rusia- analiza asupra pietei si a cererii

8/3/2019 Rusia- Analiza Asupra Pietei Si a Cererii

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Blair L. Fortner, Director

Global Issues & Alliances

16305 Swingley Ridge Rd., S

Chesterfield, MO 63017

[email protected]

P: 636-449-6030; F: 636-449-1

September 2, 2010

Prepared by:

Gary Blumenthal, Pres. & CE

1300 Pennsylvania Avenue, N

Suite 380

Washington, DC 20004

P: 202.785.3345; F: 202.659.6

Email: [email protected]

Yuriy Alatortsev

DArtur TransConsult LLC

With

Thomas P. Redick

GEEC Law

Russia Market Access

and Demand Analysis


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Table of Contents

EXECUTIVE SUMMARY ............................................................................................. 2

DEMOGRAPHICS ....................................................................................................... 8

AGRICULTURAL MARKET ANALYSIS AND PROSPECTS ................................... 11

MARKET DISAGGREGATION .................................................................................. 17

MARKET OUTLOOK ................................................................................................. 24

COMPETITIVE SITUATION ...................................................................................... 27

LAWS AND REGULATIONS ..................................................................................... 28

ISSUES AND RECOMMENDATIONS ....................................................................... 43

ADDENDUM .............................................................................................................. 45


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Executive Summary

This project details the demand opportunities in Russia for soybeans/soy products and the hurdles (trade

policy barriers) to exploiting inherent demand. In addition to the detailed review of the markets dynamics

(demographic and economic), plus the competitors and regulatory practices constraining or prospectively

inhibiting U.S. suppliers, a critical component is the identification of prospects for U.S. soy and providing

optimal approaches for overcoming the constraints. This report provides some detailed and creative insights

on how best to overcome hurdles in the Russian market.

Demand Driver: Income equals meat demand, which equals vegetable protein demand. Ignoring the hard

recession of 2009 and the countrys incipient inflation, Russians have enjoyed an average 7 percent per

annum GDP growth for the past decade. The situation is even better when calculated on a purchasing power

parity basis the average Russian is able to increase consumption of goods and services. The nations

economic well-being is in part tied to the price of petroleum, and while the nation has its problems with

corruption and oligarchs, the government extracts substantial revenues from the industry.

Russia is the largest consumer goods market in Europe. With 140 million people and some of the worlds

largest oil reserves, U.S. multinational food companies have focused their investments in Russia.

McDonalds told the Financial Times that Russia has been one of our top investment markets for capital

expenditures. It plans to add 45 restaurants in 2010, including drive-through windows. PepsiCo and Coca-

Cola report marketing success in Russia and unlike consumers in the U.S., Russian consumers never

accumulated large debts and so they feel less inhibition to spend.

Animal Protein: Despite its substantial wealth derived from extractive industries (petroleum and minerals),

Russias population (circa 140 million) consumes nearly 40 percent less protein per capita than the U.S.

Russians went from being the worlds 6th largest consumer of calories to 37th after the dissolution of the

Soviet Union. The Russian government has sought to bolster domestic livestock production and increase

consumption by reducing the dependence on imports of animal protein. These efforts have thus far led to

mixed results. More recently, the domestic compound feeding and livestock/poultry production industries

have begun adopting improved genetics, technology and livestock/poultry management techniques. It is now

estimated internally that Russians are 25 percent deficient in protein but meat production is expanding.

Soybeans and Products: While Russia aspires to grow soybeans, and everything else, its climactic

conditions are semi-arid and soybeans are outcompeted for the more optimal growing areas by wheat and

some corn. It is debatable that soybeans will expand sufficiently in a country more adept at growing


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sunflowers and incentivized by neighboring EU policy (support prices plus biodiesel) to grow rapeseed as the

alternative oilseed. Through policy manipulation (addition of a 5 percent duty), the government has

discouraged soybean meal imports, which will bolster soybean imports. Russians consume sunflower oil and

have substituted cheaper palm oil for the prior soybean oil imports.

Note that recent Russian imports of soybean meal have predominantly come from Argentina (40 percent)

and the Netherlands (40 percent). A survey of Russian feed and oilseed sector contacts, plus additional

research indicates three factors for this preference:

Cost: Russians are cost conscious and they buy the cheapest. One reason for the pricing may be exchange

rates. Although the dollar had previously fallen in value versus the euro, though in the forex trade contend

that dollar traders failed to discount inflation effects on the ruble as much as euro traders who were more

cognizant of it. Also note that without hard identity preservation, it is difficult to know whether soybeans

processed in the Netherlands were sourced from the U.S. or South America, though likely it was from

wherever it was cheaper.

Policy Concept: While Russia has become more market oriented, no one should confuse it for a full market

economy. Years of the command and control approach remains within the fabric of the body politic.

Moreover, since Russia lacks even the constraints of WTO membership, it has regularly used policy changes

to achieve it own narrow goals. Thus U.S. pork and poultry producers have seen their tariff rate quotas

reduced, over-quota tariffs increased, and dubious SPS violations assessed. We will not mince words, until

and unless Russia becomes a member of the WTO, its policy framework is fraught with hazards for foreign

suppliers.

Issues and Recommendations: Following is a rank order are the largest potential issues facing U.S.

soybean and soybean product exporters in the Russian market. Each issue is followed by suggested action

steps:

Biotech: Russia operates an opaque and hazardous GM approval process than bans domestic cultivation

and leans sympathetically toward the EUs approach. They talk non-GM but many believe it is planted

domestically and used solely for political purposes. The major leverage point is Russias aspiration to accede

to the WTO. U.S. soybean growers should assert to U.S. officials that a bilateral agreement of Russias

accession is conditioned on the adoption of a transparent, science-based GM approval process. This may

have greater potential under the reset of U.S.-Russian bilateral relations recently adopted.


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SPS/Quality Standards: In a similar vein, Russias overall SPS and technical standards are intentionally

their own, complex, and thus easy to manipulate. Again, use the WTO accession process plus work with

Russian export interests to help them see the advantages of clear, internationally recognized standards.

Marketing/Utilization:U.S. soybean growers have no representation in Russia, an increasingly important

soybean market. Representation is desirable and could work with major soybean importers like Sodrugestvo,

with Russian Soy producers and others to optimize the use of soy in livestock production and other uses.

Import Restrictions:No market is without risk and the effort to market U.S. soy in Russia requires a risk

management plan. For example, it is know that when Russia imposes meat import barriers, there is suddenly

an increase in demand for imported livestock, largely from Denmark, the Netherlands and Poland, which is a

clue as to where there will be a sequential increase in soy protein demand.


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Macroeconomic Situation

During the Soviet era, the Russian agriculture sector was highly subsidized and inefficient. One classic

agricultural story from the communist era involved the hazards of command and control economies.

Moscows instruction to bread bakeries resulted in an over-production of bread. The solution was to turn

bread into part of the feeding ration for livestock. With the collapse of the agriculture sector following

dissolution, Russia became a net importer of many foodstuffs, especially of meat and other livestock

products. In fact, imports in 2002 accounted for over half of all poultry consumption, with the bulk coming

from the United States, and about a quarter of all consumption of beef and pork (mainly from the European

Union).

Russia has undergone tremendous change since the collapse of the Soviet Union. Over time it has become

selectively more market-based and globally-integrated. More recently it has engaged in a push to become a

member of the WTO. Still, several major industries are highly concentrated into politically-connected

"oligarchs," which adds to the risk of state interference with imports.

Russian industry can be broken into two types: globally-competitive commodity producers and other less

competitive heavy industries heavily dependent on the domestic market. Globally competitive industries like

natural gas, oil, steel and aluminum bring significant foreign exchange earnings and have helped GDP

growth to average seven percent since the 1998 Russian financial crisis. The agriculture sector has shifted

from being a net grain importer to a net grain exporter. Real disposable incomes have doubled and there has

been an emergence of a middle class, all of which has fueled demand for better protein in the diet.

It should be noted that Russias heavy reliance on commodity exports also means that the country is subject

to boom and bust cycles. Russia was one of the worst hit countries by the 2008-09 global economic

recession. It has emerged from the crisis but it faces many long-term challenges including a graying

population, corruption and out-dated infrastructure.

