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Russia: Meat Industry In Decline




Washington, 16 January 1997 (RFE/RL) - Russia has become the world's largest importer of poultry meat and second biggest buyer of meat overall after Japan, reflecting the dramatic decline of its domestic meat industry from the days of the Soviet Union.

That is the conclusion of U.S. Agriculture Department analysts. They say that since economic reforms began, the size of Russia's livestock herds has shrunk by more than 40 percent, and total meat output has dropped almost 45 percent. The decline in poultry production is the most dramatic, at nearly 55 percent.

But in an article prepared by the U.S. Agriculture Department's Economic Research Service, the analysts say the causes were not the reforms directly but the inefficiencies and distortions of the old central planning system which continues to plague the meat industry.

They say that while the meat sector is stabilizing, further contraction can be expected over the next two to three years as the industry tries to shake-off the old ways and adapt to market conditions.

In the Soviet days, citizens had one of the highest per capita consumption levels of meat in the world, significantly more than its per capita income could afford. But meat was a symbol for the Soviet government, so it subsidized the production and consumption of meat at every step. This subsidy process introduced gross distortions and inefficiencies, so that when economic reforms began, Russia's meat industry was one of the hardest hit.

The liberalization of prices and cuts in producer and consumer subsidies started in 1992 hit meat producers doubly -- dramatically raising the costs of inputs -- the supplies and services farmers have to purchase -- while at the same time seriously cutting the productivity or efficiency of those inputs.

For one thing, say the U.S. analysts, price liberalization meant that the costs of inputs such as feed, energy and labor rose faster than the prices received for the meat. So, from 1991 to 1995 the prices farmers received for hogs and chickens, for example, rose only about 75 percent as much as the prices they had to pay for mixed feed.

These deteriorating terms of trade, as they are called, reflected that under the old Soviet regime, the livestock sector was subsidized not only through direct financial transfers from the government, but also indirectly through the pricing of energy and labor at below actual costs.

At the same time, feed conversion rates -- that is the amount of feed used per kilogram of animal weight gain -- worsened as increasing amounts of feed were needed because the quality of the feed was going down. That was caused by a shift away from expensive, imported high-protein soy and grains to cheaper, less nutritious feeds grown by local producers.

The U.S. analysts note that in 1995, for the first time in five years, feed conversion rates on former state and collective farms showed their first improvement. There were no figures available for the private sector, but they say it is "likely that improvements of feed conversion on private holdings are even greater, mainly because the profit motive is stronger."

The two most important inputs in meat production, labor and energy, both hurt farmers. As with feed, the analysts say, total use of labor and energy has been declining, but the amount used per unit of output has been growing, thus raising costs.

"Labor costs present a daunting hurdle," say the American analysts. Although livestock inventories and production have been declining, the large former state and collective farms where the drop has been the greatest have not been able to shed labor by an equally large magnitude. That is because in addition to employing the workers, the farms provide for all social welfare functions, including support for the retired, and these costs are directly added to the production costs. They also "severely reduce flexibility in changing the size and nature of the work force," say the analysts.

These large livestock complexes also used energy inefficiently, so while energy use is falling, it is not dropping as rapidly as output, resulting in worsening productivity and higher unit costs of production, the analysts say.

The bulk of livestock production in Russia continues to be from the former state and collective farms, which hold 70 percent of cattle inventories, 65 percent of hogs and 60 percent of poultry. The analysts note that "about 70 percent of these farms are currently reported as unprofitable and until recently large state subsidies allowed these farms to cover the gap between actual costs and sales revenues.

In 1992, they note, per unit state subsidies, both direct and indirect, payed for about two-thirds of the price farmers received whereas by 1994 those per unit subsidies had dropped to about a third of producer prices. Still, in 1995, 20 percent of production costs for beef and four percent for pork were not covered by revenues.

So, say the analysts, "if farms are technically bankrupt but keep producing, it is largely because state creditors are granting de facto loans by not calling in their debts."

This situation has prompted growing calls in Russia for protectionism by raising import duties and other barriers to imported meat. But the analysts point out that it is the Russian consumer who is benefiting from having the imported meat availabe. Not only are many imported meats, especially poultry, cheaper than domestic meats, consumers are getting greater choices, better cuts of meat and more efficient packaging, say the U.S. analysts.

If import barriers are raised, they say, "consumers in Russia's largest cities would bear the brunt of reduced meat imports."
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