Cherkizovo Charges in Swine Array

July 20, 2015

Cherkizovo Group wants to increase pork production by 70 % to 330,000 tonnes by 2022. Sberbank CIB is financing a project for a new pig cluster costing 19.2 billion roubles, the bank and the group said in a joint statement.

According to the statement, Sberbank CIB will provide 14.4 billion roubles to the group for up to 12 years. The new pork complexes with the capacity of 145,000 tonnes of live weight will be built in Voronezh and Lipetsk Regions. Cherkizovo plans to launch first finishing facilities in late 2015. Construction of the Cherkizovo feed mill with the capacity of 500,000 tonnes, which will provide feed for the complexes, is already being completed.

In 2014, Cherkizovo produced 178,000 tonnes of pork live weight, finishing third after Miratorg (370,000 tonnes) and Rusagro (186,800 tonnes). Launch of the new cluster will bring Cherkizovo close to Miratorg in terms of this indicator.

Producing pork in Central Russia is more profitable than in the south, for example, because of the lower cost of feed, says Daria Snitko, Deputy Head of the Centre for Economic Forecasting at Gazprombank. In addition, per capita production in the European part of Russia is lower than in other regions, even though the main pork production capacity is located there, says Yury Kovalev, Director General of the National Pig Farmers Union. He added that the central location is also convenient in terms of logistics: even chilled products can be transported over distances up to 2,000 km.

In June 2015, the company launched a slaughtering facility in Dankov: Cherkizovo will now slaughter 80 % of its pigs at its own facilities (previously 40 %), says Alexander Kostikov, a spokesman for the group. The group also has grain storage facilities and a feed mill in the same region, says Sergey Mikhailov, CEO of Cherkizovo. "We plan to significantly increase our market share of sausage, ready-to-cook products, and meat processing, and for this we need our own high-quality raw materials," he said commenting on the company’s plans.

However, the market leaders also intend to increase production. For example, Miratorg wants to increase production and processing from 3 million to 7 million head, which corresponds to about 860,000 tonnes of live weight, a spokesman for Miratorg says. He adds that the company plans to spend more than 100 billion roubles on this. Time frames for implementing the project have still not been determined.

Rusagro is planning a project in Primorye with the capacity of 300,000 tonnes of live weight; construction of the first phase for 100,000 tonnes will start in autumn 2015. The entire project together with a feed mill and slaughtering facility will cost 17 billion roubles. Rusagro also hopes to build a complex with the capacity of 120,000 tonnes in Tambov Region for 20 billion roubles by 2018, and is now awaiting a favourable decision of the project finance committee.

There is a lot of room for expansion: Russia produced nearly 3 million tonnes of pork of slaughter weight in 2014, according to the National Meat Association. The Association President Sergey Yushin expects that 600,000 tonnes produced at outdated facilities and on private farms will leave the market in the next five years. He predicts that this market share will be divided among Cherkizovo and other highly efficient producers. In addition, Russia imported 1 million tonnes of pork and processed products in 2013, Mr. Yushin reminds. According to him, import substitution, the entry of Russian producers to foreign markets, and increased domestic consumption by market participants, along with economic recovery, are also evidence of the growth potential of domestic production.