DeBruycker Charolais Heads to Russia to help expand their genetics

Tue 04 Jan, 2011

Russian connection
—Producers in the former superpower are gearing up to be a force in global beef production, presenting a golden opportunity for U.S. cattlemen.
By John Robinson, WLJ Editor

American cattle producers are always looking for new opportunities. One growing opportunity, which is just over the horizon, is the Russian market. In recent years, U.S. cattle producers have been working to expand the market for cattle genetics and beef in the former communist country, which is working to build a beef herd that would allow them to be self-sufficient.

The flow of capital investment from both the Russian government and private corporations is creating a new frontier for beef production. Now, many U.S. producers are working to help the Russians develop their infrastructure and build their beef herds. The task promises to be challenging, but there are many new opportunities in the far east for marketing cattle and genetics that have never been available in the past.
Unequaled opportunities

The Russian Federation, which includes much of the land mass of the former Soviet Union, is a vast, untapped reserve of land and resources. As capitalism has spread in the country and its population has gained wealth, the people’s appetite for beef has increased sharply. That increase in demand has quickly outstripped supply. Now, that country’s producers and the Russian government are struggling to keep up and spending large sums of money to catch up. There are problems and challenges, but also incredible opportunities. For young U.S. producers, with knowledge of modern beef production methods and a willingness to work, will find unequaled opportunities as the country begins to build its infrastructure from the ground up.

“I really believe there is an opportunity for 25-year-olds, who aren’t tied down, to go over there and be successful,” said Brett DeBruycker of DeBruycker Charolais, who was one of a group of enterprising cattle producers who traveled to Russia to promote U.S. genetics and pave the way forward for new partnerships that could prove to be extremely valuable to cattlemen in the U.S. and Russia in the future.

Bill Davis of Rollin Rock Angus, Sidney, MT, accompanied the group, making his second trip in less than a year to promote U.S. genetics. Davis is the immediate past president of the

American Angus Association and traveled to Russia last May for the first-ever auction of U.S.-origin Angus cattle and genetics in the country. He said the market for U.S. cattle and genetics, which is still largely untapped, represents a new frontier for American cattlemen.

“I really believe that there is an opportunity to send 300,000 or 400,000 head of cattle to that country over the next few years,” said Davis. “There are some things that are going to have to be overcome first, for example, there are no fences in that country. They have some amazing architecture, but they don’t have fence one.”

He said that there are barriers to trade with Russia, but they can be overcome. Language is an obvious impediment to trading with Russian cattlemen. Mark Rohr of Lazy H Ranch in Hays, KS, explained that the transfer of money is another hurdle which will take some effort to resolve so that cattle can be shipped overseas.

“Here in the U.S., we’re used to being paid for our cattle the same day they sell. But that’s not how it works when you’re selling cattle to Russia. You’re not going to get paid until those cattle are out of quarantine and they have received them on the other end,” said Rohr. “That takes some time and some getting used to. There’s potential for things to go wrong there, so that’s going to have to be worked out.”

There are also management issues that will need to be resolved. Davis explained that under the communist regime, when every individual was guaranteed a job, cattle were herded, free-range instead of being confined on a single operation. Soviet-style farms would employ 12 or 15 men to do what we would consider the work of one person here in the U.S.

“Under the old Soviet regime, it didn’t pay to stand out,” said Davis. “A lot of the people that knew what they were doing aren’t around any more.”

The knowledge gap left after the fall of the Soviet Union is slowly being repaired, but there is still a lot of work to do and Russian cattle producers are moving full speed ahead to build their industry.

Tremendous potential  The market potential for U.S. beef genetics in Russia is enormous. There is little infrastructure that U.S. producers would consider modern in any size or scale. DeBruycker noted that although the group did not have an opportunity to visit any of the nation’s packing facilities, the scope of Russia’s packing capability is far more limited than it is in the U.S., with small and mid-size plants accounting for much of the country’s production. Those inefficiencies, coupled with the small number of cattle produced in Russia, make domestic beef production very expensive. Rohr noted that Russian beef retails for an average of $8 per pound. That price makes imports highly competitive and desirable for Russian consumers. Those consumers, as individual wealth grows in Russia, are spending more of their money on beef purchases, leaving Russian producers playing catch-up and making beef production a political issue. In recent years, Russian officials have realized that food production and self-sufficiency are security issues. Overcoming that dependency on foreign supplies is important for Russians, who spend approximately 60 percent of their wages on food, which compares to just 12.4 percent in the U.S., according the Department of Labor. The Russian food supply is also heavily dependent upon imports from other countries, leaving the country’s growing population vulnerable to the vagaries of the open market. Its beef supply is mostly imported, making quality and availability inconsistent, particularly outside major urban centers.

