Russia should be the next nation to enter the World Trade Organization, but negotiations are complicated by the shadow of its state-controlled economic past. Agriculture in the Soviet Union was heavily subsidized and had little to do with market forces. As a result, Russian agriculture today lags behind the West.

Subsidies ended in the early 1990s. Cattle, hog and poultry numbers slumped, and meat production fell from 10 million metric tons in 1990 to 1.2 million mt in 1999. Since customs restrictions were removed, cheap meat imports flooded the country.

In the 1990s, many agricultural enterprises were bankrupt. The situation changed in 1998 when Russia’s economic crisis, and a drop in the value of the ruble made imported meat less affordable.

Russia’s few agricultural entities that weathered the storm did so through consolidation, a strategy of developing processing plants near domestic meat supplies and vertical integration. Millions of dollars were invested in Russia’s processing sector, and many facilities were remodeled. The result was a significant increase in product quality, but it still failed to match that of imported products.

A dramatic rise in the use of domestic pork in sausage manufacturing by large processors calls into question the future of U.S. pork imports. One major manufacturer has cut its share of imported product from 90 percent to 40 percent in the last five years.

Another factor is the resurgence of the Russian economy. The government raised its 2003 Gross Domestic Product forecast to 5.4 percent from 4.6 percent after a 6.8 percent expansion in the first quarter. Growth in real income also increased 18 percent.

The food industry is experiencing tremendous growth. Food processing companies have increased earnings by 250 percent in the last three years. Meat consumption has grown by 12 percent. Real average per capita consumption of pork is 15 kg per year, but will likely rise to 19 kg per year by the end of 2003. Still, observers predict if Russia joins the WTO, trade-barrier negotiations will drive many farms and processing plants out of business.

Despite investing millions in technology and efficiency improvements, the Russian pork industry lags far behind EU and U.S. standards. In response, the Russian government returned to a protectionist policy in 2003, with a new quota system.

It is restricting pork imports with a tariff-rate quota of 450,000 mt per annum. The in-quota import duty is set at 15 percent while out-of-quota imports will pay 80 percent.

Whether this system will survive multilateral agreements with interested nations prior to Russia’s WTO entry remains to be seen. U.S. pork industry’s best potential may be through partnerships with Russia’s major processors.

In January to May 2003, Russia imported 165,800 mt of pork, which is 43 percent more than the same period in 2002. 

Domestic meat and meat byproduct production did increase 20.6 percent in April 2003 to 45.5 thousand mt, and recent sausage production figures show a 14.5 percent increase to 108 thousand mt. The search for cheap raw materials has caused Russian meat processors to substitute offal and soybean protein in sausages, particularly as quotas take effect. Few processors think they can rely on domestic pork or beef supplies.

In the short term, Russian processors need imported pork. But the main obstacles to the United States are the quota system, competition from the EU and cheap supplies from Brazil. WTO membership will impose a more transparent import-quota system and an avenue of redress should problems continue. The Russian pork industry could improve its products and its technology enough to supply ever-increasing tonnage. However, if the country’s economy continues to improve, meat consumption levels will ultimately dictate a need for imports.

Editor’s note: Presented by U.S. Meat Export Federation, following attendance at the World Pork Congress in Birmingham, England.