Companies & Industries

Beef: The New Opiate of the Russian Masses?


Soon rib-eyes may take their place alongside vodka and cigarettes as Russian favorites

Photographs by Philip Nealey/Getty Images (cow); Time & Life Pictures/Getty Images (hat); Stockbyte/Getty Images (flag); Jack Anderson/Foodpix/Getty Images (shot glass); Craig Barritt/Getty Images (vodka bottles); Gregor Schuster/Getty Images (russian

Soon rib-eyes may take their place alongside vodka and cigarettes as Russian favorites

Russian President Vladimir Putin has an ambitious plan to cut his country’s $3 billion annual import bill for beef. He even aspires to return Russia’s beef industry to its pre-revolutionary stature. To get there, however, he’s depending on an unlikely savior: Anthony Stidham, a 48-year-old, third-generation rancher from Oklahoma. At Russia’s largest beef farm, about 400 kilometers (250 miles) southwest of Moscow, Stidham is among a tiny group of foreign cattlemen hired to school locals in livestock-rearing—everything from branding cows to easing a stuck calf through the birth canal. If all goes according to plan, Russia could someday send foreign beef suppliers like Tyson Foods (TSN) of Springdale, Ark., and São Paulo-based Brasil Foods (BRFS) heading for customs.

With its expanding middle class and a tripling of some wages in recent years, Russia is experiencing a surge in demand for beef. So Moscow has cut import quotas to help revive a cattle-breeding tradition decimated under the rule of Joseph Stalin. Putin wants the country to meet 85 percent of its own meat needs by 2020, compared with 65 percent today; he’s pumping money into the fledgling meat industry and letting it bring in talent—and cows—from abroad.

“There’s no place in the U.S., Australia, or anywhere in the world that will have cattle as good as what they are putting together here,” says Stidham, who was recruited last year after answering an advertisement in a farming publication.

Over the past decade, Stidham’s employer, Miratorg Agribusiness Holding, Russia’s biggest meat importer, has received state financing, investment subsidies, and tax benefits to start the $800 million project in Bryansk. Set up by brothers Alexander and Viktor Linnik in 1995, the company became Russia’s largest pork producer in 2010 and has moved into poultry. To help fund continued expansion, it sold 3 billion rubles ($92.7 million) of bonds last year and may sell more this year, Chief Financial Officer Vadim Kotenko says. An initial public offering is being considered.

Miratorg has Texas-size ambitions: It already runs 16 beef farms around Bryansk, with an additional 17 set to open in the area by the end of 2013. Another three are under construction in Kaliningrad, on the Baltic Sea. Each operation has about 3,000 breeding cows. “There’s just nothing in the U.S. that big,” Stidham says, in reference to the Bryansk complex of ranches.

One of 10 U.S. ranchers employed at Bryansk, Stidham says his students are willing to work around the clock to learn the intricacies of the cattle business. Although he’s also teaching them cowboy basics such as horse riding and roping, “our main role is just to train Russians on how to handle livestock, from different methods of feeding, to being able to recognize different illnesses or injuries,” says Stidham.

Ranching on the Great Plains this isn’t. First, Russia has only about 250,000 beef cows, representing about 1 percent of its total herd of mainly dairy cattle. So Miratorg has brought in 60,000 head of livestock since last July. The imported Aberdeen Angus, a Scottish breed of hornless black beef cattle, have had to cope with winter temperatures that can plummet as low as –35C (–31F) after making the four-week journey by sea and road from the U.S. and Australia. “This breed can adapt perfectly to any climate, it just grows as much hair as needed in a certain temperature and then passes on this genetic trait to calves,” Kotenko says.

At Bryansk, the plan is to almost double the size of the parent herd by the end of 2013. With new calves, the integrated operation, which involves everything from slaughterhouses to meat-processing facilities, will expand more than fourfold to 250,000 head by 2014. It will be able to produce 104,000 meat bulls a year and supply 30,000 metric tons of boneless beef to the Russian market. It will take time to determine the project’s success. “The production cycle takes 40 days for poultry, six months for pork, and a whole 16 months for beef, which makes it the most capital-intensive,” Kotenko says. “We’ve been working on a feasibility study for two years, and at least five banks declined to fund the beef project, labeling it too risky.”

Bankers also worried about the waning popularity of beef in established markets elsewhere. In the U.S. and other developed nations, beef consumption has been declining since the mid-1970s in favor of cheaper pork and poultry, according to the U.S. Department of Agriculture. But Russians consume only 17 kilograms of beef per capita annually, or half the U.S. equivalent, reports the Moscow-based National Meat Association. So domestic consumption should have plenty of room to rise.

VEB, Russia’s state development bank, agreed in 2010 when Putin was its chairman to finance Miratorg’s beef project, which also benefits from cut-rate loans from the government. Beef imports—competition for local operators like Miratorg—are also subject to quotas, as Putin seeks to shore up domestic production to reduce dependence on imports. “This can be seen as the first step for the Russian cattle industry to regain its lost position,” says Albert Vernooij, an industry analyst at Rabobank Group. “However, with strong competition for land and continuing high feed costs, this might be a long process.”

The czarist tradition of breeding meat cattle was lost in the 1930s when Stalin enforced a drive toward collective farms. The country has mainly slaughtered retired dairy cows for meat ever since. That’s taken a toll on beef lovers: “A steak out of a 7-year-old milk cow is tough and thin,” explains Igor Bukharov, president of the Federation of Restaurateurs and Hoteliers of Russia. Only with the fall of the Soviet Union in the 1990s, as Russia started importing beef from New Zealand, Argentina, and the U.S., did consumers acquire a taste for better cuts, says Bukharov.

Russia purchased 1.1 million tons of beef and veal from abroad last year, according to USDA data, the equivalent of about 3.3 million fattened steers. Beef imports were valued at $2.6 billion in 2011, making up about 33 percent of domestic consumption. Tyson Foods, Brasil Foods, Cargill, and JBS are currently among the biggest suppliers of beef to Russia, according to the U.S. Meat Export Federation. But as the example of Bryansk is replicated elsewhere in Russia, the nation’s meat producers hope that the country one day will not only be able to meet internal demand but also export beef for the first time. “Russia has all opportunities to be a big beef exporter in 10 to 15 years,” Kotenko says.

The bottom line: To lower its $3 billion annual cost to import beef, Russia is bringing in foreign talent to help it revive its cattle business.

Khrennikov is a reporter for Bloomberg News in Moscow.
Sysoyeva is a reporter for Bloomberg News in Moscow.

Ebola Rising
LIMITED-TIME OFFER SUBSCRIBE NOW

Companies Mentioned

  • TSN
    (Tyson Foods Inc)
    • $38.85 USD
    • 1.11
    • 2.86%
  • BRFS
    (BRF SA)
    • $23.55 USD
    • -0.57
    • -2.42%
Market data is delayed at least 15 minutes.
 
blog comments powered by Disqus