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Russia cutting poultry product imports in move to bolster domestic producers: American exporters resigned to situation; tensions between US and Russia don't help.

While the Russians were marching through Georgia, they were also gearing up to cut poultry and pork import quotas by hundreds of thousands of tons, Agriculture Minister Alexei Gordeyev revealed at the end of August.

"It is time to change the quota regime and reduce imports, which have unfortunately built up in recent years," Gordeyev told reporters, according to the ITAR-Tass news agency. US exporters had agreed a month earlier to accept lower quotas, without being told what those quotas might be.

"We do not know what the exact quota next year is going to be, as there exists an agreement between the two governments," Jim Sumner, president of the US Poultry and Eggs Export Council (USAPEEC), said at the time. "But we have witnessed a dramatic increase in Russian domestic production ... And we have to accept the reality."

But since then, the war in Georgia has caused strained relations between Russia and the United States, and that might be reflected in Gordeyev's announcement. No doubt Sadia, a Brazilian poultry producer that has set up a plant in Kaliningrad, which is situated in a Russian enclave between Poland and Lithuania, is in a good position to capitalize on the situation.

Gordeyev said domestic producers could meet the shortfall in supply of the meats, likely to include poultry imports. Russians had become dependent on imported poultry after the collapse of the Soviet Union in 1991, but now they seem eager to put the era of "Bush legs" behind them.

Any substantial import cuts would likely have a significant impact on US poultry producers like Sanderson Farms and Pilgrim's Pride, for which Russia is the biggest export market. They supply nearly 75% of the total poultry import quota set by Russia, which now stands at 1.2 million tons. Overall, imports account for nearly 40% of Russia's poultry consumption, and about 30% of the pork requirements.

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Russian Prime Minister Vladimir Putin, who used to be president and who is generally considered to still be running the country, had already backed proposals to freeze some trade agreements--particularly in the field of agriculture--relating to Russia's efforts to join the 153-member World Trade Organization.

WTO officials claim Moscow agreed to certain conditions with member countries in return for their help in fast-tracking Russia's entry. But now the Russians think they've been had. "Agreements, signed more than three years ago as part of the negotiations on WTO accession are unfortunately no longer in Russia's interests," said Gordeyev. "To put it mildly, we've been deceived."

Russian President Dmitry Medvedev told the Group of Eight nations earlier this year that Russia had a key part to play in addressing the global food crisis. He said that in the long term, Russia would significantly increase its agricultural production and supplies to the domestic and foreign markets.

But analysts say it will take Russian producers time to plug the gap left by foreign producers. It could take up to two years for domestic supply to match demand, pushing up prices in the process, said Natalia Zagvozdina, an analyst at Renaissance Capital investment bank.

Two years is short term, however, and the Russians are thinking long-term. Russia's poultry industry is expected to continue its rapid rate of growth and reach 2.5 million metric tons by 2012. Broiler production estimates reached 1.35 million tons last year and will hit 1.48 million this year.

The Food and Agricultural Policy Research Institute (FAPRI), a joint venture of Iowa State University and the University of Missouri, expects Russia's broiler production to total 1.53 million tons by 2010 and 1.78 million by 2017.

According to The Poultry Site, an online industry news service, Russia intends not only to cut quotas but raise tariffs again. It is reportedly considering plans to increase poultry tariffs to 90%. The current duty is 60% but no less than .48 euros per kilogram, up from 50% but not less than 0.4 euros per kilogram prior to February 19, 2008. Moreover, an edict scheduled to take effect in 2011 would ban use of frozen poultry in any further-processed products; just that would force a 20% reduction in imports.

It's easy to understand why the USAPEEC and the Russian Poultry Meat Market Operators Association signed an agreement in July to propose to the governments of both countries a reduction in the 2009 US tariff quota to 750,000 tons from 931,500 tons. They also agreed to propose lower quotas for the next three years, preliminarily set at 630,000 tons for 2010, 550,000 for 2011 and 500,000 for 2012.

Under the deal, US share should be no lower than 75% of the total import quota. Russia consumes around three million tons of poultry meat per year, of which it imports around 1.3 million. In the first six months of this year, Russian domestic poultry meat production rose to 1.02 million tons from 864,800 tons in the same period a year ago. Imports rose to 566,900 tons from 534,800 in the same period.

"The increase in domestic production has occurred during a very slow rise in consumption, mainly due to high prices of both domestic and imported meat," said Ivan Obolentsev, head of the Commission for Agribusiness of the influential Union of Industrialists and Entrepreneurs. "These factors lead to over saturation of the market with poultry meat, essentially imported meat."

Meanwhile, tight supplies of shipping containers, railcars and cargo space aboard ships are hurting US meat and poultry companies as well as other industrial sectors, with some market participants saying the situation is "in a crisis mode."

Many US and Canadian companies are reported to be experiencing delays in making overseas shipments. Some meat and poultry companies are turning down orders because they are unable to guarantee delivery within buyers' time requirements, transportation agents and brokers said.

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Title Annotation:MARKET UPDATE
Publication:Quick Frozen Foods International
Date:Oct 1, 2008
Words:981
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