Cherkizovo Group’s plan includes the creation of pig clusters in Voronezh and Lipetsk Oblast with a total value of RUB19.2 billion (US$336m).
The RUB14.4bn (US$252m) loan for a period of 12 years will enable the company to launch pig farms housing 46,000 sows. It would also allow for the creation of production capacity of 145,000 tonnes (t) between 2017 and 2022.
“We are pleased that our long-term partner from Sberbank has supported a policy of import substitution and decided to finance the project,” said Cherkizovo CEO Sergei Mikhailov.
“All the pig farms will be built in accordance with modern veterinary safety requirements. The use of the best international expertise in the new production units will allow us to achieve a high level of production efficiency and the lowest cost in the country.”
The project is expected to be significant for the state, which is seeking to become self-sufficient in pork production in the next few years.
The investment in production will also prove important for Cherkizovo, increasing the annual capacity of the company’s pig division by 70% compared with current levels to 330,000t in liveweight. As a result the company’s overall meat production will exceed 1mt.
“This is an important step,” said Alexander Kostikov, head of the communications department at Cherkizovo.
“It will allow us to significantly increase our capacity in pig production, which is currently the most profitable segment of the business, and to provide the growing [meat] processing segment with raw materials. Meanwhile, as the new project will be linked to existing facilities, we will achieve higher capital efficiency.”
The company’s management believes it is difficult, as yet, to predict the payback period for the project or whether it will supply pork for exports. Much depends on the situation in world markets, the exchange rate of the Russian ruble and the country’s veterinary situation within the next five to seven years.
“In the pork category, we sell live pigs, but our strategy is to increase the supply of pigs for our own slaughtering and processing businesses,” added Kostikov.
“In 2014, about 40% of all our pigs went to the company’s own slaughterhouses, but with the commissioning of the Dankovsky meat processing plant this figure is set to rise to 80%. Processed meat products will be sold throughout the country, but the main focus will be on Moscow and the Central Federal District.”
Equal focus for all projects
At the end of June, Russian agricultural minister Alexandr Tkachev promised that the increase in pork production in Russia in coming years would be achieved mostly through the commissioning of large pig complexes.
This statement resulted in a number of industry observers suggesting that the country’s banks would also give higher priority to large projects in the years ahead. However, a spokesperson for Sberbank explained that, for the banking company, the most important indicator of the project was not the size, but the efficiency.
“Every project is assessed in terms of the efficiency and competitiveness of the products that are being made - compared with the most effective Russian projects and international industry leaders,” commented Igor Firsov, director of the food industry and trade unit, client management department at Sberbank CIB. “The bank places equal focus on small, medium-sized and large businesses.
“This project has serious potential. Following its implementation, there is a plan to increase the efficiency of the pig breeding block and the Cherkizovo Group overall. The Cherkizovo Group has a strong reputation and many years of experience of rolling out major investment projects.”
Sberbank CIB is working with a number of other pork producers. It recently organised RUB7.6bn (US$133m) of financing for Miratorg Agribusiness Holding - Russia’s largest pork producer. The credit facility will be used to replenish the working capital of the Holding’s companies.