Expensive grain increases production costs for Russian pig farmers
The production costs of 1 kg of pork in live weight is projected to reach Rub 95 kg ($1.11) in 2025. This is an 8% increase compared to the previous year, according to a forecast =by the Russian Union of Pork Producers. Over the past 2 years, the figure has jumped by more than a quarter, and the expensive grain is primarily to blame.
In 2024, the costs of grain purchased by farmers reached Rub 17,000 to 18,000 ($198 to $210) per tonne, skyrocketing by 50% compared to the previous year. In 2023, the average production costs were Rub 75 ($0.78) per kg, the Union calculated.
Falling grain production
Russian pig farmers are grappling with the repercussions of the low 2024 harvest, which they believe is the driving force behind the escalating grain prices. In 2024, Russia produced 128.8 million tonnes of grain, 13% less than the previous year, the Russian Agricultural Ministry calculated. The output declined for the second consecutive year after reaching an all-time height of 157.6 million in 2022.
The Russian grain production is at risk of plummeting below 120 million tonnes, a level not seen since 2018.
Worsening investment conditions
Soaring grain prices are only part of many factors pushing operational costs for Russian pig farmers, the Russian Union of Pork Producers admitted. As a result of the hike of the Russian Central Bank’s key interest rate, the costs associated with payment of interest on loans account now for Rub 8 ($0.1) per kg of operational expenses, against only Rub 4 ($0.05) per kg a year earlier.
In the meantime, retail pork prices in 2024 increased by only 4% to 6%, not catching up with the general inflation. Against this background, the Union warned that new projects in the Russian pig industry launched in the next 2 or 3 years will fail to pay off during the next 8 to 10 years.
Effect of scale
Rising operational costs and worsening investments conditions will have a different impact on the Russian farms of the different size, Konstantin Korneev, executive director of the Rincon Management, a Moscow-based think tank, told local publication Agroinvestor.
Large agricultural complexes running a vertically integrated supply chain are more resilient to such challenges due to a higher margin of safety. Small and middle-size pig farms, on the contrary, are much more vulnerable, he admitted.
“Considering that larger enterprises form the pricing environment, it will be much more difficult for medium and small companies to adjust to the balance of cost price and sales prices,” Korneev added.
