2013-02-27 03:13:08 - Fast Market Research recommends "Russia Agribusiness Report Q2 2013" from Business Monitor International, now available
BMI View: We are very positive about growth potential in the Russian agricultural sector and see tremendous opportunities in the grains and dairy segments in particular. We view the livestock sector positively as well, even though the dominance of the market by domestic players and the high barriers to entry could limit investment and productivity gains in the medium term. WTO entry has not triggered major changes in government support to the sector, and the recent budget for livestock and dairy shows the tremendous investment opportunity available for the dairy sector in order to step up production capacity. We believe a rebound in the country's grain crop in 2013/14 will return the country to its leading exporter position.
Wheat production growth to 2016/17: 18.1% to 65.1mn tonnes. Yield gains and better access to export markets in Asia are expected to result in increased wheat production.
* Milk consumption growth to 2017: 0.3% to 12.0mn tonnes. This slight increase in consumption will most likely be aided by increased interest in coffee, as milk is a complementary good. Consumption of premium coffee as a niche-but-growing segment is demonstrated by the rapid growth of domestic coffee house chains.
* Poultry production growth to 2016/17: 73.1% to 4.9mn tonnes. This will come on the back of strong domestic demand and government initiatives to ensure a domestic production surplus. Specifically, the government is implementing programmes to improve the country's slaughter and processing capabilities.
* 2013 real GDP growth: 3.4% (down from 3.6% in 2012; predicted to average 3.9% over 2012-2017). * Consumer price inflation: 6.5% year-on-year (y-o-y) on average in 2013 (up from 4.9% y-o-y on average in 2012).
* BMI universe agribusiness market value: -7.2% y-o-y to US$44.2bn in 2012/13, forecast to grow on average 2.9% annually between 2011/12 and 2016/17.
Full Report Details at
- www.fastmr.com/prod/541272_russia_agribusiness_report_q2_2013.as ..
Russia's 2013 funding scheme for agriculture confirms our view for the country's livestock sector to continue benefiting from heavy government support even given the country's recent accession to the WTO. The Ministry of Agriculture has signed off on a 'pork budget' of RUB19.4mn and a 'beef budget' of RUB42.9mn to support agricultural development, production modernisation and rural housing. The 2013 budget will prioritise dairy subsidies, with the sector set to receive RUB54mn from the regional budget and a further RUB414mn from the federal budget. We believe this will have spillover effects on the beef sector, enabling improvements in cattle herds.
We believe high feed costs are delaying the long awaited recovery in Russia's dairy herd, especially as the country's grain harvest in 2012/13 was one of the hardest hit by extreme weather conditions. We forecast grain production (we include wheat, corn and barley) in the country to fall by 19.3% y-o-y to 63.2mn tonnes in 2012/13. This boosted the country's grain export prices to the point of making them uncompetitive compared with other crops from the EU-27 or the US. Domestically, grain supply has been particularly tight, as stocks are being depleted. Indeed, imports are being considered to prevent surges in food price inflation. Therefore, we expect the country's dairy herd to continue to decline in 2011/12 as subdued farmers margins discourage investment in cattle herds, especially over H212.
Russian wheat supply was particularly poor in 2012/13; the crop (at 38mn tonnes) by some estimates was lower than the drought-ravaged 2010/11 crop of 41mn tonnes that prompted the country to institute a yearlong export ban. It also sparked a doubling in wheat prices in one week that year and ignited fears of a second global food crisis in four seasons. The current Russian wheat crop, combined with problems in US corn and soybean production as well as subdued output in other major wheat producers, caused wheat prices to increase by almost 50% from June to September 2012, turning wheat from an average performer within the agriculture complex in H112 to one of the best performers in the entire commodity universe. Indeed, wheat continued to outperform the rest of the grains complex from mid-September until early November 2012 as problems in Russia and the rest of Europe stimulated prices. The key concern for consumers is that even with Russia's problems, US wheat prices have yet to re-test record highs from the 2007-2008 global food crisis, while other grains (namely corn and soybean) have already exceeded and in some cases remain above previous highs.
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