One year into food embargo, where is Russia getting its pork?

One year into food embargo, where is Russia getting its pork?

It has been just over a year since Russia suspended imports of most food products from the European Union, the United States, Canada, Norway and Australia in retaliation for economic sanctions imposed by those countries due to the ongoing conflict in Ukraine.

At that time, EU pork had already been locked out of the Russian market for six months due to findings of African swine fever in three EU member states. After being completely out of the Russian market for most of 2013 and early 2014 due to an impasse over ractopamine use, U.S. pork had regained access for just two processing plants at the time of the embargo – though those two eligible plants were making significant shipments to Russia, totaling nearly $50 million in July 2014 and $136 million for the few months that the market was open.

Canada was the pork supplier most immediately impacted by the embargo. Russia had been its third-largest export market in the first seven months of 2014, with shipments nearly doubling from 2013 levels to 89,123 metric tons valued at $284 million. Russia was a particularly large destination for Canadian hams, and closure of the Russian market had a significant impact on the North American ham market. U.S. bone-in ham prices peaked at $1.43 per pound at the end of July 2014. Following the ban, hams lost more than 40 cents in just two weeks. Prices rebounded in September but mostly declined the rest of the year, ending 2014 below 70 cents per pound. The impact on the ham complex continued into 2015, with prices further constrained by record-large production.   

Ruble devaluation

In the first half of 2015, Russia’s total pork imports were down dramatically, not only as result of the embargo, but also due to devaluation of the ruble and an extremely sluggish economy. Imports dropped 47% to 112,000 mt, with Brazil, Chile and Ukraine being the main suppliers. Despite its much-publicized decision to allow pork imports from China, Russia took only 323 mt of Chinese pork. Compared to years past, the decline in Russia’s pork imports is even more remarkable. In the first half of 2012, when the ruble was strong and both U.S. and EU pork had access to the Russian market, imports topped 535,000 mt (including muscle cuts, variety meat and fat). In 2013, Russia’s first-half imports felt the absence of U.S. pork, but were still just under 466,000 mt.

Reduced access to imports – whether because of technical and political barriers or lack of purchasing power – has helped bolster Russia’s domestic pork production to some degree, but Russia still faces enormous challenges in reaching its stated self-sufficiency goals. First-half domestic pork production increased 3.5% year-over-year to just over 1.2 million mt (slaughter weight). Russia’s live hog prices averaged $0.83 per pound in early August – about even with last year in rubles, but down 43% in U.S. dollars.

Russia’s reduced presence as a buyer of pork continues to have a significant impact on the global market. The most dramatic effect has been in North Asia, where lack of access to Russia (and a depressed euro) has resulted in a large influx of attractively priced EU pork entering China and several other markets. The impact is also being felt in the Western and Southern Hemispheres, as Canada has aggressively targeted Mexico, the Caribbean, Central/South America and Australia as outlets for hams and other cuts formerly shipped to Russia.

Lion's share of Mexico pork

Canada’s first-half export volume to Mexico was up 25% year-over-year to 45,714 mt, and June exports soared 37% to 8,387 mt. The United States still holds the lion’s share of Mexico’s imported pork market – about 84% by volume and 85% by value, but this is down from 89% and 90%, respectively, in the first half of 2014.

Bolstered in part by a weak Canadian dollar, Canada’s first-half exports to the United States were up 22% from a year ago to 197,437 mt. The currency advantage has also helped Canada displace U.S. pork in Australia, another large ham market, with Canada’s exports up 67% to 15,977 mt. Smaller markets in which Canadian pork posted large first-half increases included Chile (7,008 mt, up 130%), Trinidad and Tobago (2,662 mt, up 50%), Cuba (2,285, up 426%) and Peru (457 mt, up 256%).

“Just three years ago, Russia was a $280 million market for U.S. pork and a brand new member of the WTO, with a zero-duty global pork quota,” noted Philip Seng, U.S. Meat Export Federation president and CEO. “So for exporters serving Russia, there was reason for significant optimism. Unfortunately that’s now a distant memory, and while the U.S. industry may have weathered the direct loss of the Russian market fairly well, Russia’s diminished role in global pork trade is impacting the competitive landscape in many other markets.”

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