According to the U.S. Meat Export Federation (USMEF), Russian buyers have started shifting their purchasing habits away from the normal patterns in recent years. For many years, Russia was a major buyer of liver, offal and other less desirable cuts of beef. As Russia’s natural resource-based economy has grown, consumers there have shifted their meat dollars toward higher-priced middle meats and other high-quality cuts. In fact, the U.S. delegation dined at a newly opened Chicago Prime Steakhouse in Moscow. The steakhouse, which imports its meat from the U.S., is a sign of those shifting trends.

According to USMEF, during the January to October 2010 time period, Russia’s beef imports from the U.S. totaled 39,740 metric tons, more than double the volume of the same period in 2009. That trend is reflective of the country’s desire for U.S. beef. During the same time frame, imports of beef from its principal supplier, Brazil, which produces primarily grass-fed beef, have fallen 14 percent on a volume basis. Although Brazil still holds the largest market share, accounting for 39 percent of sales, the U.S. is rapidly gaining ground, accounting for 7 percent of the market share, 1 percent more than Australian competitors. Muscle cuts are also making up a greater proportion of the beef being purchased from the U.S., having increased 600 percent by volume to 23,653 metric tons from 2009 levels. According to USMEF, purchases of muscle cuts from the U.S. for the first 10 months of 2010 will total $95.3 million in value, an increase of 700 percent from last year, breaking the previous record, set in 2008, of $55 million, with two months of trade data still outstanding. Total Russian beef imports from all sources for the first 10 months of 2010 reached 577,920 metric tons.

Compare that import data to USDA’s Foreign Agriculture Service (FAS) snapshot of Russia’s domestic production capabilities and you’ll see why Russian producers are working for growth. According to FAS, the Russian cattle herd, including dairy cattle sits at 17.6 million head, with approximately half being counted as dairy cattle. Total slaughter production is estimated at just 7.69 million head for a total domestic beef production level of 1.29 million metric tons.

Some of the reason for their low beef production levels can be accounted for by their management regime. Rohr said that most beef cattle are left as intact bulls and slaughtered at about a year of age.

“They don’t have access to the growth hormones that we have here, so they leave the bulls intact to take advantage of the growth,” said Rohr. “They also don’t have any kind of a modern feed lot system there, although they are starting to work on one now. Cargill has moved in there and is getting ready to process some corn, but for the most part, they don’t have any ability to finish cattle right now. As a result, average carcass weights are light.”
According to statistics from Meat and Livestock Australia, average Russian carcass weights are somewhere in the neighborhood of 372 pounds, far below the current U.S. average steer carcass of 783 pounds.

It’s clear that for Russian producers to compete on a global scale, they will need to improve their ability to produce pounds of beef, particularly as their consumption increases.

Prior to the onset of the global recession in 2008, Russian beef consumption had been growing steadily, reaching approximately 37 pounds per capita in 2008. It has fallen back to approximately 34.5 pounds per capita since then but current import numbers and Russian producers’ hunger for expansion show consumption may be poised to explode higher in the near future, fueling the way for increasing opportunities for U.S. cattlemen.

Davis said he has been asked by American cattlemen why we would want to help the Russians grow their national herd, using our hard-won genetic gains. For him, the answer is simple: Opportunity.

“I get asked that question a lot; ‘Why should we give them our genetics?’ and my response is, they are going to consume anything they produce for a very long time,” said Davis. “There is a huge difference in what they can produce and what they are consuming.”

In addition, he pointed out that even if the Russians started building a herd and infrastructure today, it would take 20 to 30 years before they could come close to matching U.S. production.

