Crisis may force out Russian meat processors in 2010

Many Russian meat producers may leave the market in 2010 due to current financial crisis.

Recently, JSC "Parnas-M", one of the largest meat producers in the Russian North-West declared bankruptcy and, according to local analysts, a new wave of bankruptcies may soon sweep the Russian meat industry.

In recent years, many of the Russian meat producers have implemented an aggressive expansion, buying new assets through the use of borrowed funds that were available and relatively inexpensive.

According to Sergey Yushin, head of executive committee of the Russian National Meat Association, the major expansion occurred in the meat processing industry which has seen a growth in production from 1.5 million tonnes to almost 4 million tonnes annually in the past eight years.

However, he said a sharp rise in prices for raw materials - both import and Russian - has resulted in a significant reduction in profitability of the Russian meat business. In 2009, the price of meat raw materials in Russia grew by 60%, putting many of the local producers on the brink of collapse.

According to him, the most difficult situation is currently observed in the Russian vast province, where the companies lost working capital that will inevitably reduce the volume of production and could lead to bankruptcy.

Analysts believe that the number of bankruptcies and the severity of the problems in the Russian meat industry will depend on further measures that the Government would take to support the real sector.

Some experts do not exclude the possibility of starting of the market's consolidation, through the acquisitions of local companies by leading domestic or foreign players.