Cherkizovo Set for Slaughter

The company informed Kommersant yesterday that Cherkizovo Group is investing 780 million roubles in retrofitting Dankov Meat Processing Plant CJSC, located in Dankov District of Lipetsk Region. Specifically, the project should increase capacity of the slaughtering line to 124,000 tonnes live weight p.a. Experts note than many domestic meat processing plants are in urgent need of modernization due to “market demand” and stiffer competition. In addition, the sale of home slaughter meat has been prohibited in the country since the beginning of May, so “demand for certified slaughterhouses will only increase.”

Chairman of Cherkizovo Group Board of Directors Igor Babaev announced the start of renovations of the Dankov Meat Processing Plant yesterday in a speech at a meeting of the Lipetsk Regional Council. Mr. Babaev said that the company had started repairing and retrofitting the plant, which would involve modernizing the slaughtering facility by installing an automatic slaughtering line with capacity of 220 pigs per hour manufactured by the Italian company Petrocelli, expanding the refrigeration plant with dual cycle cooling capability, upgrading the loading racks, replacing the weighing equipment, buying special purpose trucks, rebuilding the treatment plant, laying a gas pipeline and constructing a boiler house. The total cost of the work will be 780 million roubles. As a result, the production capacity of the slaughtering line at the Dankov Meat Processing Plant should increase to 124,000 tonnes live weight p.a.

“Our main pork production capacity is located in the region, and last year we acquired the Dankov Meat Processing Plant with a slaughtering facility,” Mr. Babaev said. “Given the current situation on the pork market, business efficiency is directly related to having our own modern slaughtering and processing facilities; therefore, we decided to upgrade the Dankov Meat Processing Plant.”

The Group’s Communications Department explained to Kommersant that, at present, slaughter at the meat processing plant is fully manual, with capacity of 60 heads per hour. The plant’s meat processing capacity is 40,000 tonnes. The company’s total sales in the region as a whole in Q1 2014 increased by 17% to 40,300 tonnes of pork compared to the same period last year. The average live weight selling price increased by 28% to 73.5 roubles per kg. Processing volume was 29,600 tonnes. The company confirms that pork production facilities in the region are operating at maximum capacity. For example, in Q1, Lipetskmyaso OJSC in Volovsky District slaughtered 235,000 heads or 25,000 tonnes, and Lipetskmyasoprom OJSC in Lev Tolstoy District slaughtered 480,000 heads or 52,000 tonnes.

Cherkizovo Group is the largest meat manufacturer in Russia. The Group includes 8 poultry production facilities, 14 pork production facilities, 6 meat processing plants, 6 feed mills, and grain storage facilities. In 2013, the Group produced more than 500,000 tonnes of meat products, and consolidated revenue was more than $1.6 billion. The company’s best known brands are Cherkizovsky, Petelinka, Kurinoe Tsarstvo, and Mosselprom. Cherkizovo has invested more than $1 billion in developing the domestic agroindustrial sector in the last five years. According to the company’s own information, CEO Sergei Mikhailov and his family control 63% of the Group, and 37% of the shares are quoted on the LSE and RTS/MICEX.

Mr. Babaev estimates that in the last ten years of operation, Cherkizovo has made Lipetsk Region one of the ten largest poultry meat and pork producing regions. At the same time, the company produces more than 60% of all poultry meat and pork in the region. According to Lipetsk regional administration, production of all kinds of meat in the region increased by 18% in 2013 (vs. 2012) to 260,000 tonnes, including pork production, which increased 1.4 times to 92,000 tonnes.

Experts interviewed by Kommersant believe that growing “market demand” and tougher competition are pushing domestic meat processing plants today into major upgrades. Many companies with slaughterhouses that are either separate or included in vertical agricultural holdings, such as Miratorg or Agro-Belogorie, have modern processing facilities, and thus produce the higher quality products that the market demands. “In this situation, Cherkizovo’s plans are understandable, since they are driven by the need to make the Group’s facilities more competitive,” says Sergei Yushin, Head of the Executive Committee of the National Meat Association. “Due to outbreaks of African swine fever in Poland and Latvia there have been no imports of pork, by-products, or lard from the EU to Russia since the end of January, leading to a substantial decrease in imports. For example, lard imports have decreased by 70%, by-products by 80%, and pork by nearly 50%. As a result, you have a market environment with high prices for both live pigs and the corresponding cuts.”

According to Mr. Yushin, global pork prices have also increased due to various animal diseases, such as porcine epidemic diarrhoea in the U.S. and Canada, which have dealt a major blow to the industry in large exporting countries. “The market situation is very attractive for domestic pork manufacturers. Today, they’re not just licking their wounds after losses in the first few months of entry into the WTO, but are feeling more confident. Market supply is decreasing, but industrial production has increased by nearly 17% since the beginning of the year compared with the same period last year,” the expert explains. He is also confident that demand for slaughter capacity will only grow. “The sale of home slaughter meat has been prohibited since the beginning of May. This means that you can no longer kill a pig in your own backyard and then sell it on an organized market, because they won’t give you the required documents for this.”