Cherkizovo grows its meat business

June 18, 2012

Cherkizovo Group, one of the largest Russian agro-companies and meat producers, whose shares are quoted on the stock exchange, has made several large acquisitions in the livestock segment. On 13th June the company announced the acquisition of a swine nucleus unit in Voronezh region, which can produce about 10 thousand animals. In total, the company acquired a land bank of approximately 30 000 ha, as well as elevators designed for storage (the aggregate capacity is 150 thousand tonnes) in the same region and in Penza (capacity is 60 thousand tonnes). The acquisition cost of assets which was united in the company Voronezhmyasoprom comprised of 4.46 billion roubles, of which about half (2.8 billion) is debt belonging to the former owner and the remaining part (1.26 billion) would be paid in shares and cash in nearly equal proportions.

The industrial and financial parameters of the assets make it one of the largest deals on the domestic agricultural market. However Voronezhmyasoprom before the sale was the “daughter” of a National agro-industrial company which is controlled by the family of the main shareholder of Cherkizovo Group, Igor Babayev. So de facto we can’t speak about the repartition of the market or about the structuring of the Russian businessman’s assets.

“Trends of consolidation and the development of vertical integration within the holding companies dominate the domestic livestock sector”, comments the leading analyst at the centre for economic forecasting of Gazprombank, Daria Snitko. Because of the growth in domestic production, competition in the meat sector is growing. “In the framework of Russia's accession to the WTO the customs barriers for the import of meat will decrease, for example duty on pork supplied under the quotas will be reset“, continues Ms. Snitko. This will be one of the reasons for the further strengthening of competition in the market and probably the subsequent termination of the least efficient plants. Growing grain in-house, grain elevators, feed production and the full cycle of livestock production including breeding work are typical of major Russian and foreign agricultural holdings. It is often becomes the basis for the formation of agro-industrial clusters”.

In the Penza and neighboring Voronezh Lipetsk region, Cherkizovo Group already has several large cattle-breeding complexes, which need in the seed and in the genetic material. After Voronezhmyasoprom has infiltrated different parts of the production chain, the Group’s composition can be simplified to allow for more joint work. This provides savings on transport costs which in the agribusiness can be very significant because of the low weight value of the products.