The Russian economy had been averaging 7 percent per annum growth for over a decade, resulting in the

doubling of real disposable income. However, Moscow made the mistake in 2008 of deceiving the Russian

people by claiming the country was immune to the unfolding economic crisis in advanced economies. As a

commodity export dependence economy, Russia was far from immune and felt a sharp decline in 2009 (see

graph below).


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Russia entered 2010 with the largest risk premium of any big emerging economy. In fact, the economy

remained lackluster during the first half of 2010 but has more recently rebounded in industrial production.

The IMF recently reduced its forecast of Russias deficit as a share of GDP by nearly two percentage points

to 5.9 percent; Moscow forecasts it will be 5.4 percent. The country managed a $46 billion trade surplus in

2010 Q1, bank lending has risen and the consumer benefits from the rise in oil prices. But some analysts

suggest that Moscow continues to over-rely on bullish oil price forecasts.

While the International Monetary Fund recently raised its 2010 GDP growth forecast for Russia to 4.25

percent, up from 4 percent, it maintained its inflation forecast of 6 percent, which means negative real

growth. Russias Inflation has declined as GDP growth has rebounded (see graph below), but not far enough

to yield full benefit out of the economy.


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On a purchasing power parity per capita basis, Russians are advancing economically (see graph below). APew survey earlier this year indicated a third of Russian respondents believe the economic outlook for their

country is good; that compares to just 24 percent responding in that manner in the U.S. (91 percent of

Chinese in the survey were optimistic.)


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Demographics

Without doubt, one of the largest factors adversely affecting Russias economy and future soy demand is its

population decline. The rate of population decline has begun to stabilize and, for the first time since 1995,

Russia added 15-25,000 people in 2009 to hit a population of 141.9 million. However, lower birth rates and

an average male longevity of just over 61 years of age due to high rates of alcohol consumption are adverse

factors. Higher rates of protein consumption and consequently soy demand are associated with youthful

populations requiring this body building macronutrient. Russias youth population is 20 percent smaller as a

share of the overall population than Chinas. An additional factor of note is the higher population growth rate

of Russias Central Asian cultures that are predominantly Muslim, and therefore consume less pork.

Primary Economic Indicators

Geography

Area: total: 17,098,242 sq km

land: 16,377,742 sq km

water: 720,500 sq km

Coastline: 37,653 km

Climate: Ranges from steppes in the south through humidcontinental in much of European Russia; subarctic inSiberia to tundra climate in the polar north; winters varyfrom cool along Black Sea coast to frigid in Siberia;summers vary from warm in the steppes to cool along

Arctic coast.

Terrain: Broad plain with low hills west of Urals; vast coniferousforest and tundra in Siberia; uplands and mountainsalong southern border regions.

Land use: Arable land:7.17%

Permanent crops:0.11%

Other:92.72% (2005)

Irrigated land: 46,000 sq km (2003)

Natural hazards: Permafrost over much of Siberia is a major impediment todevelopment; volcanic activity in the Kuril Islands;volcanoes and earthquakes on the Kamchatka Peninsula;spring floods and summer/autumn forest fires throughoutSiberia and parts of European Russia.

People

Population: 139,390,205 (July 2010 est.)

Population growth rate: -0.465% (2010 est.)


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Economy

GDP (purchasing powerparity) in USD:

$2.116 trillion (2009 est.) (up from $1.589 trillion in 2005)

GDP (official exchangerate):

$1.232 trillion (2009 est.) (up from $740.7 billion in 2005)

GDP - real growth rate: -7.9% (2009 est.)5.6% (2008 est.)8.1% (2007 est.)6.4% (2005 est.)

GDP - per capita (PPP): $15,100 (2009 est.)$16,300 (2008 est.)$15,400 (2007 est.)$11,100 (2005 est.)

GDP - composition bysector:

Agriculture:4.7% (down from 5.4% in 2005)

Industry:34.8% (down from 37.1% in 2005)

Services:60.5% (2009 est.) (up from 57.5% in 2005)

Labor force: 75.81 million (2009 est.)

Labor force - byoccupation:

Agriculture:10%

Industry:31.9%

Services:58.1% (2008)

Unemployment rate: 8.4% (2009 est.) up from 6.4% in 2008

Population below povertyline:

15.8% (November 2007)

Household Income orConsumption by

percentage share:

Lowest 10%: 1.9%

Highest 10%: 30.4% (September 2007)

Inflation rate (consumerprices):

11.7% (2009 est.) (down from 14.1% in 2008)

Investment (gross fixed): 20.2% of GDP (2009 est.)

Agriculture - products: Grain, sugar beets, sunflower seed, vegetables, fruits;beef, milk

Industrial production

growth rate:

-11.9% (2009 est.) (down from 4% in 2005)

Exports: $303.4 billion (2009 est.)(down from $471.6 billion in2008, but up from $245 billion in 2005)

Exports - commodities: Petroleum and petroleum products, natural gas, woodand wood products, metals, chemicals, and a wide varietyof civilian and military manufactures

Exports - partners: Netherlands 12.2%, Italy 9%, Germany 6.9%, Turkey5.9%, Ukraine 5%, China 4.5%, Poland 4.3% (2008)


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Imports: $191.8 billion (2009 est.) down from $291.9 billion in2008 but up from $125 billion in 2005

19th largest importer in the world

Imports - commodities: Vehicles, machinery and equipment, plastics, medicines,iron and steel, consumer goods, meat, fruits and nuts,semi-finished metal products

Imports - partners: China 12.9%, Germany 12.6%, Japan 6.9%, Ukraine 6%,US 5.1%, Italy 4.1% (2008)

(Since 2005 numbers, China has become largest importpartner, however, unlike 2005: the US has made the top5 list of import partners at 5.1%.)

Exchange rates: Russian rubles (RUB) per US dollar - 32 (2009), 24.853(2008), 25.581 (2007), 27.191 (2006), 28.284 (2005)

Source, CIA Factbook, June 2010


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Agricultural Market Analysis and Prospects

Background

Despite a land mass nearly double that of the U.S. (see table below), Russias agricultural potential is limited

by climatic conditions and soil factors. Its arable land base is actually smaller than that available to Americas

farmers. Russias agricultural potential has been further depleted by policies such as overly intensive

farming, over-use of chemicals and inappropriate crop choices. Agronomic practices have not always taken

into account soil moisture retention, which is particularly critical due to the geographys counter-seasonal

rainfall conditions. Post-Soviet era conversion of collective farms to private ownership has progressed slowly

due to limits on the sale of agricultural land and the political sensitivity of the issue.

Square Miles USA Russia

Total Land Area 9,161,966 17,377,742

Percent Arable 18.01 7.17

Arable Land Area 1,650,070 1,245,984

Source: CIA World Factbook

In the 1990s, Russias agricultural production fell sharply (see graph below). The output of every major

cropsugar beets, potatoes, grains, vegetables, and sunflower seeddropped by 50 percent or more, and

livestock herds shrank significantly.

Output began to increase as reforms were adopted beginning in 1999 and Russias trade balance has

subsequently grown positive. It is important to note that farm infrastructure remains inadequate, there are

credit deficiencies, and instead of developing incentives for independent entrepreneurship, federal and

subnational jurisdictions continue to subsidize inefficient agricultural practices. There is also ample


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corruption. Grain remains the largest crop, occupying more than 50 percent of cultivated land. Other key

crops are sugar beets, sunflower seed, and vegetables.

Russian policy evolved more recently as a result of the 2008 global price spike in agricultural prices. The

government offered to host a Global Grain Forum to discuss feeding the world. Russian officials envisioned

their country playing a central role in that goal. However, by the time the Forum was actually held in May of

2009, the world was in the throes of a major economic recession and Russian farmers were furious at the

banks for failing to provide adequate levels of credit.

Livestock Situation

Since Russia is predominantly consuming soybean meal as animal feed, it is important to assess the

livestock situation. As noted in the recent visit to the U.S. by President Medvedev, there is an effort to

diversify the economy, particularly into high technology and agriculture. Russia has made progress in its

effort to modernize its agriculture sector and once again become a bread basket for the world. The country

has shifted from being a net grain importer to a net grain exporter. Efforts to rebuild its livestock production

have met with more mixed results.

The government has sought to funnel more financial resources into meat production and has used import

restrictions to reduce the adverse price impact of foreign suppliers. The Russian Poultry Union now claims

that investments in its industry are paid back in seven years for new poultry facilities with 55,000-100,000 MT

capacity, or four to five years for renovated facilities. Russian meat production has rebounded from its low

point in 1999 (see graph below).


