Feed industry in the context of the Russia-Ukraine war – 1 year on

In December 2022, Russian feed production stood at 3.3 million tonnes, 6.9% up compared with the previous year. This was the highest monthly production ever. According to preliminary estimations, Russian feed production blew past 3.3 million tonnes, above the forecasts posted at the beginning of the previous year.

Stability of Russian feed additives market

When Western sanctions triggered a mass exodus of European business from the Russian market, feed companies started expressing fears over the stability of the Russian feed additives market. The Russian National Feed Union estimated that Russian dependence on imported feed amino acids and vitamins last year was close to 90%.

To some extent, these fears indeed materialised. In the first half of 2022, nearly 50 foreign feed additives suppliers, roughly 23% of their total number, suspended sales to Russian customers, the Russian think tank RNC Pharma estimated. However, as RNC Pharma pointed out, their departure had little impact on sales since primarily small market players opted to pull out from the country.

Feed industry in turmoil

From March to May, the Russian feed industry was in turmoil, a source in the industry who wished not to be named said. “The key largest Russian banks were hit by sanctions, plus logistics was a nightmare. Unprecedented uncertainty also played its role since some of our suppliers tried to figure out whether it was still legal for them to sell their goods to our country,” the source said.

However, the chaos of the first months gradually winded down. “Logistics [costs] are still high. The cost of container shipping from Europe to Russia now reaches €5,500, twice as high as in early 2022. Still, the logistics we have now are a far cry compared to what we had at the beginning of this crisis. I believe that panic buying took a toll – customers wanted to stock up with necessary inputs, anticipating even bigger disruptions,” the source explained.

Feed additives import not impacted by sanctions

Against the original forecasts, Russian feed additives import did not suffer from sanctions. In 2022, it totalled 41 billion roubles ($), slightly less than 43.4 billion roubles in the previous year but relatively close to the average level of the past few years. In the veterinary drugs segment, another niche where the Russian livestock industry traditionally strongly depends on foreign suppliers, imports climbed to 38.2 billion roubles from 37.2 billion roubles in 2021.

Last year, Russia imported feed additives from 35 countries, against 43 in 2021, RNC Pharma estimated. Some foreign companies that stopped sales to Russian customers in the first of 2022 resumed deliveries in the second half of the year. One important consequence of the previous year was a substantial rise in deliveries of feed additives by several Chinese companies, according to RNC Pharma. It is yet to be seen whether this trend will continue in 2023, but in general, Russia put a lot of effort into forging stronger trade ties with China last year.

Aquafeed & pet food markets felt sting of sanctions

Some segments, however, felt the sting of Western sanctions. The most striking examples are aquafeed and specialised pet food markets.

Lack of imported fish feed forced Russian fish farmers relying on imports to scale down operations, said Elena Moiseeva, head of the Russian consulting firm Fishlab, adding that Biomar, Scretting, and Raisio, each of which pulled out from the country, jointly accounted for nearly 80% of the Russian market of feed for valuable fish species.

Fish feed quality suffered

Limkorm, the only Russian company manufacturing fish feed, failed to cope with a sudden influx of new orders and saw a drop in the quality of its products. Quite a few new Russian companies emerged in the segment, but the quality of their products was “terrible,” Moiseeva said. Belarussian National

Biotechnological Corporation (BNBC) also made an attempt to enter this segment, but again, the feed quality was bad, she added.

Fish farmers had to seek alternative suppliers since warehouse stocks in Russia lasted only a month. On the other hand, several foreign suppliers, including Aller, Coppens, Dibaq, LeGouessant, and Veronessi, keep selling fish feed to Russian customers, plus BNBC eventually managed to localise fish feed production utilising a Norwegian technology under the brand name Noreg premium, she added.

