May 3, 2012
Cherkizovo launches bird houses in Penza, holds off pork projects
OJSC Cherkizovo Group announces the opening of new bird houses at the poultry breeding facility in its Penza cluster as well as holding off pork investments in anticipation of a fall in prices after Russia's entry into the World Trade Organisation.
As part of the capacity increase project in its Penza cluster, Cherkizovo has built 21 additional bird houses at the poultry breeding facility "Vostochnaya". Previously, this facility consisted of four bird houses with a capacity of 246 000 broilers, but with the new bird houses, this will increase to one million heads. The total investment in constructing the additional bird houses at the facility is approximately US$18 million.
At the end of 2011, the company launched the largest incubation facility in Russia at the Penza cluster, with an annual capacity of 105 million eggs and a modern slaughtering facility for 8,000 heads an hour. The building of a 300,000-tonne fodder plant is currently underway.
In 2011, the production capacity of the Penza cluster was approximately 83,000 tonnes of live weight poultry meat. After the whole capacity increase project is completed in 2013, this number will rise to 140,000 tonnes.
CEO of Cherkizovo Group, Sergey Mikhailov commented: "By launching new sites we continue to realise our capacity increase project in the poultry segment. We aim to increase not only the quantity, but to further enhance the quality of our products. That is why we only invest in the most up to date, technologically advanced production projects."
On the other hand, Mikhailov said in an interview the company will wait to see what impact Russia's long-negotiated admission to the global trade club will have on the sector before committing any new funds.
"WTO is the main issue affecting our plans, capital expenditure and strategy. In pork and meat processing ... the prices may come under serious pressure due to the lowering of import tariffs," Sergei Mikhailov told Reuters.
"It may be not lucrative to invest into new projects - if it currently takes such projects at least seven years to break even, a fall in prices means it will be more than 10 years."
Russia is due to join the WTO later this year, finally winning admission in December after 18 years of negotiations.
Moscow has estimated that Russia's membership of the WTO could benefit its industries by some US$2 billion a year, and said the terms of its accession would be highly favourable for Russian farmers.
Mikhailov did not rule out that the Russian government would take measures to protect domestic producers, but said uncertainty over WTO entry implications remained.
"Whether we will build more pig farms (after 2012) and how much we will invest will largely depend on government policy as a whole and in respect of the WTO. We, by intuition, understand that some (protective) measures will be taken."
Mikhailov said the company's existing investments will be intact - the group expects a 31% rise in pork production this year to 120,000 tonnes.
"We have already launched many projects in pork ... and will see significant growth in this division this and next year," he said, adding a lack of new investment in pork production may affect Cherkizovo's revenues in three-five years.
The company also expects a 19% rise in poultry production to 310,000 tonnes this year, helped by the acquisition of poultry farmer Mosselprom in 2011 and its own new capacity.
"Our strategy is organic growth, M&A is just an option," said Mikhailov.
He added, however, that Cherkizovo could be interested in acquiring a Moscow meat processing company focused on premium products or a strong regional player. Output in its meat processing unit will decline 3% this year to 141,000 tonnes, but revenues will be higher than in 2011 due to a bigger share of more expensive products, the company said.
Cherkizovo, controlled by businessman Igor Babaev and his family, generated US$1.5 billion in revenues last year.
