Get the latest updates as we post them — right on your browser

. Last Updated: 07/27/2016

2 Major Russian Poultry Importers Team Up

Two major Russian poultry importers will merge in order to keep going amid rising import costs and low demand, officials said Tuesday.

The merger between Moscow-based importer Frozen Foods and a smaller St. Petersburg rival, the Baltic Group, aims to corner a third of the Russian poultry market when it starts joint operations in mid-January.

Although merger talks between the two firms had started as early as last winter, plans were on hold until the impact of the crisis made the companies realize they would be better off returning to the original plan, Frozen Foods Vice President Yury Mikhailov said Tuesday.

"Every dark cloud has a silver lining," he said.

Frozen Foods controlled 30 percent of the poultry market before the crisis and Baltic Group 20 percent, he said.

The new company, called Frozen Foods, will be headed by Frozen Foods President Pavel Svirsky. Baltic Group chief Yury Rydnik, who has lead the St. Petersburg firm since it split from major food importer Soyuzkontrakt in 1997, will be chairman of the board.

Combining Frozen Foods' extensive distribution network in Russia with Baltic Group's longtime contacts with foreign producers will allow the new company to gain market share even at a time when imported-poultry sales have plunged along with the purchasing power of the ruble, Mikhailov said.

Frozen Foods, for example, dropped its imports of poultry to about 5,000 tons a month after the August crash. Earlier in the summer, the company was bringing in 25,000 to 30,000 tons monthly.

Frozen Foods even stopped importing poultry immediately after the crisis started, relying on its stocks. However, imports were already picking up with about 10,000 tons brought in monthly, allowing the company to break even in November and to start making a profit again this month, Mikhailov said.

Russian poultry imports - 85 percent of which consist of chicken leg quarters - grew steadily throughout the 1990s, rising from 193,000 tons in 1993 to over 1.2 million tons in 1997, which accounted for about 65 percent of total Russian poultry consumption.

Domestic producers have taken advantage of the import freeze to reap large profits by raising their prices to the same levels as imports. Profit margins are estimated by industry sources to be as high as 67 percent. In contrast, Frozen Foods had a profit margin of about 5 percent before the crisis, said Mikhailov.

Imports for 1999 would likely only reach half the 1997 figure unless the United States, which accounts for up to 90 percent of chicken imports, takes "serious protectionist measures" to support its producers, said Rudolf Bulavin, an analyst with food trading company OGO.

The United States can afford to sell at a loss in Russia for some time to hold on to the market, he said.

Attracted by potentially high profits, Frozen Foods has started investing in local poultry farms, Mikhailov said. However, those farms' capacity is insufficient to satisfy demand in the medium term and Russia must rely on imports, he said.

That is echoed by the U.S. Department of Agriculture, which does not foresee Russia's economic woes being as severe a problem for America's chicken farmers as it is for its other agricultural producers. "The U.S. industry, with its proven ability to move product at low prices, should be able to partially compensate for the ruble devaluation," said a USDA newsletter. "Nevertheless, poultry meat imports by Russia are now projected down over 30 percent in 1998, to 850,000 tons, sliding another 18 percent in 1999 to 836,000 tons."