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Despite the governments efforts and policy changes, Russias meat imports have continued to grow (see

graph below).

Analyses by USDA and the OECD indicate that Russia is uncompetitive in livestock vis--vis the world

market. The country is highly competitive in energy dependent agricultural inputs, and it can be competitive

in grains, but it suffers a comparative disadvantage in producing meat. FAO predicts that among the

developed nations, the Russian Federation is set to remain the worlds largest net meat importer by 2017.

As noted earlier, Russia predominantly uses soybean meal for its livestock ration and the graph below

evidences the correlation, particularly as rations are more broadly improved.


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Live Animals

Russias imports of live animals have continued to grow through the years as the country rebuilds its

livestock sector following the post-Soviet decline. Imports are generally to improve genetics, particularly for

dairy cows and pigs. The increased importation of live animals also occurs when the tariff-rate quota (TRQ)

limits are reached, or when Russia imposes restrictions on meat and poultry imports. Breeding stock is

predominantly provided by Poland, Denmark and other European sources.

Animal Product Imports and Exports

In addition to country TRQ allocations, the ability to export meat to Russia has been affected by animal

disease outbreaks. Russias Veterinary and Phytosanitary Surveillance Service (VPSS) has frequently used

the existence of animal diseases, both large and small, as a rationale for blocking meat imports. It should be

noted that Russia is also a net importer of animal fats, edible offal, milk and bird eggs.

Protein Consumption

Protein is at once a fundamental biological building block and the most expensive macronutrient (in most

places). As a result, the demand for protein is highly elastic and shows a strong correlation to income (see

graph below). Extra income in poorer nations is nearly always directed toward increasing protein availability.


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This dynamic may be distorted in some cases due to religious reasons (e.g. India), extraordinary geographic

conditions (e.g. Argentina), or government policy distortions. Beginning in the early 1970s, the USSR sought

to improve living standards by increasing high-value, meat consumption. Because this was supposed to

improve standards across the board, the government did not want consumers to have to pay the actual high

cost of livestock production. Therefore, massive government subsidies were used to cover this gap. By 1990,

the USSR state budget subsidies to the agro-food economy were dominated by the livestock sector and

equaled about 11 percent of the GDP (World Bank).

As a result of government subsidies, Russians consumed an average 3,300 calories per day, which placed

the USSR amongst the top six countries in the world. According to data from the Russian Academy of

Sciences and Russian Statistics Committee, the policy resulted in the consumption of 91.6 percent of

recommended protein per capita. Note that consumption of animal protein was around 60 to or 70 percent

that of the U.S. or Germany. Following the dissolution, food consumption in Russia fell to 37th in the world

according to FAO. As noted by Russias International Congress, Policy in the area of healthy nutrition in

Russia must respond to the 25 percent deficit of protein in the food diet of the Russian population.

The previous over-consumption of livestock products relative to income level is evidenced in Eastern Europe

where real GDP now readily surpasses that of the Soviet era level, and yet consumption of livestock products

is below Soviet era volumes. In 2000, Poland, Hungary, and the Czech Republics real per capita GDP was,

respectively, 43, 12, and 10 percent higher than in 1990 (PlanEcon-a), while per capita consumption of meat

was 4, 12, and 24 percent lower, respectively (FAO). The drop in production and consumption of livestock

products was inevitable and Russias restructuring of its agricultural production, livestock production and

consumption now better reflects the nations real national product and income.


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Compared to the early 1990s, Russias livestock sector (animal inventory and production) has contracted to

half its former size and the corresponding fall in feed demand has been matched by a one-third reduction in

grain output. Despite the drop in meat consumption, Russians continue to have a traditional dietary

preference for meat, dairy and eggs. Therefore, although meat consumption has declined, it will rise as

income improves.


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Market Disaggregation

Although more variable, Russias production of sunflower far outpaces its production of soy or rapeseed (see

graph below).

The Russian market for oil meals has been growing (see graph below) along with livestock production (see

further below).


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Because Russia is a more efficient producer of sunflower, it is the predominant oil meal being produced

domestically (see graph below), but some expansion is also occurring in rapeseed and soybean meal

production, though a significant share of the latter is from imported soybeans.

To satisfy the rising demand for soybean meal for feed, imports had been growing substantially until 2008

(see graph below) when a 5 percent duty was imposed.

Russia imported soybean meal from six countries during January - May 2009. Cumulatively, almost 80

percent of the imported meal came from Argentina and the Netherlands (see graph below). Without IP, it is

difficult to say whether the meal from the Netherlands was crushed from U.S. or South American beans.

Depending on time of year and price, Russia may also import soybeans and meal from Paraguay, USA and

other countries.


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Russian meal buyers indicate that they prefer imported meal to the meal being made by Sodruzhestvo. The

reason provided is logistics. Even though the Belarusian Railroad decreased its applied tariff for transporting

soybean meal from Kaliningrad by 20 percent, it is still costly to deliver meal from the North-Western part of

Russia (Kaliningrad). However, the competition is getting tougher and tougher.

The following graph depicts the monthly variation and the ultimate annual decline in Russias soybean meal

imports as a result of a 5 percent duty.

SUPPLIERPREFERENCEChina istheworlds largestagricultural importmarketandtheU.S.hasan18percentmarketshare.Russia isthesecond largestagricultural importmarketafterChinaandyettheU.S.suppliesjust6percentof its food imports.RatherthananyresidualColdWaranimosity,RussianbuyerssaytheypurchasemealfromEuropeandSouthAmericaforthreereasons:

1. Cost:SouthAmericapricesmoreaggressivelyandsomeeconomistsnotethatthe ruble suffered greater depreciation against the dollar for the Russianinflationratethanitdidagainsttheeuro.

2. Proximity: The hand to mouth supply chain operates more efficiently withWesternEuropeduetoitsproximity.

3. Relationships: Western European businesses went into Russia immediatelyafterthedissolutionandhavestayedthereasakeystrategy.


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Meanwhile, the import market for vegetable oil in Russia has shifted from a preference for soybean oil early

in the decade to a subsequent shift toward lower cost palm oil (see graph below). While soybeans comprise

the second largest crush after sunflower, it accounts for only 3 percent of edible oil consumption. The

increase in domestic soybean production plus imports for crush should mean an increase in oil for

consumption in the years ahead. The key consumers of domestically produced soybean oil are local

margarine and fat plants, plus other food processors that use the oil as a raw material for margarine,

mayonnaise, food fats and other products.

While the 5 percent duty applied to soybean meal imports mostly affects South America and Europe, the

U.S. has once again become a supplier of soybeans to Russia since the duty was implemented against

meal. The U.S. has supplied 90,000 MT of soybeans in MY 2009/10, which is nearly three times the amount

of meal shipped (Russia does not buy oil from the U.S.), and it is projected that the U.S. will sell 150,000 MT

of soybeans to Russia in 2010/11.


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Russia has been a major importer of beef, pork and poultry meat. While imports have moderated, Russia

remains the worlds largest market for imported broiler meat.

A key issue is the countrys own capacity for livestock production. Through the adoption of improved

technologies plus import restrictions, domestic production of pork and poultry has been increasing (see graph

below).


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Other Soybean Products

Russian domestic production of lecithin is miniscule so the majority of the product is imported. Imports are

mostly pure lecithin, which is free of neutral oil and the phosphatidylcholine content can be as high as 25-30

percent.

Production of soybean flour is limited. Production of soybean concentrates is at an early stage; however,

Russian soybean flour is gaining the market gradually. Whereas in 2002 imported soybean flour on the

Russian market was 100 percent, domestic soybean flour already accounts for 28.5 percent. The annual

Russian consumption of soybean flour is around 12,000 tons and around 25,000 tons of textured soybean

flour. Russia produces around 75 percent of consumed flour and 70 percent of textured flour.

There is neither domestic production nor processing of soy concentratesit is a 100 percent imported

product to date. The key supplier of these products to the Russian market is China because its more

attractive pricing pushed EU suppliers and suppliers from other countries out of the market. However, some

high tech concentrates that China does not produce, or produces with poor quality, are being produced and

supplied by other western-based companies.


