February 10, 2010

Russian consumption may slump 10%

A sharp decline in demand and the falling value of Russia's currency may result in the reduction of meat consumption in Russia by at least 7-10% during the next two years, leading local analysts believe.

According to Russian Meat Union (RMU) president Musheg Mamikonyan, a considerable part of Russian consumers will soon be forced to buy meat mainly at discounters and special markets, while consumers will significantly shift to poultry meat, especially cheaper chicken legs. 

RMU forecasts show that during the next several years, the Russian meat market will experience a dynamic increase in consumption of chicken meat as well as pork, while the demand for beef will continue to decrease due to its high production costs and prices. 

By 2015, beef consumption will reach 2.2 million tonnes, while pork - 3.5 million tonnes, and chicken meat - 4.6 million tonnes, according to Mamikonyan. 

The sharp decline in consumer demand can cause a simultaneous reduction of the production in the segment of premium meat products which has been steadily growing in Russia in recent years.

Meanwhile, many Russian meat producers may leave the market in 2010 due to current financial crisis, according to reports. Russian meat producers have implemented an aggressive expansion in recent years, buying new assets through the use of borrowed funds that were available and relatively inexpensive.

However, 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.