Russian business chases turkeys

Since 2005, breeding of agricultural livestock in Russia has taken off, and now many sectors of the industry have reached their saturation point. As a result, investors are working to develop products for niche markets, such as marble beef or bacon for the catering industry. Their record so far has not been particularly impressive, but there is one startling exception– turkey. Between 2006 and 2010, the number of turkeys in Russia has quadrupled and domestically produced turkey products now exceed the total number imported. This year, Russian and foreign agricultural authorities expect still greater growth, believing that the market will expand in the medium term. The turkey market may produce higher quality goods when compared to the chicken market, but chicken production began earlier and has thus far been the most successful livestock-breeding sector.

The success of the turkey industry is all the more notable due to the fact that it has been built up virtually from scratch. During the Soviet era, turkey production (or consumption, for that matter) did not exist in Russia, and the animals were raised mainly on small, private plots of land.

Evrodon chief Vadim Vaneyev. Source: ITAR-TASS

With a $250 million operation in the Rostov Region, Evrodon Group is the indisputable leader of the Russian turkey business. Evrodon chief Vadim Vaneyev spoke with Ivan Rubanov of Ekspert magazine about his company’s operations.

Ekspert: Turkey was your first major business venture. Where did you get the starting capital? How much of it was borrowed capital? 

Vadim Vaneyev: Almost 100 percent was borrowed. We used money from the bank for project financing. We started construction in 2006 and the first unit had a capacity of 12,000 metric tons of meat, which cost 41 million euros ($53 million) to build. That was the costliest stage of the project, as we had to obtain land rights and lay down the infrastructure. The second phase was much cheaper. Now the complex has reached its design capacity of 30,200 tons and, by next spring, we are going to increase it by another 4,000 tons to complete the operation.

Since 2005, breeding of agricultural livestock in Russia has taken off, and now many sectors of the industry have reached their saturation point. As a result, investors are working to develop products for niche markets, such as marble beef or bacon for the catering industry. Their record so far has not been particularly impressive, but there is one startling exception– turkey. Between 2006 and 2010, the number of turkeys in Russia has quadrupled and domestically produced turkey products now exceed the total number imported. This year, Russian and foreign agricultural authorities expect still greater growth, believing that the market will expand in the medium term. The turkey market may produce higher quality goods when compared to the chicken market, but chicken production began earlier and has thus far been the most successful livestock-breeding sector.

The success of the turkey industry is all the more notable due to the fact that it has been built up virtually from scratch. During the Soviet era, turkey production (or consumption, for that matter) did not exist in Russia, and the animals were raised mainly on small, private plots of land.

With a $250 million operation in the Rostov Region, Evrodon Group is the indisputable leader of the Russian turkey business. Evrodon chief Vadim Vaneyev spoke with Ivan Rubanov of Ekspert magazine about his company’s operations.

Leaders of the Russian turkey production. Click to view the big picture

Ekspert: Turkey was your first major business venture. Where did you get the starting capital? How much of it was borrowed capital? 

Vadim Vaneyev: Almost 100 percent was borrowed. We used money from the bank for project financing. We started construction in 2006 and the first unit had a capacity of 12,000 metric tons of meat, which cost 41 million euros ($53 million) to build. That was the costliest stage of the project, as we had to obtain land rights and lay down the infrastructure. The second phase was much cheaper. Now the complex has reached its design capacity of 30,200 tons and, by next spring, we are going to increase it by another 4,000 tons to complete the operation.

It was entirely a grassroots project. Turkeys are not robust birds and are vulnerable to every kind of infection. Naturally the facilities are separated, and we comply fully with all regulation so it is easy for us at any time to get a European Union certificate to export. In terms of technology, the only remaining issue is the droppings. Currently farmers steal them because historically turkey droppings have been viewed as waste and were considered worthless; however, they contain a large amount of phosphorus, which increases yields by a quarter percent. We are choosing treatment technologies for that by-product in order to make money from it, too.

Ekspert: Where did you find the workforce? Who selected the appropriate technology for Russia’s climate? 

V.V.: Eighty percent of our workers are locals. We looked for medium and top-level managers from all over the former Soviet Union. For example, we recruited the chief technologist for turkey breeding in Uzbekistan. The core workforce was retrained abroad and then they trained the younger people. We have a constant exchange of experience; our veterans go to Europe, our managers visit foreign farms and vice versa; we have foreigners arriving every month.

The equipment and engineering solutions were provided by the Israelis, but only during the initial stages. In late 2006 after putting the first unit in place, which had a capacity for 12,000 tons of meat, the price for cement shot up in Russia. We faced funding problems, and so had to separate the company from our [Israeli] partners. We finished the facilities ourselves with our own know-how, including the engineering work. Since 2008, we have been building all of our projects independently.

If we had outsourced the construction, it would have been 30 percent to 50 percent more expensive; moreover, I was not sure whether my turkey houses would be standing in ten years using outsourced services. As for technological solutions, we have used our own experience, our own brains and have traveled across the world in order to see how others run their businesses. Thirty percent of the project’s second phase is all-Russian technology, including thermal insulation solutions.

Ekspert: Do you mostly produce or process meat? And in general, does Russia’s sales structure differ significantly from the West’s? 

V.V.: About 90 percent of our meat is supplied in cut form. A small percentage is provided as whole carcasses (mainly females) and in the shape of sausages, of which we produce 25 types. Our market differs from the American one, where about 50 percent of turkeys are consumed whole on Thanksgiving Day. That is why light and medium-weight turkeys are popular over there, while the heavier ones are most in demand here; However, there is a growing tradition of buying whole turkeys at Easter and the New Year. In the future we want to increase our market share of processed products, including finished foods.

We use our own feed recipes. Despite foreigners constantly offering us all kinds of additives, we do not give them to our birds– our reputation is more important to us. There was an amusing episode recently: A general manager from the British company that developed one of the breeds that we are using came to visit us. He tasted our meat and then tasted it again and again before asking, “May I take all of it back home with me?” He collected all of the pieces from the plates on the table and grabbed another five kilos in the slaughterhouse. “I’ve never tasted anything so good back home,” he said.

We held anonymous meat tasting sessions, which included meat from our rivals, and everybody immediately identified our product.

Ekspert: What is your approximate cost structure?

V.V.: Feed accounts for 68 percent of our costs. That includes soy pellets and forage grain (Each constitutes about 30 percent of the total) as well as maize, barley, premixes and vitamin additives. 13 ingredients in all.

Ekspert: Your ambitions might surprise even an experienced professional. Do you, as a businessman, have any dreams? 

V.V.: To become the number one turkey producer in the world. Your magazine recently wrote that we [Russia] need global companies. We have no chance of overtaking foreigners on beef production given our costs. Regarding pork, China is the undisputed leader. In the States, there are giant poultry breeding companies. Turkey is the niche market where we can become a global leader.

This is an abridged version of the article, which was first published in Russian in the journal “Ekspert.”

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