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Market Outlook

Despite the challenge of its demographics, Russias strong natural resource base and other attributes will

enable the country to eventually return to strong GDP growth, although likely with an accompanying highinflation rate. The question is whether Russias transformation to more efficient agricultural production, and

particularly in its livestock sector, will keep pace with the growing consumer demand. Based on experience to

date, one must assume that the government will continue to stoke the industry with subsidies and import

protections (including SPS barriers). The agricultural sector outlook for the remained of the decade is as

follows:

Soybean Sector

The processing of soybeans into oil and meal and cake (depending on the process of crushing) at domesticcrushers will continue to show expansion. The processing of soybean-based food proteins (soybean meal,

textured soybean proteins, concentrates, isolates) plus the production of directly consumed soybean

products (milk, tofu, etc) is expected to expand from a current small base to around 150,000 tons of soy

proteins a year. The increased consumption of these products follows global trends but Russia currently has

neither the domestic volume nor the quality of soybean products to satisfy buyers. Demand is encouraging

the construction of new processing facilities in Russia. Soybean meal imports may increase despite the

import duty due to the expanding livestock demand.

For reference: about 80 percent of the domestically produced soybeans will be processed into soybean oil

and meal. Of all meals, less than 5 percent will be processed into food proteins (second stage of processing).

Less than 10 percent of all soybeans will be processed into traditional soybean products. The balance will be

used for seed, carryover, etc. However, soybean production in Commonwealth of Independent States (CIS)

countries is increasing and there is a potential that neighboring countries will also supply soybeans and

products to Russia in the nearest future. The Customs Union will make their commodities more competitive

than those from the U.S. for example. Additionally, the genetically modified organism (GMO) issue is very

important and is a potential threat to U.S. and Argentine suppliers.

Livestock Sector

Demand for pork and poultry will continue to grow (see graph below).


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Russian pork and poultry production will expand, while beef will decline (see graph below).

The countrys importation of pork and poultry will decline, while beef imports will increase to fill the gap left by

declining domestic production. It is expected that EU and South American suppliers will capture beef market

share.


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Economic Outlook

Since petroleum prices are critical to Russias economic well being and consequent livestock/soy product

demand (see graph below), oil prices are a key indicator to watch. Oil prices are influenced by the overall

global economic growth rate but the current intermediate term estimate is that oil will rise from its current

$75/barrel range to $95/barrel by early 2011.


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Competitive Situation

Because of artificial barriers created by the monopoly suppliers, governmental authorities, strict sanitary rules

applied to imported product the price for feed has been recently increased 10%.

Soybeans

The Customs Union (Russia, Belarus and Kazakhstan) countries are currently deficient in soybean

production but the goal is to improve the situation. There is already a view that selling soy products outside

the Customs Union undermines the food security objectives of the newly created organization. Some would

like to see a 100 percent duty imposed on soy product exports. Note that an export duty of 15 percent

(30/MT minimum) was already imposed by the Governmental (Decree #84) on rapeseed exports.

Kazakhstan, which produced only 80,000 tons of soybeans in 2009 and consumed 200,000 tons, is viewed

as a primary site for expanded soybean production within the Customs Union. In the near future, demand forsoybeans in Kazakhstan alone may exceed half a million tons. The shortage of soybean meal is several

million tons cumulatively in the Customs Union and any effort at self-sufficiency will take several years.

Rapeseed

Until recently, soybean oil was the #2 oil in Russia after sunflower oil. However, EU subsidies for biodiesel

production coupled with EU demand for rapeseed in general has increased the incentive for rapeseed

production in Russia. Rapeseed area is likely to expand in Russia over the near term and there may be more

winter rape as well.

Sunflower Meal

While sunflower meal is lower in protein than soybean meal, it is readily available. Any switch away from

sunflower meal and toward soybean meal will be gradual.


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Currently the trade policy of Russia is being exercised through the mechanism of customs and tariff

regulation (export and import customs duties) and non-tariff regulation (quotas and licensing) of foreign trade

activity. Officially, other methods of governmental regulation of foreign trade activity are not allowed.

However, in practice there are political issues where in addition to tariff and non-tariff regulations, both the

Federal and local governments use various mechanisms to stop, hamper, hinder, limit or totally prohibit

imports. When WPI contacted Valery Khromchenkov, the Russian Attach for the Agroindustrial Complex in

Washington, he responded only half tongue in cheek by saying, What is confusing? We adopt either the

American barrier or the European barrier, whichever is the better barrier.

By law, such limitations should only be imposed for the following:

1. For the purpose of ensuring the national security of Russian Federation including but not limited to

food security;

2. Fulfilling international obligations of Russia taking into account the situation on the domestic

commodity market;

3. Protecting the domestic market of Russian Federation.

Among those means of protection one can find a large number of technical, pharmacological, sanitary,

veterinary, ecological and quality standards and requirements related to imported items and/or commodities.

Laws impacting market access include:

Customs Code of Russian Federation adopted by the Duma on April 25, 2003 and approved by the

Federation Council on May 14,2003 N 61- dd. May 28, 2003(as amended)

The Law of Russian Federation on Customs Tariff dd. 21.5.93 N 5003-1 (as amended).

The Law of Russian Federation on measures to protect the economic interests of Russian Federation

when doing foreign trade dd. 14.4.98 N 63-

The Law of Russian Federation on fundamental principles of governmental regulation of foreign

economic activity dd. 08.12.2003 N 164-

The Governmental Decree #718 dd. November 27, 2006 (as amended) on Customs Tariff of Russian

Federation and Range of Products applied when doing foreign trade.

The Law of Russian Federation on Special Economic Measures dd. December 30, 2006 #281-

Law on State Regulation of Genetic Engineering (1996).

Consumer Law (December 2004 GMO in food products content must be labeled, threshold is not

mentioned here, but later decrees set it at the 0.9% used in the EU).

Law on State Environmental Assessment (1995)


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Law on Protection of Environment (2002, GMOs are subject to a mandatory environmental

assessment).

Veterinary-Sanitary Requirements of Agriculture Ministry (1999, ban on import of meat produced from

GMO fed animals).

Political and strategic documents: Ecological Doctrine of Russia (August 2002).

Note that foreign trade (both import and export), plus trade taking place on commodity exchanges are

exempt from the Fundamentals of Governmental Regulation of Trade in the Russian Federation that took

effect on 1 February 2010. That law strictly guides domestic transactions between suppliers and retailers and

is intended to protect against monopolistic or manipulative supply arrangements.

Trade Barriers

Russian policy during the 2000s has resisted, rather than promoted, the countrys move toward an open

trading regime. Some of the troubles seen in U.S. meat exports to Russia could lie ahead for expanded

shipments of soybeans to Russia, but there appears to be ample latent demand that could be tapped.

Moreover, Russian needs might drive government involvement in creating fairer trading mechanisms,

through ad hoc commercial deal-making or WTO accession initiatives.

Meat and Poultry Restrictions: In 2003, the Russian government established restrictive tariff rate quotas

(TRQs) for imports of beef and pork, and a pure quota for poultry, converted in 2006 to a TRQ. In January

2009, the size of the TRQs for pork and poultry were lowered further and the out-of-quota tariffs rose, to 75%

and 95%, respectively. During the 2000s, Russia also has imposed many sanitary-based restrictions, and

often complete bans on imports of meat (especially poultry) and other livestock products.

In December 2008, the United States and Russia signed a protocol aimed at resolving various emerging

trade issues between the two countries in order to continue U.S. livestock and poultry exports to Russia

through the end of 2009. By December 2009, however, Russia had escalated these trade issues in a series

of actions that threatened to shut out U.S. livestock and poultry exports. These actions, in part, followed on

Russias statements throughout 2008 and 2009 regarding its concerns about antimicrobial use in U.S. meat

production.

Russia has continued to cite various food safety concerns, including concerns about antimicrobial residues

and the use of chlorine rinses on U.S. meat exports, and identified several U.S. poultry and meat processing

companies as ineligible to export meat to Russia. In 2008 and again in 2009, Russia announced that it was

banning poultry imports from several U.S. establishments due to safety concerns. In addition, throughout


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2008 and 2009, Russia refused imports of pork products from several U.S. plants because trace amounts of

antibiotics were found in some of the meat tested. As part of these actions, Russian officials signaled that

U.S. permits to import poultry and pork under that countrys quota system might be restricted. (Russia also

banned pork products for most of 2009 from several countries, including the United States, following reports

about the H1N1 influenza virus in April 2009.)

