Red meat back on (some) Russian tables
By John Helmer
MOSCOW - If the North Atlantic Treaty Organization (NATO) takes seriously the
threat its members believe the Russian military poses to the Mikheil
Saakashvili administration in Georgia, or to the equally jumpy rulers of the
Baltic shore, it might think twice about putting more North American beef into
the borsch and pelmeni that Russian tankmen and parachutists eat each
day to keep up their protein levels.
United States purveyors of New York sirloins and T-bone steaks may take comfort
from the defense that most US beef has long been ousted from the Russian meat
market; their only sales go to the elite restaurants and hotels of Moscow and
St Petersburg. In the Russian army, US Department of Agriculture prime goes
only to the generals.
NATO member Canada has always tempered its dependence on
the US with economic interest, especially in the commodities in which Canadian
exports compete with American ones - grain, meat, and mineral fertilizers. So
the recent announcement from Moscow by Canadian Agriculture Minister Gerry Ritz
that he has done a deal to sell more beef to Russia is newsworthy. What exactly
it portends for the Russian meat market is being assessed now by North American
marketers in Moscow.
According to Ritz, who met with Victor Zubkov, the first deputy prime minister
in charge of the farm and food sector, Russia has agreed to allow Canada to
ship bone-in beef from cattle under 30 months of age, and boneless beef from
cattle over 30 months. Ritz's announcement marks the end of the phyto-sanitary
(plant health) ban on some Canadian meat from Russia, following the detection
of mad cow disease on a Canadian farm in 2003. Zubkov's overture is worth about
32 million Canadian dollars (US$31 million) annually, Ritz estimated. Bone-in
beef represents a small opportunity for elite consumption.
The bigger opportunity, according to Nathan Hunt, dean of the North American
meat traders in Russia and head of the Canadian business club in Moscow, is the
older cow meat. This category of beef is dispatched by Canadian producers to
make mince toppings at Pizza Hut and burger patties at McDonalds, across the
border.
"We might be able to do relatively big volumes in the second category, which
has been on the ban list until now," Hunt told Asia Times Online. "The target
for next year will be 5,000 tonnes, and 10,000 tonnes the year after. This
makes a small dent in the Russian import market, but just the same, it's hats
off to the Canadian ag [agriculture] lobby."
Hunt cautions that the Ritz announcement represents a "minor concession" on the
Russian side because of the small share Canada holds in the Russian meat
market, and the relative dominance of South American exporters. "It would be
more significant if the Russians would come to the negotiating table prepared
to harmonize phyto-sanitary regulations with internationally accepted standards
so there can be no accusations of using science for political purposes."
Russia last year imported farm products from Canada worth more than 372 million
Canadian dollars, mostly meat, making it Canada's 15th-largest agricultural
market. Moscow also lifted a ban on Canadian pork this summer, but this will
not take effect until after a visit by Russian inspectors to meat plants, Ritz
said.
Before the Russian boom collapsed last September, there had been an
accelerating rate of growth in imports of fresh and frozen meat. The lift in
Russian consumption translated into a surge for red meat, while the appetite
for pork remained flat, and for mutton dropped off sharply. Including
deliveries from Belarus, but excluding poultry, Russian customs data show the
total import volume for 2006 was 925,000 tonnes. This grew 10% in 2007 to just
over 1 million tonnes.
In the first eight months of 2008, the volume of meat imports had already
reached that total. That translated into a growth rate, year-on-year, of 23%.
Then came the crash, and as Russian income fell off, so did the capacity to eat
imported red meat. The import tonnage for January and February of 2009 was just
39,000 tonnes, down 40% on the year before.
Kolbasa evreiskaya ("Hebrew sausage"), the leanest beef sausage in the
Moscow market, returned to super-luxury status; Russian sausage and pelmeni
(dumplings) swelled with pork offal and even cheaper fillers.
Zubkov's boom-time campaign to apply surplus state revenues to the farm sector,
and subsidize investment in pork and beef production, to replace imports, did
more than mince to a halt. Borrowers began defaulting on subsidized loans, and
in one notorious case - Vadim Varshavsky, who invested in hog farming with
zero-cost borrowings from the state - the defaulting debtor has abandoned his
assets altogether, leaving the federal and regional governments to keep the
enterprises going with a combination of more state cash and substitute
investors who remain solvent, if reluctant.
In July, Zubkov tried to repoint the import substitution strategy long into the
future. By 2012, he said, Russia should sharply reduce beef imports, raising
its own production of beef to 282,400 tonnes against the present 62,000 tonnes.
"Over the last 10 years all indicators of development in this sub-branch [red
meat] are falling," Zubkov said, noting that for this period the size of the
average cattle herd was reduced 2.9 times, beef production decreased 2.5 times,
and per capita consumption of red meat actually fell from 31 kilograms per year
in 1999 to 17 kilograms a year in 2008. That suggests that between Russia's two
economic crises, 1998 and 2008, the table was loaded with more red meat, but a
dwindling number of Russians could afford to sit down and eat it.
Nothing gives away the new social class structure of post-Boris Yeltsin Russia
than how much (how little) beef goes into which Russian mouths. The image of a
former president - now premier - Vladimir Putin-era McDonalds tossing out beef
patties for pelmeni is thus a sardonic fantasy, in which the local meat
product turns out to have just almost as much import content, but with even
less protein value than before.
For Hunt, "the Russians aren't even close to a reform of the beef industry".
The promise of import substitution in pork had been showing signs of success
before the crash, he notes, and the pork import level has been declining, while
domestic production was cranking up.
But in the beef sector, Hunt believes the Russian herds remain "mostly dairy
cows - Holstein breeds that aren't suitable for meat raising. The feed lot
program cannot support increased beef growing because not enough grain is
produced for animal feed. For Russia to produce more beef to eat at home,
farmers have to grow more grain, and develop systems to transport it
efficiently around the country."
Next year, Zubkov's scheme for penalizing the low-cost beef importers of
Brazil, Argentina, Uruguay and Paraguay will add much tougher penalty duties on
top of the landed price. But driving out beef by raising prices can't create
domestic beef out of nowhere. Traders speculate that the new duty level will be
fixed at 70% of import value and not less than 0.5 euros per kilograms
(currently equivalent to 22 roubles, or 74 US cents).
Hunt's prediction is that this will significantly decrease the amount of beef
imported, making the quota limits already in force on imports more effective.
The old out-of-quota duty level was scarcely higher than the in-quota level,
meaning that hundreds of thousands of tonnes were imported without the trade
feeling the pinch of Zubkov's quota limit. Since that measure has obviously
failed, Zubkov has had to feed the domestic farm lobby with something fresh.
Hence, the higher out-of-quota duty to keep beef prices high throughout 2010.
Bone-in steaks from Canada, such as T-bones, will be able to enter the market
in the vogue niche. This amounts to a small volume but high-margin
business geared mainly at steakhouses, luxury restaurants, exclusive retailers
and hotels. While those exports are important to the Canadian beef industry,
the cost of that beef is out of the reach of most Russian consumers. In other
words, the Canadian trade will gain from the Zubkov concession, but it is
unlikely that many Russians outside Zubkov's social circle will get a taste.
John Helmer has been a Moscow-based correspondent since 1989,
specializing in the coverage of Russian business.
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