Prices and profitability in the Russian meat market could be hit after the Government’s decision to raise VAT from 18% to 20% from 2019, Global Meat News reports.
However, the impact could be minimized if the authorities decide not to reimpose the higher VAT rate on food products, though this decision has yet to be taken.
Russian analysts anticipate that domestic meat prices would rise 3-7% in the event of a rise in VAT. Experience has proven that prices will start rising in advance of the VAT hike, they say.
“The VAT rate on food will be kept lower, but taxation will be increased in related sectors, which will ultimately affect production costs for meat,” says Konstantin Korneev, executive director for consulting agency Rincon Management. He added it is hard to forecast by how much prices could rise, as there is an oversupply in several sectors of the meat market. This would result in the increase in prices which is unlikely to correspond directly to a rise in production costs, Korneev added.
Oversupply is already happening in Russia’s poultry market and is likely to start in the pork sector soon. In this case, the position of some meat manufacturers could become more complicated, especially with a background of rising prices for feeding grain.
In poultry farming, the average profitability for small farms ranges between 2% and 5%. Also, the rise in prices could see a drop in demand for meat in the country, Korneev said.
“The VAT hike is likely to be the nail in the coffin for some inefficient farms, which have struggled to stay afloat over the past few years amid tightening competition in the domestic market, a Russian meat producer who wished to remain anonymous told GlobalMeatNews. The rise in taxation would be much more painful for small and medium-sized businesses, so it would probably trigger further consolidation in the Russian meat industry, he added.
