Denmark’s Rurik puts $260m into pork

29 Apr '10
Denmark’s Rurik A/S has announced a $260m program to create a ten pig breeding complexes within five to ten years in Russia’s North-West. With imported pork still accounting for 36% of Russia’s consumption in the region, poor quality domestic production and lackluster financial support from the RF, Rurik’s goal to grab a hefty 30% market share looks like good bet.

Danish agricultural holding Rurik A/S has unveiled s $260m multi-year project to create a large-scale pig-breeding business in Russia’s North-West.

Rurik-Agro CEO John Hybel told media that his firm was attracted to the region because of the vast amount of non-arable land and high demand for quality products.

Within the next five-to-ten years the Danes want to build up to ten pig-breeding complexes with a price tag of $26m each. With a projected capacity of 150,000 head a year Rurik’s Russian management company Rurik-Agro has set a goal of grabbing 30% of Russia’s North-West pork market.

A decade of success

Rurik A/S has been present in the Russian pork market for more than a decade; mostly as an exporter of Lithuania-bred pigs. Two years ago it started its first Russian project in the Leningrad region not far from St. Petersburg. According to Rurik-Agro, it currently has 80,000 head which the firm intends to increase to 150,000 by year end.

Looking to other regions

The Danish firm has also announced two more pig farms in the neighboring Pskov region; further expansion into the Leningrad region is also being considered, the company management says. Also on the charts is a complex in Russia’s westernmost exclave of Kaliningrad, Rugrad.eu reports.

Rurik will reportedly put up half the investment itself with the other half expected from Danish banks. The investor is said to have already closed several deals. For its Kaliningrad regional project, the firm is reportedly negotiating a local bank loan, too, and seeking a Russian warrantor to secure it.

Set up in 1985, Rurik now reportedly runs similar farms in Lithuania, Slovakia, Romania, Canada and back home. It reported $130m revenue last year.

RF says buy local…

Crop production has been on the rise over the past years, enabling makers to trim mixed fodder prices that normally account for up to 70% of pig-breeding costs. To encourage local Russian producers further, the RF levies high duties on live pig imports which were increased this year by a hefty 35% to 40%.

With so much energy going into helping local producers raise more pork, some experts feel the entry into the market by multinationals like Rurik is not just to sell domestically, but to use Russia as a launching pad for exports.

Sergei Yushin from the National Meat Association was quoted by Kommersant saying that companies now planning multimillion dollar pork/beef projects throughout Russia were once importers. Now that they have evolved into local producers, he feels, they will want to further evolve to become exporters. In his opinion, this is one of the most powerful driving forces behind their national expansion. Other analysts feel that unless the RF enacts better health and sanitation control over local producers, consumers will flock to buy much higher quality foreign high-tech pork.

…but where is the financial support?

According to Ivan Kara, a co-owner of the Pulkovsky group of agribusinesses, the problem isn’t just poor quality Russian pork; it’s the lack of government financial support. According to Mr. Kara, of all the big projects aimed at supporting the pork industry, only 10% get implemented.

Just a few months ago Pulkovsky was reportedly gearing up for a huge $670m state-of-the-art vertically integrated pig-breeding project in the North-West regions with a capacity of 500,000 head. In cooperation with France’s Cooperl Arc Atlantique, the Russian company also had plans to build a genetic center, or nucleus, to support pedigree pig-breeding.

Earlier this month Pulkovsky had to scrap the entire venture.

Why?

Mr. Kara says he spent 36 months futilely seeking loans from the government-run Rosselkhozbank and VEB banks. Even after his firm had pumped its own money into one of the eight stages of the prospective project, the government failed to ante up any additional support.

Without government aid few agro projects can be profitable in Russia, the Pulkovsky co-owner grimly told Kommersant.

An appetite for imports

With little actual government support to help local producers, Russia’s appetite for imported pork is still high—according to a Russian agricultural think-tank, between 2005 and 2009 pork imports dropped by a negligible 4% to 36%.

As long as multinationals like Rurik can self-finance most of their own growth and tap into home-country banks for the rest, they pose a real threat to local producers. As more and more foreign companies see the opportunity in Russia, whether it is cheap agricultural land that makes it more efficient to grow crops here and export back to the EU or breeding pigs, Russian agro business will continue to have a tough road to hoe.
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