The price boom in Russia has been curtailed by grain export bans

Domestic agricultural industry can increase production by 30%

The head of the Ministry of Agriculture, Dmitry Patrushev, will have to assess the prospects for the grain harvest in the country. Photo from www.stavregion.ru

The conditions for an explosive rise in prices are maturing in the Russian food market. Low food prices today are only provided by bans and restrictions on food exports. If export restrictions are eased, the country’s grain could rise in price by a factor of one and a half, causing prices to rise the same across the food chain, according to the Institute of Economic Forecasting (INP) of the Russian Academy of Sciences. . How long the Russian authorities will be able to contain the rise in prices – one can only guess. But if export bans are lifted and the population’s incomes increase, domestic agriculture could increase production by 30%, economists say.

In general, agricultural production can increase by 30% with the export of products and the increase of domestic consumption. For comparison: at the end of 2021, the volume of agricultural production on farms of all categories amounted to 7.5 trillion rubles. Thus, a 30% increase in production would give the industry about 2 trillion rubles. Additionally. At the same time, experts estimate the growth potential in crop production at 33%. The production of cereals and legumes in the country can increase by 36%, and oilseeds – by 43%. Such calculations are given by Dmitry Polzikov, senior researcher at INP RAS.

At the end of 2021, 121.4 million tons of grain and almost 25 million tons of oilseeds were harvested in the Russian Federation. .

Today, Russian officials hope that this year’s grain harvest will reach 130 million tonnes, of which 87 million tonnes will be wheat.

And industry experts have even more optimistic expectations. The company Sovecon, which specializes in the study of agricultural markets, at the end of last week adjusted its forecast for the wheat harvest in the Russian Federation in 2022 to 88.6 million tons. in the country. For winter wheat in Russia, good conditions have been created this year in almost all regions of the country.

Humidity reserves are close to or above average. At the same time, the estimate of winter wheat yield increased by 0.05 tons to 4 tons per hectare, which is the second highest rate in the history of Russia. “The possibility of an exceptional winter harvest in Russia is increasing as we go through one stage after another. The emergence of plants after the winter and the March-April weather was an important stage and after that the plants look better. “Looking at the weather forecast for the coming weeks, we do not rule out the possibility of a further increase in yields,” said Andrey Sizov, head of Sovecon.

Opportunities to increase livestock production are assessed by INP RAS experts as lower than in crop production. Total production of livestock products could increase by 23%. In meat production, the potential for increased production is estimated at 16%. And in milk production – by 40%. Under favorable conditions, by 2040, meat production in the Russian Federation could increase to 13.2 million tonnes from the current 11.3 million tonnes. Milk production could theoretically increase to 45.6 million tonnes from the current level of 32.3 million tonnes.

In crop production, the possibility of increasing production is mainly related to the possibility of increasing exports, while in livestock, growth is based on domestic demand for products, which is likely to continue to be limited by the low incomes of the population.

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Farmers can grow significantly
wheat production. Photo by RIA Novosti

The potential for growth in crop production is determined by the ability to increase grain exports, even despite a certain price reduction. Discounts on Russian wheat are currently rising. In the second week of May alone, the discount for Russian wheat compared to European wheat on the world market rose from $ 28 to $ 34 per tonne from $ 28 a week earlier, the Russian Wheat Union (RGU) said.

And if prices for American and French wheat are rising, then prices for Russian are falling. Elena Tyurina, director of analytics at RGU, said the price of US wheat had risen from $ 442 to $ 476 per tonne. French wheat rose to $ 430 per tonne. “At the same time, Russian wheat fell 1.2 percent a week from $ 401 to $ 396 a tonne,” he said.

At the same time, exports of Russian cereals in kind are declining. From the beginning of this agricultural year (July 1, 2021) to mid-May, Russia exported 33.85 million tons of wheat, which is 10.4% less than a year earlier, Tyurina said. In general, cereal exports fell by 17.6% to 38.3 million tonnes, while, according to her, barley exports by 33.6% and corn by 30% are significantly lower than last year’s indicators.

“If 783,000 tonnes of grain were shipped in the last week of April, including 648,000 tonnes of wheat, then in the first week of May, wheat exports amounted to 264,000 tonnes and in the second week, 300,000 tonnes,” RGU said. . During the week, purchases of Russian cereals from Egypt fell by five times, from Turkey – almost 10 times.

According to industry analysts, one of the reasons for the decline in exports is restrictions on export quotas. The quota for grain exports from the Russian Federation from 15 February to 30 June this year is 11 million tonnes, including 8 million tonnes of wheat and 3 million tonnes of corn, barley and rye in total. Until June 30, there is a ban on exports to EU countries.

The export of cereals from the Russian Federation is also regulated by a floating duty, which acts as part of the grain absorber mechanism. The duty is 70% of the difference between the target price (numerical average of the daily price indices) and the base price. The basic price for wheat is $ 200 per tonne, for corn and barley is $ 185.

From May 18 to May 24, the export duty on wheat from Russia is $ 111.9 per tonne, on the export of barley – $ 76.5, corn – $ 77.3 per tonne, according to data from the Ministry of Agriculture . From May 25 to May 31, the export duty on wheat from Russia, including Russia, will be $ 110.5 per tonne, for the export of barley – $ 76.5, corn – also $ 76.5 per tonne , according to the department of Dmitry Patrushev.

INP RAS notes the positive effect of export duties. They believe that domestic grain prices without floating duties would be 50-60% higher. Economists warn that the abolition or even mitigation of export duties will have an extremely negative impact on the production of agricultural products in the Russian Federation and on the consumption of the population. And first of all, the impact can affect livestock, scientists say.

Profitability in crop production is already quite high: mainly in the production of cereals and oilseeds, says Dmitry Polzikov. And in livestock the situation is worse. “And given the industry’s credit crunch, the livestock industries are the ones that will be most vulnerable to a crisis,” he said.

The main shock is the cost of feed, which is linked to grain prices. And in case of cancellation or mitigation of the export duty, this will lead to an increase in the cost of livestock and an increase in the cost of production of these products. As a result, IPN RAS continues, manufacturers will either have to increase prices for their products or reduce production margins. At the same time, the ability of the agro-industrial complex to further increase the prices of agricultural products will also be limited, as a huge price jump was observed in March, Polzikov believes.

Scientists believe that the potential for price increases will be severely curtailed by the low solvency of the population. Even last year, more than 40% of Russians’ spending was spent on food and utility bills, and on the poorest groups of the population – about 60%. They believe that if the situation worsens, the demand for meat and dairy products in the country will decrease by 10%.

Income growth is a key factor in increasing demand, NG experts agree. “Low incomes force them to give up expensive fruit and vegetable products, many people grow their own basics. “For meat, when prices go up, they go straight to cheaper,” says Maxim Shein, BCS World Director of Investments.

Petrova 5 Consulting CEO Marina Petrova doubts that Russia will be able to prevent domestic price increases. “The reasons for the rise in prices in Russia are also related to the lack of seed material next fall and spring,” he says.

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