Russia’s egg industry’s net profit dropped by $ 254 million in 2017, as the wholesale prices on the domestic market fell during the year, ending up at $ 0.56 per ten eggs. Market research by the Russian Union of Poultry Farmers (Rosptitsesoyuz) notes a 14% drop compared to 2016.
The continuous fall in egg prices that started late in 2016 has already pushed the profitability of the average Russian egg farm down to 3% to 7%, from 12% to 14% seen just a few years ago. What is even worse is that this trend seems to be gaining momentum. Russia produced 44.5 billion eggs in 2017, 2% more than in the previous year. This drives the country’s self-sufficiency on eggs and egg products to 95%, the highest level ever recorded.
The State Statistical Service (Rosstat) reports that the industry is consolidating production. From 2016 to 2017 egg production increased by 4.2%, but in 2017 growth levelled out, with backyard farms and small-scale farmers cutting production by 500 million eggs. This picture is a common one for the Russian livestock industry, where backyards are dying out. Nevertheless, the current price level on the domestic market seems uncomfortable for all kinds of manufacturers. Even the Poultry Farm Sinyavinskaya, the biggest egg producer in Russia, is bleeding, having a net loss of $ 9.3 million in 2017, while its net revenue shrunk by 4%, compared to 2016, to $ 68 million. Sinyavinskaya blamed bad market conditions for these losses.
Expansion in spite of losses
Despite the financial problems of Sinyavinskaya, it is believed that the industry, in general, is doing well, in contrast to the backyard farms. Over the past few years the industry has been facing falling wholesale prices and the rise in production costs. However vertically integrated business are in better shape to deal with that challenge. “For the last several years, the average egg industry profitability has been steadily going down – from 10-12% about 10 years ago, to 3-5% in the last couple of years. The major factors affecting egg production are increasing feed ingredient costs, veterinary preparations, gas and electricity, as well as the dramatic depreciation of the national currency,” commented Albert Davleyev, the President of the Russian consulting agency Agrifood Strategies.
Yuri Trusov, the director for Poultry Farm Lenoblptitseprom told local news outlet Agroinvestor that given the current production costs and prices on the domestic market, the majority of the industry is operating without any margins at all. Mr Trusov admitted that only the large producers were earning money, thanks to the scale, while both middle and small-sized companies were not generating any profit.
It is remarkable that on this background, the major producers are still pumping money into expansion of production capacities. Roskar, one of the major egg producers, has recently invested Rub2.2 billion ($ 34 million) to build a new production and processing facility, plus Rub1.5 billion ($ 23 million) to build a new feed mill in Leningrad Oblast. With these projects, Roskar plans to increase egg production from 1.2 billion eggs in 2017 to 2 billion eggs in 2020, and improve production costs by achieving a complete self-sufficiency on feed.
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