In December 2009, Russia announced that it would implement its previously proposed ban on poultry imports

treated with chlorine washes from all exporting countries, effective January 1, 2010. This action was

expected to effectively ban all U.S. poultry exports to Russia since chlorine-based pathogen reduction rinses

are commonplace in U.S. poultry production. (A similar European Union prohibition has kept U.S. chicken out

of Europe since 1997.) An agreement between the U.S. and Russia on poultry pathogen treatments was

reached in June 2010 with the net effect being an end to the use of chlorine by U.S. suppliers despite the

lack of scientific evidence against it. The sheer size and therefore importance of the Russian market (18

percent of total U.S. poultry exports; $820 million of sales annually) forced capitulation by the U.S. poultry

industry.

Additionally, there were delistings, as of late 2009, of virtually all U.S. pork plants that exported to Russia

(purported to be mainly due to concerns about findings of trace amounts of antimicrobials on pork). These

delistings were reportedly resolved earlier in March.

Also in December 2009, reports emerged that Russia would reduce its 2010 import quotas for U.S. pork and

poultry below 2009 quota levels. Russias import quotas for U.S. beef, however, would be increased above

2009 levels. Quota allocations for U.S. pork and poultry are expected to be reduced even further in both

2011 and 2012. Many U.S. producers believe that Russias food safety restrictions, including those regarding

antimicrobial use, are not science-based, but are instead intended to protect and promote Russias own

growing domestic pork and poultry production. Some further point out that Russias perceived zero

tolerance regarding antimicrobial use is the most restrictive among all U.S. trading partners.

For U.S. poultry and meat producers, the economic stakes of Russias import actions are significant. In

addition to the aforementioned poultry sales, Russia has purchased $330 million worth of U.S. pork and

nearly $70 million of beef products. All these export products had been experiencing strong growth in the

Russian market. Members of Congress with important poultry and meat industry constituents have been

monitoring events and ongoing negotiations between the United States and Russia to resolve these disputes.


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RBK Customs Union: Russia, Belarus and Kazakhstan all aligned their tariffs and non-tariff measures

(NTBs such as licensing, TRQs, etc.) and other measures. Tariffs are generally along Russias previously

applied rates but 1,000 tariff lines (mostly agricultural products) will increase while just 400 lines will decline.

More NTB changes are likely.

June 9, 2009 heads of the governments approved at the meeting of the Intergovernmental Council of the

EurAsEc stages and dates of the formation of the Customs Union, according to which the common customs

area is created (decision 9). Heads of states defined at the meeting of the Intergovernmental Council of

the EurAsEc on November 27, 2009 the start date for the common customs territory July 1, 2010 (decision

24), simultaneously with the coming into effect of the Customs Code of the Customs Union. Single

measures of customs and tariff and non-tariff regulation will be taken towards third parties on the common

customs territory; import customs duties will not be levied, bans and restrictions will not be lifted, zero value-

added tax rate and excise duty exemption as well as uniform legislation on customs affairs will be in effect in

the mutual trade between the states-members of the Customs Union.

Representatives of the Russian FCS took active part in the preparation of the customs legislation of the

Customs Union Customs Code of the Customs Union, including the Protocol on the Introduction of

Amendments to it, international agreements of the states-members of the Customs Union and Commission

of the Customs Union, provided for by the Customs Code of the Customs Union.

The fundamental document regulating customs legal relationships in the Customs Union is the Customs

Code of the Customs Union. It contains the uniform conditions and procedure of recognizing people

performing customs activity, definition and concretization of forms of customs control, principle requirements

for the performing of customs operations by the participants of the foreign economic activity and customs

bodies, legal meaning of the customs procedures.

Owing to the necessity of abolition of customs clearance on the internal boundaries of the Customs Union

from July 1, 2010, a Protocol on introducing amendments to the Agreement on the Customs Code of the

Customs Union has been developed.

With the coming into effect of the Customs Code of the Customs Union on July 1, 2010 new notions will be

put into practice, some legal relationships will be regulated in a new way, the principles of control will need

reconsideration.


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For instance, goods conveyed within the mutual trade between the states-members of the Customs Union

will not be placed under the customs import and export procedure, which will lower cost loading on persons

performing commercial activity on the territory of the Customs Union.

Procedure of the internal customs transit which was contained in the Customs Code of the Russian

Federation is expelled. Now conveyance of goods is open from the outer boundary of the Customs border

immediately to the location of the recipient independently of the state in which he is situated; and the carriers

including customs have the right to transport throughout the whole territory of the Customs Union without

undergoing national control on the territory of each of the states-members of the Customs Union. Therewith

railway carriers are contracted out of the security payment as a goods delivery guarantee.

Provisions of the Customs Code of the Customs Union are aimed at the facilitation of the procedure of

customs clearance and customs operations for the participants of the foreign economic activity.

For example, an institution of an authorized economic operator has been introduced, for which the following

simplifications are stipulated:

Release of goods before declaring the payment, which is a free delay of payment from 10 to 40 days;

Possibility of temporary storage of goods and performing of customs operations connected with the

goods release on the territories of the authorized economic operator;

Possibility to formalize transit of goods without security payment as a guarantee of customs

payments.

The activity of the authorized economic operators will be registered and requiring security payment (1 million

euro). Therewith the amount of such security payment may be reduced to 150 thousand euro provided that

the authorized economic operator produces goods or exports them, and meets the criteria defined by the

Commission of the Customs Union.

To contribute to the export of high-technology goods the shortened and close list of documents for declaring

is established, the foundation for large-scale implementation of electronic declarations has been laid down.

In comparison with the Customs Code of the Russian Federation the periods of different customs operations

performed by the customs authorities have been reduced. For instance, the timeframe for release of goods is

reduced from 3 to 2 days, especially those exported from the customs territory of the Customs Union and

exempt from export customs charges to 4 hours; therewith a maximum term of release of goods

prolongation is fixed to 10 days starting from the day of customs declaration registration, and conditions of


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such prolongation are also clearly defined the necessity of holding or finishing of forms of customs

clearance; customs authority transit declaration registration from 2 hours to 1 hour.

Increased are the terms of:

Submission of goods to the customs authority with the advance declaration from 15 to 30 days;

Processing of goods on the customs territory from 2 to 3 years;

Allowing putting under the customs re-export procedure goods, formerly put under the customs

procedure of release for internal consumption from 6 months to 1 year.

The terms of the processes which were without time limits before have been fixed. These are the terms of:

Organization by the customs authority of the customs escort (within 24 hours on the decision);

Registration or lack of approval of the customs declaration (no more than 2 hours on the declaration;

in the Customs Code of the Russian Federation this term is defined as the day of the receipt of the

customs declaration by the customs authority);

Performing by the interested persons of the operations connected with the placement of goods for

temporary storage or their customs declaration (3 hours on the submission of goods).

Substantial changes have been made in the activity connected with keeping the registers.

Besides national registers supranational registers have emerged. They will be maintained by the

Commission of the Customs Union.

In general, new opportunities for persons performing activity within the customs affairs are as follows:

a) Considerable opportunities are established for the development of cooperation of the customs bodies

with the persons, performing activity in the field of customs affairs by means of information

technologies (e.g., a customs representative may have access to the information systems of customs

authorities, used for the automated information processing and electronic data transfer necessary for

customs purposes).

b) Presence of civil liability insurance is now not a prerequisite for enrolling persons on the register of

customs carriers.

Therewith necessary conditions for enrolling on the register of customs carriers are supplemented by the

requirements to have no unpaid customs charges and fines as well as facts of imposition of administrative

sanctions for delinquency in the field of customs affairs within 1 year from the date of application to the

customs authority on the date of application.


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A person being under the process of liquidation or reorganization is now to be expelled from the appropriate

register of persons performing activity in the field of customs authority.

The amount of security payment has been reduced:

For a customs representative from 50 million rubles to 1 million euro (about 40 million rubes);

For a customs carrier from 20 million rubles to 200 thousand euro (about 8 million rubles).

Under the conditions of shifting to novel requirements for doing business transition period is provided for in

regard to persons performing activity in the field of customs affairs. Customs brokers, carriers, owners of

warehouses of temporary storage, customs storages and duty free shops, formed before coming into effect

of the Customs Code of the Customs Union, have the right to perform activity in the field of customs affairs

within 6 months from the Codes coming into effect.

