has predicted that next year Russian meat producers may face problems connected with a fall in demand. “We estimated that the fall [in consumption] will be at least 5% for sausages and other types of meat, except poultry,”​ he said, noting that the most noticeable will a drop in consumption of beef. “Poultry is the cheapest source of protein. Its consumption probably will stay at the same level,”​ noted the CEO.

Representatives of the company don’t connect the forecasted fall of meat consumption this year with the possible cancellation of the pork project in Voronezh Oblast. However Mikhailov says that the company will have to continue to increase the prices on its meat products in the near future.

An increase in prices of meat products in Russia looks set to continue because “margins [of meat production] no longer exist,”​ says Mikhailov. “The increase of [the prices] for sausages in retail is significant, though we are trying to restrain them. As the result our sausages business today is operated on the verge of break-even,”​ he stated.

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