“They don’t have the same education system that we have; they don’t understand modern beef production the way we do here in the U.S. so even if we send them our genetics now, by the time they catch up to where we are now, we’ll be another 20 or 30 years ahead of where we are today,” Davis said.

But, for now, they are working hard to catch up with the rest of the world by buying their way forward. Russian producers are receiving investment in the form of grants and loans from the government to build their herds and the nation’s beef production infrastructure and they have big plans for growth.

However, they have a long way to go. Not only is their packing industry lacking, but the cow/calf sector will need to be built from the ground up. But, Russian producers aren’t letting that get in their way.

“Go big, or go home”

Rohr said that Angus Genetics of Russia (AGR), one of the farms visited on the trip, plans to build their herd from its current size of approximately 5,000 head to reach 50,000 head in the next five years.

“They definitely have a go big or go home mentality there,” said Rohr, noting that it appeared unlikely they would be able to reach that goal without substantial assistance.

He said the Russian producers and officials they met have a goal of building the nation’s beef industry to be the world’s largest producers of beef. That’s where U.S. producers stand to benefit.

“Here in the U.S., if a guy comes to you looking for 100 or 200 cows, that’s a big deal,” said Debruycker. “Over there, these guys are looking for 20,000 head at once.”
Resources yes, infrastructure no.

The Russians have obstacles to overcome, but a lack resources like open land and access to modern agricultural machinery aren’t among their problems. Rohr said that during the time spent at the Golden Autumn Expo, he was impressed with the technology available to Russian producers.

“Most of the machinery on display at the expo was European, primarily German-made technology and it is second to none, in terms of quality,” said Rohr.

He said that technology has made Russian farmers extremely competitive in their ability to produce feedstuffs, with wheat yields in the 90- to 100 bushel-per-acre average. Wheat production, along with a dairy industry that produces a large quantity of corn silage, provides the basis for a feeding industry in parts of Russia, Rohr said.

In addition to grain resources, Russians have access to vast swaths of grassland. DeBruycker said the terrain and soils he saw there are extremely productive and conducive to both grain and grass production.

“They have a pretty short growing season, but it looked like they have a lot of excellent soil,” he said. “The landscape in the places we toured is perfect for cattle, with a lot of rolling hills and pockets of trees.”

Although there are some parts missing in the beef production chain that are keeping Russia from being a beef superpower, the availability of open land could allow them to grow rapidly.

According to Debruycker, producers there have access to vast areas of undeveloped land and they are being given access to that land through a program similar to the Homestead Act used in the U.S. to pass large swaths of government-owned land to private individuals more than 100 years ago. DeBruycker explained that the Russian government owns a number of former Soviet-era dairy farms which, along with empty ground, are being passed on to private producers. Those producers are given three years to make something of those facilities or they revert back to the government. “Some of the places we saw weren’t the nicest in the world,” he said. “Others were fully modern and similar to operations you might find here in the U.S.”

The fact that much of Russia’s beef production is taking place on converted dairy farms has led to some interesting innovations and management practices. According to Rohr, the majority of the operations they toured keep their beef cattle in small, dairy-style, confinement scenarios, which is leading to some management issues and is among the biggest differences between U.S. and Russian management. Davis agreed, noting that Russian producers need to gain an education in beef production in order to compete on a global scale. For some of that education, they are looking to America, both for training and for operators. Davis explained that the Russians he met are looking for producers from the U.S. to travel overseas to teach them how to run their cattle. But they also need to gain some knowledge of their own.

“Russian buyers are very data-driven. They like numbers and figures. They will take all of the information they can get their hands on,” said Davis. That’s one of the reasons they source purebred cattle from the U.S. They have easy access to performance data and the three-generation pedigrees required by Russian law for imported cattle. The data also makes up for a lack of understanding about evaluating cattle for phenotype.

“I’m not really sure that Russians really know what to look for when evaluating cattle,” said Davis.

Rohr said that the Russian lack of knowledge also shows through in other management areas.
“Russian producers have a lot of potential. They have an incredible grass resource, but they don’t utilize it very well because their cattle are raised in small, confinement facilities,” said Rohr. “They don’t understand that beef cows need to be outside, or that a cow creates energy by being outside and grazing, even when it’s very cold.”