For the development of the Customs Code of the Customs Union the Implementation Plan on the Enactment

of the Customs Code of the Customs Union prescribes to elaborate 16 international agreements of the

states-members of the Customs Union (the Russian Federation is responsible for the development of 11

ones) and 17 decisions of the Commission of the Customs Union (the Russian FCS is responsible for the

development of 10). In the Russian Federation the Russian FCS is the federal authority of executive power,

responsible for providing implementation of the Plan (Commission of the Government of the Russian

Federation dated 31.12.2009 2 7824).

The Customs Code of the Customs Union shifts to the international agreements regulation of the questions

connected with free economic zones and free customs warehouses, conveyance across the customs border

of goods for personal use as well as goods conveyed by pipelines and by transmission facilities, procedure of

assessment of import and export customs duties, peculiarities of using vehicles of international transportation

for internal conveyance, enrollment of items of intellectual property to the single register of the Customs

Union etc.

Decisions of the Commission of the Customs Union besides questions of register activity, forms of customs

documents and customs value will regulate procedure of customs expertise, procedure of introducing

amendments and additions to the customs declaration, peculiarities of sending goods in the international

mailing, several questions of applying customs procedures etc.

In the course of work on the preparation for the coming into effect of the Customs Code of the Customs

Union questions have been elicited for the regulation of which it is indispensable to approve additional


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international agreements and decisions of the Commission of the Customs Union, which were not prescribed

by the Implementation Plan on the Enactment of the Customs Code of the Customs Union. Examples include

the regulation of the conveyance of goods and vehicles between Kalinigradskaya region and the rest of the

customs territory of the Customs Union, as well as questions of changing terms of customs duties payments.

Consequently, projects of 18 international agreements and 25 decisions of the Commission of the Customs

Union are developed.

Of all the developed international legal acts 8 international agreements of the states-members of the

Customs Union were approved at the meeting of the Commission of the Customs Union on April 16, 2010

(decision of the Commission of the Customs Union dated April 16, 2010 214). The other agreements and

decisions of the Commission of the Customs Union are being finalized. Their consideration is planned for the

next meeting of the Commission of the Customs Union on May 20, 2010.

Besides the development of the international normative legal base for the Customs Union active work is

being held on the harmonization of the national legislation with the international agreements.

Project of the Federal Law on the Customs Regulation in the Russian Federation has been prepared and

have passed the procedure of interdepartmental coordination. It is intended to replace the current Customs

Code of the Russian Federation. In this draft there are regulations whose implementation is immediately

shifted to the national legislation of the states-members of the Customs Union.

Thus, the bill regulates questions concerning:

System of customs authorities of the Russian Federation, their duties, competence and responsibility;

Procedure of appeal against the actions of the customs officers;

Informing and consulting;

Procedure of maintaining registers of persons performing activity in the field of customs affairs;

Computation, paying and recovery of customs duties;

Peculiarities of performing certain forms of customs control;

Disposal of goods, converted into federal property;

Peculiarities of customs declaration, customs procedures and conveyance of certain types of goods.

Besides the revising of the Customs Code of the Russian Federation work on matching the contractual legal

framework of the Customs Union and the subordinate legislation and acts issued by the Russian FCS is

being performed.


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Thus, by July 1, 2010 the new system of normative legal regulation of customs legal relationships in the

Russian Federation was to have been formed. It will consist of 6 stages: the Customs Code of the Customs

Union, international agreements of the states-members of the Customs Union approved according to it and

the decisions of the Commission of the Customs Union, the Federal Law On the Customs Regulation in the

Russian Federation, subordinate normative legal acts of the Russian Federation and Federal Customs

Service passed according to it.

Export Duties: Export duties for commodities sold within the Customs Union jurisdiction may be cancelled

even earlier than 2012, according to Russian Vice-Premier and Minister of Finance Alexey Kudrin.

Import Restrictions: Russia applies a wide range of import restrictions on food products including tariffs,

license requirements and tariff rate quotas. Its average applied tariff on imported agricultural products is 14.2

percent. With the economic crisis as a rationale, Moscow increased the duty on several imported agricultural

products in 2009 including soybean meal, rice, baby formula, corn and manioc starch, sugar, cheese,

concentrated milk and cream, and tropical oils. The over-quota tariffs on poultry and pork were nearly

doubled to trade prohibitive levels. Meanwhile, excise taxes are applied to a number of luxury goods,

including tobacco and liquor.

U.S. suppliers also complain that Russian customs officials have requested proof of declared values,

particularly for commodity products in which transparent world prices have recently declined. Customs

practices vary greatly depending on region or port, are frequently changed and are often unpublished.

Additional Threats: Russian watchdog Federal Service for Veterinary and Phytosanitary Surveillance may

impose AT ANY TIME a clause where in order to ensure the food safety, etc. etc. etc a ban can be placed on

ANY country and ANY factory (US, Canada, Poland, Ukraine) UNTIL the moment when the commission from

the FSVPS visits the factory and approves it or reinstates the permit for exporting ANY commodity to Russia.

This has been the case for hundreds of countries and companies during recent times and this trend is likely

to continue. In very many cases the reasons for such unscheduled inspection is political rather than

legitimate economic (e.g., food security, international law requirements, and quality standard requirements).

2010 USTR Report on SPS Measures and Russia: USTR asserts that Russias SPS standards are

extremely prescriptive with detailed requirements for foreign facilities and production processes. These

requirements are not always based on science or consistent with international recommendations or

guidelines. Russian government resolutions directing respect for international standards, guidelines, and


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recommendations of the WTO reference bodies on animals (OIE) and plants (the International Plant

Protection Convention, or IPPC) be respected could prove helpful, but in practice they are not always

followed, and often no justification is provided for departures. The situation poses significant negative effects

for U.S. exports. Moreover, Russia, Kazakhstan and Belarus have entered into a Customs Union with the

goal of harmonizing their SPS measures.

Systemic issues related to the certification of agricultural products include the requirement for phytosanitary

certificates for shipments of processed products like soybean proteins, corn gluten and distillers dried grain.

However, due to the nature of their processing, these products do not present a pest risk and consequently

do not receive phytosanitary certification from the U.S. Government. Thus several requirements of various

certificates are unattainable or involve information that is not available to U.S. officials.

There have also been implementation problems with several of the agreements reached between the U.S.

and Russian governments on import requirements. The United States has not agreed to provide certificates

for fodder grains, soybeans, soybean meal and animal feeds of plant origin on the basis that such

certifications are unnecessary since these products do not pose any animal health risks. As a result, Russia

permits imports of these products only on a casebycase basis. These may limit the export of U.S. grain and

oilseed products to Russia.

WTO Accession: Although Russia began its quest for WTO membership as far back as 1993, little action

was taken until 2000. More recently, Russian President Dmitri Medvedev has been more aggressive in the

pursuit of WTO membership and the government has reportedly changed at least 100 laws or adopted new

customs codes to bring it into alignment with WTO requirements. The process ran into a glitch in June 2009

when President Vladimir Putin asserted that Russian would not enter the WTO without its Customs Union

partners, Belarus and Kazakhstan. More recently, President Barack Obama committed to resolving all

outstanding bilateral issues over Russias accession no later than end September, 2010.

Russia is as close as it has ever been to WTO membership but issues remain such as limits to agricultural

subsidies. In the two key areas of import tariffs and domestic support, Russia in its accession negotiations

has been asking for bound commitments above the existing levels (a bound tariff or support amount is a

maximum allowable level in the future). Russias current average agricultural import tariff is around 18

percent, up from 10 percent in 2000. However, Russia is negotiating for bound agricultural tariffs above

actual applied tariffs. On domestic support, Russia is asking for annual bound tariff support of $9.5 billion,

which compares to its 2007 actual support level of $5.7 billion (Russia and World Trade Organization;

Rosstat).


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If Russia were to join the WTO soon, its negotiated bound levels of tariffs and support might be above the

current levels. Accession on such terms would not liberalize Russian agricultural trade and support policies,

and thereby not increase imports. The United States and other foreign suppliers would nevertheless benefit

because the bound levels would provide a cap on any future rise in tariffs and support. Russias agricultural

trading partners might gain the most from Russias WTO accession by having an official forum for

challenging the countrys sanitary and phyto-sanitary import restrictions.

