How Russian sanctions have changed the Czech meat market
Feb 07, 2021

How Russian sanctions have changed the Czech meat market

In the shadow of the coronavirus crisis, the economies of some major countries, which until a few years ago were an attractive market for Czech exports, were undergoing changes. Now we have turned our backs on these countries. One such example is the situation in the Russian economy, or rather the situation in its agriculture and food industry. After the collapse of the Russian economy in the early 90s, Russia, a country with huge potential in the agricultural sector, imported about 70% of poultry meat, 40% of pork and 45% of beef. Complete dependence on imports, that is, the inability to feed their own population. For a country that claims to be a power, such dependence is unacceptable.

It is useful for us (why — it will be clear below) to simply follow how this Russian sector has changed over the past 20 years thanks to a targeted policy and has become a major exporter. It is well known that today Russia is a major "player" in the grain market. And many still remember that in the 80s, the then Soviet Union was in dire need of annual imports of grain, primarily wheat, and imported millions of tons. Everything has changed, and today the income from grain exports is an important item of the Russian budget, standing after the export of energy carriers. In 2020, Russian producers exported more than one hundred thousand tons of poultry meat to China, and in 2019, exports were almost zero. Moreover, the Russians boast that even chicken paws, which Chinese consumers consider a delicacy, are sold in this market, and in the Russian market they are not needed by anyone (as in our country). For Russians, this is an undeniable success and progress-from the import of frozen legs from the United States in the 90s (consumers called them " Bush legs») to export to the nearest growing market, where demand is practically unlimited.

It is worth recalling how they did it. Due to the devaluation of the ruble in the late 90s, the cost of poultry meat imports increased significantly, which attracted the first major investments in this sector. However, two subsequent measures played a decisive role. In 2003, Russia introduced tariff restrictions on meat imports, established quantitative quotas for imports, and when they were exceeded, the duties increased significantly. So the authorities protected the domestic market. The third step was the state program, presented in five years. It provided long-term loans on preferential terms, and thanks to this, it was possible to attract additional capital to the industry. Finally, in 2013, preferential customs tariffs were abolished for some countries, primarily for Brazil (a member of the BRICS).

As a result of these steps, poultry meat production increased to five million tons in 2019. Compared to the end of the 90s, this is an eight-fold increase, and as a result, Russians entered the foreign market as exporters. In fact, the same picture is observed in the field of pork production. Production has been raised to more than four million tons of pork, which is provided by large livestock factories. Back in 2005, Russia produced only one and a half million tons of pork, and it was mainly supplied by small producers. In 2009, Russia imported 1.25 million tons of pork, and imports were regulated by duty-free quotas. Since 2020, quotas have been abolished, and the market is protected by a single duty. According to Russian experts, the meat market is fully saturated, the cost of pork is stable and has slightly decreased. Today, manufacturers are most interested in the huge Chinese market, where they begin to supply their products.

Almost the same thing happens in the beef market, and it is only a matter of time (the turnover of the herd there is longer than in the pig industry) when it will be possible to fully meet Russian demand.

Our exporters, as well as agricultural producers, are watching the development of the Russian meat market. Previously, the Russian market attracted our exporters, and a certain part of our exports were sent there. The Czech Embassy in Russia even had a trade adviser who coordinated Czech agricultural exports.

After 2014, Czech producers supported European sanctions against Russia, which halted Czech agricultural exports as the Russian government retaliated by closing the market to food products from abroad.

As follows from the above data, there is no chance of our companies returning to this market in the future. And do not build illusions on this score.

On the contrary, the sanctions imposed on Russia in 2014 clearly accelerated the development of the agricultural sector in Russia, and, focusing on self-sufficiency, it not only achieved what it wanted, but also turned into a major exporter. Therefore, the question arises: why were these sanctions necessary at all? Who did they help? To the European Union as an exporter or to Russian agriculture? The answer is clear. In the most important industry, which for any economy is the food industry, the sanctions clearly helped Russia, as the Russian import embargo created a protective barrier to imports. It is unlikely that the situation can be assessed differently.

This story is instructive from another point of view. Look at the state of our agriculture today. How much do we provide ourselves with basic food? We have to admit (for some it is a bitter truth) that over the past 15 years, our self-sufficiency in basic food has decreased in a way that no one could have imagined 15 years ago.

It is no coincidence that we are talking about 15 years. These are the 15 years that have passed since our entry into the European Union, from which we expected the flourishing of Czech agriculture. I have no doubt that joining the EU has opened up certain opportunities for Czech agriculture. But how do we feel about our development? Are we self-sufficient and are we able to provide ourselves with basic food on our own today? I think that, unfortunately, no.