Russian winters are notorious for their length and severity, but cattle from the northern tier of the U.S. should have no trouble adapting to the cold, according to DeBruycker, who is no stranger to harsh winter conditions. He said cattle from much of the northern-third of the U.S. are already acclimated to similar weather conditions and should be able to make the transition to Russia, provided they receive adequate nutrition.

“There’s no doubt Russian winters are longer than ours, but northern-type cattle from Montana, North Dakota and places like that won’t have any trouble over there,” he said. “They will make it just fine.”

The availability of desirable, high-end genetics, and cattle that are acclimated to climates similar to those in Russia, virtually insures that the Russians will continue to source cattle in the U.S. There have already been a handful of high-profile shipments of cattle in the past few years, a trend that is expected to contine.

“They want a beef industry, and they want it today, not tomorrow,” said DeBruycker.

Building relationships  Since returning from Russia, the U.S. has already hosted a group of producers from Russia looking to visit U.S. operations and make contacts for future purchases. Rohr said he believes that the key to future success for U.S. cattle producers who are shipping cattle to Russian buyers lies in proper preparation. In the past, Russian buyers have sourced cattle in Australia and Canada and have had problems with the shipments. That has left a sour taste in the mouths of Russian producers, leading them to look to the U.S. for future purchases.

Because of the costs associated with shipping cattle to Russia, it’s key that they arrive in good condition. Rohr said Russian buyers have no problem paying $2,500-5,000 for seedstock. In addition to the purchase price, he explained that it costs approximately $1,700-2,500 per head to transport cattle by ship and from $2,500 to $3,500 per head to send them by plane.

The costs associated with such a venture mean it’s critical that American sellers take precautions.

Cattle shipped to Russia from the U.S. are confined for two extensive quarantine periods before being transported by plane or ship to buyers half a world away. That stringent quarantine process, coupled with the actual shipping phase, adds tremendous stress to the animals and is one of the reasons purchases from Australia and Canada weren’t successful.

“Some of the cattle that they purchased from Australia and Canada were consolidated shipments put together by order buyers,” said Rohr. “Those cattle weren’t adequately prepared for the process and they had some really big losses as a result.”

Rohr credited U.S. cattle breeders Eldon Krebs, Darrell Stevenson and Jack Holden as some of the first American breeders to successfully ship large numbers of cattle to Russia. The cattle shipped by Krebs are the foundation for the AGR herd and were shipped in 2007, with two loads traveling by plane and two by ship. In December, Stevenson and Holden successfully shipped 1,400 head both by ship and plane to a new home in the far east (see sidebar).

Rohr said the fact that Krebs spent a tremendous amount of time preparing the cattle to make such an arduous journey paid off, both in survival and in building the reputation of U.S. producers among Russian buyers.

“The key is having cattle that are in the right rig and of good quality,” said Rohr. “It’s also important that you have someone on the other side, receiving those cattle that knows how to take care of them after they arrive.”

That’s one facet of the industry that U.S. cattle producers can tap into in the future.

Experienced cattle managers, who are accustomed to receiving cattle and getting them back on feed after a trip that can take nearly a month by sea, will be a key to successfully building a relationship with Russian buyers, according to Rohr, who noted that he believes there is tremendous potential for shipping cattle embryos to Russia.

“There is a big push for the use of artificial insemination and embryo transfer (ET). It is probably the fastest way for them to improve their herd, especially considering they already have a large dairy herd in place to act as recipients,” said Rohr. “It’s also more economical, but the biggest problem is how the embryos are handled in shipment.”

He said success rates have been mixed because of problems with handling of embryos during shipping, but there are already companies moving into the market to provide ET services, which could rapidly expand the ability to market semen and embryos overseas.
Rohr believes there are a number of opportunities for U.S. producers of all sizes to market cattle to Russian buyers in the future.

“The opportunities really depend on how passionate people are about this industry. There are a lot of ways to be involved,” he said. “By no means can any one person produce the number of cattle they are looking for in the next five years. There is room for everyone to be involved.”