Lack of specialised & medical pet food

In the pet food industry, at some point, things look particularly ugly. Russian customers voiced concerns over a lack of specialised and medicated pet food. The lack of the latter meant some pets were doomed for a slow, painful death. In 2022 Russian pet food market saw a 25% drop in imports to 122,000 tonnes. In the fourth quarter of last year, imports largely stabilised, and some suppliers that suspended sales in earlier months resumed deliveries.

No new players or feed consumption sources

In general, production dynamics in the Russian feed industry are tightly linked to the state of play in the livestock industry, said Sergey Mikhnuyk, executive director of the Russian National Feed Union (NFU).

“I can say that those who worked earlier increased their capacity [in 2022]. I have no information that any new players appeared or that some points of consumption emerged. Our feed production volume does not depend on the presence or absence of this or that player. There is a volume of livestock production corresponding to feed production,” Mikhnuyk said.

Livestock production rose in-line with record-breaking meat consumption

In 2022, all segments of the Russian livestock industry saw a steady rise in production, owing largely to record-breaking meat consumption. Last year, it totalled 79 kg per capita. Sergey Lakhtyukhov, general director of the National Poultry Association, said that this figure is the highest the country had ever registered, even if relatively prosperous Soviet times are taken into account.

State money makes a difference

To a large extent, the positive dynamics in the livestock and poultry industry are attributed to the substantial state aid aimed at supporting production and consumption.

In 2022, Russia planned to spend 2.2 trillion roubles ($29.7 billion) on social support for the population. It was estimated that every 7th Russian citizen should receive state aid under one of the numerous social programmes. The final sum allocated for this purpose is unknown but is believed to be substantially higher.

In addition, the Russian government allocated 355 billion roubles ($4.9 billion) to support agriculture in 2022. Under the new goal, the Russian government plans to further boost the volume of state aid for Russian agriculture – in 2023; it should exceed 500 billion roubles ($8 billion), the Agricultural Ministry estimated.

Programme for self-sufficiency in feed additives

The Ministry has rolled out a program called “Development of the production of feed and feed additives for animals”, under which new production of enzymes, probiotics, feed antibiotics, and microelements should be launched in Russia in 2025, so by 2030, Russia could largely get off import needle, and become self-sufficient on feed additives.

Strained Russian budget

On the other hand, there are concerns about whether the already strained Russian budget can keep up the pace. In January, the Russian budget ended with a catastrophic deficit, and now the Russian authorities are turning to businesses for money to top it up. In February, it became known that the government is demanding large companies make a one-time budget contribution of up to 250 billion roubles ($3.5 billion). This comes on top of December’s tax recalculation that is expected to take a further 1.8 trillion roubles ($25 billion) out of the economy.

Pending reforms on antibiotic use

In the background of turbulent times, the Russian authorities also try to refrain from steps that could negatively impact business.

Despite the concerns of the environmentalists, the Russian government pushed back the enforcement of stricter rules on feed antibiotics usage scheduled to come into force on March 1, 2023. Under the law, originally approved in 2021, it was planned to introduce tighter rules for the production of feed with antimicrobial agents at livestock farms, which is a common practice in Russia. In order to add antibiotics to feed, farmers would require a special pharmaceutical license.

Russian farmers can use antibiotics in unlimited quantities, not restricted by the existing regulations. The Russian veterinary standards only prescribe that no antibiotics residues above the allowed limits must be found in the finished products. However, the control is far from perfect even in this field, as only a limited number of feed antibiotics are subject to state control.

Now, the rules are slated to come into force only in 2025. The idea of limiting feed antibiotics usage has been publicly backed by several business unions and environmentalists but reportedly could put additional pressure on production costs in the livestock industry and contribute to a rise in inflation.

Food waste in feed production

In addition, the Russian government keeps mulling plans to greenlight the usage of food waste in feed production. While retailers could benefit from this reform, this might not be the case with feed businesses. NFU’s Mikhnyuk argued that for feed manufacturers, it is basically “easier not to deal with food waste than to do deal with it.”