Turkey whets the appetite at Cherkizovo

July 2, 2013

Russian-Spanish facility in Tambov increases capacity in advance         

 Experts think that investors’ interest in turkey meat production is growing faster than household income.  

A joint venture between Grupo Fuertes, Spain’s largest turkey meat producer, and the Russian company Cherkizovo Group to produce and process turkey meat in Tambov Region is increasing its capacity, while investments in the project are growing. Instead of the originally announced 4.5 billion rubles of investments and capacity of 25,000-30,000 tonnes of meat per year, a complex with capacity of 40,000 tonnes per year will be built in Pervomaisky District with investments of 6 billion rubles.   

The change in the company’s project parameters was revealed late last week at a meeting between Chairman of the Board of Directors of Cherkizovo Group Igor Babaev and Governor of Tambov Region Oleg Betin. The meeting was held in Pervomaisky District, where construction of the complex is underway. Cherkizovo Group is implementing the project jointly with Spain’s Grupo Fuertes. Instead of the 4.5 billion rubles announced last year, investments will be 6 billion rubles (the participants’ equity capital and bank loans). The facility’s initial capacity will be 40,000 thousand tonnes slaughter weight of poultry meat per year instead of 25,000-30,000 tonnes. Potential production growth was also increased from 50,000 to 80,000 tonnes per year. There are plans to build nine fattening facilities, four rearing facilities, a hatchery, feed mill, and slaughtering facility on a 5,000 ha site. Launch of the complex is planned for 2015 (a year later than previously announced), and it is expected to reach full capacity by 2016.  

Cherkizovo Group was formed in 2005 and unites 26 companies and retail chains, including assets in the Black Earth Region (poultry and pork production complexes and a feed mill in Lipetsk Region). According to data for 2011, Igor Babaev and members of his family are the principal shareholders (60%). The Group’s revenues in 2012 were $1.58 billion, and net profit was $225 million. 

Several turkey production and processing projects are currently being implemented in the Black Earth Region. Eurodon LLC (Rostov Region) plans to construct a closed cycle complex with capacity up to 60,000 tonnes live weight of meat per year in Voronezh Region. Construction of two more complexes of 10,800 tonnes slaughter weight each is also planned in the region (Bort Peasant Farm Enterprise and Ramonskaya Indeika Agroholding LLC). However, only one large turkey producer – Zadonskaya Poultry Farm CJSC (Lipetsk Region) with capacity of about 2,600 tonnes per year – is currently operating in the Central Black Earth Region.  

Experts disagree on the prospects for the project. Head of the Executive Committee of the National Meat Association Sergei Yushin believes that the capacity increase is justified by the presence of an unfilled market niche: “It is hard to say why the cost of the project has increased so significantly. It may be due to the installation of some other type of equipment. However, the increase in capacity itself is not surprising. There is still room on the air-chilled turkey market in both Moscow and other large cities of Central Russia. Convenience stores especially are feeling the shortage of turkey meat, and the company can fill this niche.” Mr. Yushin also added that turkey could replace beef in sausage production. “There is growing public interest in healthy eating, which means high potential demand.”  

 Executive Director of the SovEcon Analytical Center Andrei Sizov is less optimistic about increasing the facility’s capacity: “In the long-term outlook, the project has the right to exist. However, it would make more sense to postpone it until the market situation improves… As household income continues to stagnate, we can hardly expect a sharp rise in the consumption of relatively expensive turkey meat. The Russian turkey market today is only 120,000 tonnes per year, which is only one-third of its capacity.”