Today, we are self-sufficient only in the field of grain, but not in vegetable growing (we have already written so much about domestic vegetables and fruits). Only a few manufacturers survive. Animal husbandry today is unattractive from an economic point of view.

As confirmed by the available data, Czech production now meets about 40% of domestic demand for pork. Although 20 years ago, consumption and production were almost in balance. As for the production of poultry meat (chicken), the results are slightly better: self-sufficiency reaches 65%, but compared to 2010, when domestic production was 85%, there is a significant reduction.

The Russian sanctions have had an even worse impact on our market. Pork from Western European producers, which used to be sent to the Russian market, is increasingly found in our stores. According to the Czech Chamber of Agriculture, the production capacity of some countries is many times higher than their consumption. For example, Spain has about 30 million heads, and self-sufficiency is 374%. Germany has 29 million heads, and self-sufficiency is at the level of 122%. Denmark has about 25 million heads, and self-sufficiency is at the level of 880-920%. In France-about 16 million heads, and self-sufficiency — 107%. Such capacities should find a market, but otherwise there is no way.

These figures explain a lot. Therefore, for example, on the shelves of many chain stores in the Czech Republic, our consumer today increasingly sees pork in vacuum packaging, and its country of origin is Spain. This meat travels 14 days across half of Europe to be sold at a very favorable price to the Czech consumer. Let's be honest, these are surpluses that cannot be sold in the Spanish market, and therefore they are sent to us. Five years ago, there was no such meat on our market.

How good is it? No one wants to ask such a question, since it is politically incorrect (a popular word today). And some politicians also explain how this meat is beneficial to consumers. At the same time, high-quality pork from Czech farms is offered on the market only at significantly lower prices.

Why is this imported meat sold at such a favorable price? The answer is simple. Manufacturers can use European subsidies (from the EU budget), as well as national ones. The Czech producer, as a rule, receives only European subsidies, but the decisive role (they form the final cost of meat) is played by national subsidies. The Czech manufacturer does not receive them, unlike the Spanish or German one. Therefore, it turns out that the three processing companies control 60% of the German market together with the Danish Crown corporation and prescribe prices for pork in the Czech Republic to Catalan producers. How easy it is when the markets are open and controlled by large capital!

I can't help but mention something else. How many newspaper articles have already been written about how terrible it is that there are many large agricultural enterprises in the Czech Republic — as much as ten times more than the EU average. Supposedly, this is the root of our problems, and therefore we must change our policy so that we have as many small farms as possible. We need to break these molochs, etc. We know-we know…

But the truth in these words, perhaps, a little. When you drive, for example, through Eastern France with its endless fields, which are clearly larger than ours, you can't help but think about the veracity of statistics…

Again, I have to refer to the report of the Czech Agricultural Chamber on the situation on the pork market in the EU. Four major companies are engaged in piglet breeding (genetics) in Europe. At one of the largest European enterprises, which is located in Germany, more than 30 thousand pigs are slaughtered daily. In the Czech Republic, this is a maximum of fifteen hundred pigs per day. This German company alone would have been able to process the entire volume of meat produced in the Czech Republic in just over two months. And you probably understand that it is impossible to provide work for such a huge German enterprise at the expense of some small farms.

We must also understand that if our producers are not provided with appropriate protection, then domestic products will continue to play a secondary role in our market. Moreover, our producers will be doomed to perish. Something similar is now happening in Germany. Small livestock farms are being closed there. Over the past five years, a fifth of these farms have been replaced by large-scale production with high productivity.

There remains, perhaps, only the last question. Is it possible to achieve greater self-sufficiency in meat? Russia has embarked on a path leading to production growth, thanks to the protection of domestic producers through duties and quotas, and, as we can see, has achieved indisputable success. But such a path is excluded for us. We are members of the European Union, where such preferences are prohibited. In the EU, there is a free market, and sometimes you just have to explain that the measure of" freedom "and" non-freedom " of the market is different for each country.

Today we have two options. Or we can completely abandon a significant measure of self-sufficiency, which, by the way, would suit a certain part of politicians. This is confirmed by the discussion about the share of Czech goods in the retail market.

Or we can provide our farmers with the same national subsidies that their competitors receive from their national governments. But even this, in my opinion, is unrealistic, since this measure is unpopular, and the media, and many free-market theorists behind them, will immediately question it.

I am not optimistic about the future. If our agricultural policy does not change, then in a few years the meat of Czech production will become a curiosity. Časopis argument (Czech Republic).

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