Barrier Case Studies

The following provide good examples of bans on meat imports from Poland, meat and dairy from Ukraine,

and now meat and dairy from Belarus. The modus operandiis that any time Russian trading partners fail to

agree to the Moscows terms, there is imposed almost instantly a ban on importation of a particular

commodity, typically one that is sensitive to partners exports.

Poland: In recent years, Russia has imposed for no obvious reason a ban on imports of Polish meat. In

reaction, Poland used its member state veto power in Brussels to block the EU-Russian summit on issues of

partnership. This ban lasted for more than a year and almost disrupted supplies of all EU meat to Russia,

which threatened billions of dollars of losses to the EU in general. Russia is a huge market for EU meat. The

Polish government always maintained the ban was politically motivated. The dispute not only strained

relations between the two countries but prevented the start of talks on a new partnership agreement between

the EU and Russia.

The breakthrough was announced following a meeting in Moscow between Russian agriculture minister

Alexei Gordeyev and his Polish counterpart, Marek Sawicki. It had been expected. First, Poland said it would

no longer oppose Russia's application to join the Organization for Economic Cooperation Development, a

grouping of the world's most industrialized nations. Then Mr. Tusk said his government would be willing to

listen to Moscow's concerns about the missile defense shield Washington wants to build in Poland. The lifting

of the meat ban could also have implications for the rest of the European Union. Poland has been unilaterally

blocking the start of talks on a new partnership deal between the EU and Russia. In the past, Warsaw has

said it would consider dropping its objections if the meat ban was lifted.

Ukraine: When Ukraine failed to agree to Russian terms on various political issues, an immediate ban was

imposed on imports from Ukraine of hard cheese, meat and other dairy products. Ukraines hard cheese

exports to Russia accounted for 95 percent of all its hard cheese exports.


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Belarus: Relations between Belarus and Russia recently deteriorated to an unprecedented degree and are

accompanied by fierce confrontation. Signals of the Federal Service for Veterinary and Phytosanitary

Surveillance to Minsk may indicate an upcoming trade war and the aim of the Russian authorities is to

minimize all forms of economic support to Belarusian President Alexander Grigoryevich Lukashenko.

The supply of meat to Russia by Belarusian producers has significantly increased in recent months.

According to the Federal Customs Service, imports of meat to Russia in January-May 2010 rose from 399.2

tons to 429.2 thousand tons, or by 7.5%, compared with last year. According to the National Statistics

Committee of Belarus, during January-April of 2010, exports of meat and meat products increased by 23.9%

up to 66.8 thousand tons, of which 66.6 tons were exported to Russia (99.7% of total export volumes).

However, the Belarusian meat products possess a very modest place on the Russian market. For this

reason, a ban on the import of meat and meat products from Belarus that would be caused by another trade

conflict between allied countries, like the recent "milk war", may not affect Russian consumers.


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Government Rationale: The Russian government most likely agreed to pursue this policy because the

result was the creation of more domestic added value product and the jobs associated with it.

It should be noted that the same working group on customs and tariff regulation of agricultural commodities

that recommended the soybean meal tariff increase also imposed a seasonal import duty on rice (0.23/kilo).

This was triple the previous duty rate.

Market Impact: Russias imposition of a five percent tariff has not only been blamed for the decline in meal

imports, but for increasing the market dominance of Sodryshestvo, its primary crusher of imported soybeans.

Sodryshestvos market share grew from 13 percent in 2007 t 70 percent in 2008. The duty is blamed for

increasing imported meal prices by $30-40/MT (FOB Saint-Petersburg), an increase of between 5-7 percent.

While imported soybean prices rose just 0.4 percent, soybean meal prices charged by Sodryshestvo

reportedly rose by 31-35 percent. Soybean meal import volumes dropped 40 percent during the first year of

its imposition. Note that soy meal produced from domestically grown soybeans only meets one-fifth to one-

third of the 1.5 to 2.0 MMT in demand. Meanwhile, Sodryshestvo has doubled soybean crush capacity and

may add sunflower crush.

Geopolitical Impact: Soybeans enter Russia duty free and the imposition of a permanent duty mainly

reduced imports of soybean meal from Brazil and Argentina. To settle complaints from Brazil, Moscow

negotiated a SPS agreement with Brasilia on how soybeans would be handled on importation. One view is

that Russia was more willing to negotiate with Brazil was because it has lower quantities of GMO beans

compared to Argentina or U.S., and there is Russian sensitivity on the GMO issue.

Associated Measures: Russian oilseed crushers have also complained about cheap imported tropical fats

and oils. At their behest, the Interagency Government Commission on Protective Measures in Foreign Trade

recommended and the government approved (resolution #337) a temporary 10 percent duty on imported

tropical oils. However, on behalf of domestic confectioners and other users of vegetable oils, there was a

delay in the imposition of the duty until June 1, 2009 and it was removed as of January 1, 2010. The

temporary duty was an attempt to respond to the demands of the domestic sunflower industry. The problem

with it was the fact that Ukraine imports and processes palm oils and fractions and is then able to ship the oil

duty free to Russia. Additionally, palm oil is not a direct substitute for sunflower oil in many applications.


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Issues and Recommendations

Biotechnology

The GMO issue has the potential to upset U.S. soy export potential to Russia more than any other issue.

Russia is sympathetic with the EUs approach to agricultural biotechnology. It does not allow GMO

cultivation, and it operates a costly, time consuming and opaque GMO approval process. While Russia is not

a party to the Cartagena Protocol on Biosafety (Biosafety Protocol or BSP), it has ratified the Convention on

Biological Diversity, and its biotech crop (GMO) approval process appears to mirror EU policies in some

respects (e.g., 0.9% mandatory GM food labeling law). Russia does not post its regulatory approvals on the

Biosafety Clearinghouse (BCH), as other CBD members but non-parties to the BSP, like Canada and

Australia, routinely post approvals on the BCH. Three biotech soybean varieties have been approved for feed

use only. Each of those soybeans was approved in the EU (Roundup Ready, Liberty Link and Roundup

Ready 2 Yield). Technology companies prefer to avoid Russias approval process.

Biotech imports and innovation are not a priority for Russian agricultural science and instead the Russian

Soybean Association is pursuing a GMO-free and organic soybean production scheme involving 25,000

hectares. The City of Moscow is pursuing a Soya S standard to get Muscovites to consume up to 20 grams

of GMO free soybean proteins a day per capita. Note that the potential of the EUs asynchronous approval

process choking feed availability in Europe could add complications to Russias GM soymeal purchases.

To increase US soybean exports to Russia, USSEC could take two approaches: 1) Encourage Russian

adoption of biotech as the most effective way to achieve its greater food self-sufficiency and export

ambitions; or 2) allow it to go the route of increased organic production, thereby preventing a major

competitor from developing in the global feed and livestock markets, particularly the EU.

Recommendation:Use the current WTO accession discussions between the White House and Moscow to

obtain a commitment for a transparent, science-based GMO approval process with definitive timelines that

includes equivalence/mutual recognition. Highlight how the EUs asynchronous approval situation is going to

complicate feed availability throughout the continent, and hinder Russias livestock expansion objectives.

SPS/Quality Standards

Russia has not harmonized its quality standards with any other international ones (ISO, EU, etc.) and this

leaves open the opportunity for special interests within Russia to manipulate national quality standards in a

most deleterious fashion for imports.


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Recommendation: If Russia truly has major food export aspirations, seek agreement with the Russian

Soybean Association and other groups and government officials for the Russian government to adopt

standards consistent with those utilized by the U.S.

Marketing and Utilization

Russias feed compounding industry, supply chains, use of proteins in bakery products are all

underdeveloped and therefore do not maximize the use of soybeans and soybean products.

Recommendations:

Put representation into the country.

Assist Russian soy interests in developing these aspects of the industry.

Show the government and livestock industry that achieving their desired self-sufficiency and

export targets in animal proteins cannot be achieved without adequate soy protein in the feedration, and that waiting for domestic production to expand will harm the meat industry.

Encourage the production and consumption of turkey as an alternative animal protein.

Note that the government is involved in soy flour production and may protect this market

against outsiders. However, soy isolates are imported from China and some are of

questionable quality.

Import Restrictions

Russia is quick to impose meat and livestock import restrictions whenever a disease outbreak permits.

Recommendation: Global supply chains immediately adjust to the altered economics and so should U.S.

soy producers. For example, look for opportunities to sell increased feed to Denmark, the Netherlands and

Poland whenever Russia restricts meat imports since these countries have generally supplied live animals to

Russia and will then be in a livestock replacement mode.


