Chairman of the Presidium of AKORT Igor Karavaev about chickens, eggs and stabilization

Prices for poultry meat and eggs, which rose sharply last year, in January 2024, according to Rosstat, decreased by 2.7% and 1.8%, respectively, but the situation in poultry farming remains the focus of attention of regulators. The Federal Antimonopoly Service has sent recommendations to the regions on stabilizing egg prices, which may contain obligations of suppliers and retailers to contain the cost of products. The chairman of the presidium of the Association of Retail Trade Companies (AKORT; includes X5 Group, Magnit, Lenta, Auchan, etc.) told Kommersant about the supply of poultry meat and eggs. Igor Karavaev.

— How were problems with the supply of poultry meat and eggs resolved in 2023?

— The demand for chicken meat and its consumption has been growing steadily over the past few years. Indeed, at the beginning of autumn, supplies were significantly lower than the needs of retail chains; the deviation of the corresponding indicators from the data for the same period in 2022 averaged about 13–14 percentage points. However, chain retail did not experience critical shortages of chicken. At a certain point, the situation with eggs was more tense due to an increase in demand, including due to purchases from small wholesalers, and a reduction in supplies under direct contracts. Retailers tried to equalize the situation through prompt redistribution of supplies, and partially compensated for the shortage and the need for additional volumes through tender purchases.

— Have any new practices emerged in this regard that the networks have integrated into business?

— Market practices were formed naturally and taking into account the seasonal volatility of prices for poultry products. Before the situation that arose last fall, they looked quite balanced. Now networks are primarily focused on continuing work under long-term contracts. We hope that we will be able to increase their share.

— Were there similar problems with other assortments and how were you able to solve them?

— There were no serious problems with the supply of other products either last year or this year. Retail chains – members of AKORT diversify supplies by working with a large pool of suppliers, both Russian and foreign. This allows you to avoid interruptions in supply and avoid shortages even in the event of rapid disposal of individual items. Last year, the assortment in most categories was actively filled with both new brands and retailers’ own brands.

— Can networks prepare in advance for a sharp increase in demand?

— Since the pandemic, retailers have been building up increased inventories. This practice reduces the risk of shortages and allows you to cover even increased customer needs until the situation is resolved. In addition, retailers work with a large number of suppliers, even in the same category, which also minimizes the risk of complete disposal of any particular product.

On average, the number of suppliers with whom the largest chains cooperate varies from 5 thousand to 7 thousand; one category can have 100–300 suppliers; the number of partnerships is expanding annually. In general, the entire retail industry has successfully gone through several crises in recent years, which are fully consistent with the “black swan” concept. But in exceptional situations, the problem of ensuring sufficient availability of goods must be solved promptly.

— What is the current situation with the supply of poultry meat, eggs and their prices? What is the impact of the measures taken by the authorities to facilitate imports?

— Now we are seeing a gradual stabilization of producer prices for poultry products. Today, the federal retail sector is not experiencing any serious problems with the supply of eggs, and the situation for chicken is also stable. We are guided by the optimistic forecasts of our partners from industry unions, who speak of sufficient self-sufficiency in poultry meat: the volumes of broiler imported to Russia are small, and turkey is not imported at all. So far, the share of imported eggs is not so significant in comparison with the annual volumes of consumption and production of this product. It is important that this measure had a stabilizing information effect and helped prevent unreasonable rush demand.

— Some participants in the poultry market propose limiting the markups of chains on eggs, reducing payment deadlines, and obliging them to conclude long-term contracts. What do you think of these proposals?

“I believe that such speculative statements are unacceptable.” Moreover, they are counterproductive in the context of self-regulatory mechanisms, through which many problems have been solved. Returning to the topic of long-term contracts, I will note one important detail: there are a number of large retailers that use only this mechanism and do not buy eggs through tenders. Obviously, a high purchase price is disadvantageous not only for the consumer, but also for trade, which is forced to dampen its growth at the expense of its own income, while maintaining negative markups. For example, the average markup on chicken eggs C1/C2 in retail chains – members of ACORT in the fall and in December 2023 was minus 2%, in the largest chains – minus 13%.

A widespread limitation of markups carries a risk for balanced retail pricing and subsequent price increases: trade will no longer be able to compensate for the negative markup of some goods by redistributing it to others. An increase in prices for the most affordable and popular goods, in turn, can provoke an increase in demand.

A possible reduction in payment terms is a similar risk that will destabilize the operating activities of chains and will not allow sufficient investment in affordability and maintaining a range of socially important goods. In fact, no one benefits from this measure: suppliers will incur costs due to the restructuring of business processes, small and medium-sized businesses may lose part of their stable sales.

— Is it possible to prevent a repeat of the situation on the poultry market in 2023?

— Still, the situation is more anomalous than typical for our market. Therefore, it is important to strengthen direct, constructive dialogue between market participants and make targeted decisions, the effectiveness of which takes into account a set of specific factors and circumstances. The general goal is to prevent unreasonable price increases and a decrease in the availability of basic goods.

Interview conducted by Anatoly Kostyrev