PoultryWorld: Russian egg farms suffer over a conflict with retailers

The Russian union of poultry farmers, Rosptitsesoyuz, has filed a complaint to the Federal Antimonopoly Service claiming that the country’s largest retailers force farmers to sell eggs at prices below production costs.

As explained by Galina Bobyleva, general director of Rosptitsesoyuz, the largest retailers refuse to purchase eggs for more than 35 rubles (US$0.58) per pack of 10 pieces, sometimes even trying to push it down to 30 rubles (US$0.50), which is much lower compared to the average production costs.

Price controls take the blame
The problems are believed to be linked to anti-hoarding measures and price controls embarked on by the Russian government in early March amid a slew of punishing economic sanctions from the West. The government set that major retail chains could restrict the sale of a number of “socially important goods”, such as food staples, and limit how high they mark up their prices.

With the new measures, authorities planned to battle food inflation, a huge concern for Russians with low incomes, which reached 19.5% year-on-year in April, as estimated by the Russian state statistical service Rosstat.

Retailers put pressure on farmers
However, poultry farmers argue that the price of eggs on the shelves must be reduced at the expense of retailers’ margins. Currently, a pack of 10 eggs costs from 70 to 80 rubles (US$1.16 – US$1.33) in an average Russian supermarket, Bobyleva estimated. Rosstat estimates it at 88.9 rubles ($1.48) per pack.

“They are trying to force us to sell [eggs at a price] below production cost, and this is a crime,” said Bobyleva. “Eggs should not be cheaper than potatoes. We will not reduce production, because eggs are an important, socially significant product, an exceptional source of protein. We should not forget that poultry farms provide jobs.”

“The root of evil”
Bobyleva stated that “the root of evil” is in the division of the food retail market between several major players who can hold negotiations with suppliers from the position of force.

“Small convenience stores, as well as large individual grocery stores and small chains, have been driven out of the market by monsters,” Bobyleva said, adding that suppliers cannot refuse the deal because eggs have a short expiration date, and farmers often have no choice but to conclude a contract under loss-making conditions to just get rid of products. For the same reasons, there is no time to conduct long negotiations.

On the other hand, production costs are soaring due to numerous factors – feed, packaging, and logistics are becoming more expensive, Bobyleva added.