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ADDENDUM

Product Suppliers

Soybean Oil Suppliers

Leaderland TTM B.V.

Oils & Fats Packers Rotterdam B.V.

Elburg Global B.V.

Imcopa International S.A. (Brazil)

These companies supply 80 percent of Russian soybean oil imports.

Soybean Lecithin Suppliers

Sodruzhestvo-Soya (domestic)ADM Company

Cargill Inc.

DSM Group

The above companies supply 80 of the lecithin.

Solae, LLC (6.4%)

Central Soya Company (3.1%)

Soybean Flour and Textured Soybean Flour Suppliers

Gislav-M (textured flour) (Moscow)TechnoMol (textured flour) (Moscow)

Irkutsk Crusher (soy flour)

Assoya (Association of Soybean processors in Krasnodar) (soy flour)

PTI (Protein Technologies Ingredients) Company (soy flour)

Vitaros (Dzerdzynsk) is a Kazak/Russia joint venture processing GMO-free soybeans for flour with plans for

up to 8,000 tons of flour by 2011, and 13,000 tons of textured soy flour (texturate) by 2013. The company

may eventually control half the market for these products.

Soybean Meal Suppliers

Cargill Inc.Shandong Wonderful Industrial Group Co. Ltd.

Sojaprotein A.D.

Linyi Shansong Biological Products Co. Ltd.

Soybean Concentrates and Isolates

ADM Company

Solae LLC


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Solbar Industries Ltd.

Cumulatively, the above companies account for 78.3 percent of all imports.


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USDA Gain Report # RS1020 4/6/2010 Summarized

Chicken Meat

USDA-Moscow holds its 2010 forecast steady at 1.975 million metric tons for production and pulls back

imports to 750,000 metric tons.

Broiler meat is taking a larger slice of the poultry TRQ over the past three years

FAS sees no reason for this trend to discontinue as broiler meat has the greatest profit margins of all

poultry shipped to Russia.

Imports in 2009 were revised higher on end-of-the-year data and a strong second half.

Total imports fell 20 per cent for the year as a whole as the economy caused the Russian broiler

market to shrink.

The EU fared the best of all broiler suppliers, increasing its share of imports by 7.8 percent of volume.

Turkey Meat

Turkey imports fell by 40 percent in 2009, crowded out by chicken in the quota.

Unlike chicken, the per unit value of turkey fell.

Consumption

Consumer purchasing power is improving but remains weak.

If production targets are met and the chlorine ban is resolved, domestic production growth should

keep up with cuts to forecast imports to stabilize consumption and help curb potentially drastic priceincreases in 2010.

Regardless of price hikes, consumer safety is important.

Consumption will remain relatively flat for broiler and turkey meat in 2010 with upside potential as

time progresses.

Turkey is more and a newer product, but is being marketed as healthier, and is less expensive than

beef, pork, and chicken.

Meat Industry

Meat processors produced more inexpensive meat for consumers in 2009.

According to Rosstat, processed chicken output in 2009 increased 17.5 per cent while other poultry

increased 13.3 per cent.

Total meat, poultry and offal output grew 16.0 per cent, and value-added products like semi-

processed meat and canned meat increased only 8.6 per cent and 2.0 per cent, respectively.

Output of the most expensive consumer product sausage fell 6.5 per cent.


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Minister called for faster development of the meat processing industry.

Policy Shifting

Attaining self-sufficiency through import substitution is the goal of the Government of Russia (GOR).

30 January 2010, President Medvedev signed Russia's Food Security Doctrine, proscribing Russia

to reach 85 per cent self-sufficiency in total meat and poultry by 2020.

Ministry of Agriculture has accelerated the goal for poultry to be reached within three to five years,

while the Russian Poultry Union considers the feat accomplishable by 2011.

The tariff-rate quota (TRQ) for meat and poultry was extended through 2012- with tighter access

restrictions.

Non-tariff barriers remain in place to continue an unpredictable and non-science-based trading

atmosphere - includes chlorine ban that currently prevents the US shipping poultry to Russia.


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2000/

2001

2001/

2002

2002/

2003

2003/

2004

2004/

2005

2005/

2006

2006/

2007

2007/

2008

26101 19418 22201 27,235 22,174 26989 26900 27000 15800 15900 20800 9800 10600 14100 19500 18700 18000 17200 15800 18100 15650

3844 3814 4663 2,451 1,969 2135 2447 900 1700 1100 2700 800 1100 1550 800 1550 2100 3500 3200 3600 3950

2385 1754 2846 1946 1040 1535 1124 500 500 446 1200 450 900 1100 550 300 1000 1100 450 600 425

12289 10604 11977 12326 10372 11241 11600 10700 8600 8300 9400 4600 4400 6000 7700 5700 5200 4950 4550 4900 5400

11079 12530 12593 16431 10624 13887 9151 6000 4100 5900 7500 3300 4800 5450 6600 7150 4200 2850 3600 3000 3900

36868 39864 44004 49596 38900 46170 43500 32100 30100 34900 44200 27000 31000 34450 46900 50550 34100 45400 47700 44900 49400

0 4150 4256 4329 3989 3632 3300 3240 2734 2570 2326 2090 1900 1840 1760 1740 1670 1590 1525 1430 1370

0 3399 3499 3480 3190 2784 2432 2103 1865 1700 1570 1510 1490 1500 1560 1630 1710 1725 1735 1805 1910

0 0 991 984 978 785 540 440 340 290 200 280 350 380 430 500 560 650 900 1180 1350

0 0 0 0 45 37 35 30 25 20 12 9 8 7 7 9 12 15 17 19 25

0 809 820 833 729 762 732 488 419 290 280 270 260 265 270 280 280 270 275 290 300

0 455 460 458 394 299 313 285 217 173 165 170 185 220 260 340 335 350 375 405 435

0 54534 55742 55715 51971 46776 46300 42800 39300 35800 34100 33000 32000 31900 33000 33500 33000 32000 32000 31100 32200

2 2 2 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

188 267 267 258 181 165 96 122 125 110 71 125 135 148 140 115 192 276 303 523 630

541 675 738 717 624 505 497 421 290 279 280 297 334 342 350 423 393 555 689 807 652

3067 2958 3789 3427 2895 3073 2765 2553 4200 2765 2831 3000 4150 3915 2670 3685 4850 4800 6450 6750 5650

49 49 49 49 49 32 20 20 20 21 12 27 35 36 38 36 50 87 89 147 195

70 75 75 75 75 58 58 40 42 28 25 48 55 63 72 78 68 97 120 143 187

903 953 1023 987 900 894 720 650 920 650 649 750 1240 1250 1025 1365 1610 1815 2320 2465 2130

1 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

768 768 780 780 780 520 520 520 520 520 172 156 152 140 105 80 65 85 90 95 100

73 73 73 74 75 46 30 34 32 33 18 41 53 53 56 53 76 130 134 221 296

330 360 370 340 365 340 340 250 200 130 149 277 280 285 320 353 299 429 530 632 825

885 935 925 895 870 986 685 618 880 631 610 730 1110 1120 920 1225 1450 1625 2081 2220 1917


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1999/

2000

2000/

2001

2001/

2002

2002/

2003

2003/

2004

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2005

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2006

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2007

2007/

2008

2,940 1,670 2,190 3,055 809 1,159 83 564 666 474 168 335 839 413 201 251 439 272 189 246 199

100 100 300 0 100 0 0 0 50 12 20 20 25 4 0 4 11 7 0 0 4

150 200 50 119 801 423 1 108 128 185 2 306 464 193 7 0 6 172 49 32 0

14,900 9,860 9,100 10,849 13,645 14,470 5,000 2,167 5,316 2,631 3,120 2,490 5,083 1,604 629 1,045 1,026 1,197 1,282 861 440

5,000 13,575 10,750 6,050 6,025 4,271 2,765 111 112 231 85 524 870 150 534 99 496 226 306 108 341

T0 249 376 440 262 141 220 324 550 690 694 576 588 288 491 799 707 614 752 835 894

r 0 0 298 271 107 45 146 475 855 1,088 1,266 1,020 930 943 1,281 1,208 1,081 1,016 1,225 1,189 1,222

y 0 0 0 0 0 2 4

rusia- analiza asupra pietei si a cererii

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