Work of a trader on the Russian market of pulses is as complicated as it is interesting. “Indian factor” spurs exporters to search new target markets, to open new destinations and to build relations with unknown buyers. The decrease of the price spread between the main grains and peas led to the increase of the interest of both processors and livestock, which complicated the task of export batches formation.
Sergey Pluzhnikov, the Head of Export Department with “Grainrus Trade” LLC told APK-Inform Agency about the main features of the work on the pulses market, risks and ways to manage them, the prospects and concerns.
- The season 2019/20 MY has finished, so Sergey, can You tell us how it was for pulses market in general and to Grainrus trade in particular?
- This year, as any other year in trade, was unique, but at the same time similar to the previous. India was in a focus during the year: will it drop the import taxes, will the import peas be allowed to the market and if they will – at what prices? On the other hand, even with the absence of India as a main buyer (Indians imported chickpeas from Russia, however in smaller volumes), there were only a few large producer and traders which had the stocks of pulses as it was last year. That is why, we witnessed the grand sale of chickpeas in April-June. Thus, this year we recorded two peaks of sales and deliveries – in the beginning of January, when the prices reached 420 USD/t CFR Karachi, and in spring, but this peak was caused not only by the price rise, but also by increased demand. The average offer prices for Pakistan delivery ranged within 375-380 USD/t CFR in spring.
As everyone else this year we were looking for the alternative target markets, but with old buyers, because the lockdown is not the best time to look for new clients. And why not the new destinations? Trinidad and Tobago liked Russian chickpeas so if you ever visit Port of Spain you should try local cuisine. We’ve sent an excellent batch of pulses.
- How did the COVID-19 pandemic affect the work of Your company? How in Your opinion will it influence the market functioning in 2020/21 MY?
- As long as quarantine restrictions are maintained, the demand will be lower compared to rate in usual conditions. Everything big consists of small detail: the mass consumption of pulses consist of the consumption by many cafes, restaurants, hotels, festivals, religious holidays, weddings and other events. When such large volumes of food are prepared for an indefinite number of visitors, everything is done with plenty to spare. Even if there are 100 kg of falafel or masala pot left, or there are 10 kg of humus are left after the buffer in a hotel, all these financial losses are negligible. Thus, everything is cooked with plenty to spare in HoReCa. And such an overconsumption is largely supports the market.
We witnessed ourselves what happens during the pandemic: there is a peak panic buying of common grits at first, which then calms down. Because in terms of one household the production is organized in a rational way – they cook just as much as needed for one or two meals.
This situation also influenced the logistics. The supply chain is not only the buyer and the seller, but it also includes logistics and financial organizations. The pandemic has negatively affect4ed both. When the international traffic is paralyzed, the cargo turnover declines and in terms of container business this means that there could be less containers, or as it was in Russia there is a possibility to transport additional containers from Turkey, which however would affect the freight rate. The banks during the lockdown were functioning, but minimized the staff number. I know that in Jordan it was very difficult to get documents to pick up the cargo from the port: documents are in a bank, and the bank limited its activity. As well as a port.
- A month after of a new season, what feature of a current MY would You highlight?
How does July 2020 differ from the same period last year?
- In Russia, the season has started only for peas and chickpeas in a first 10 days of August. The peas for export is calculated for southern regions only for now: Rostov, Krasnodar and Stavropol, mostly because the livestock and feed industries are not as developed in Southern FD and the agriproducers traditionally look at the prices in seaport, and not at the prices of processors. At the same time, meat and milk producers in the Central FD intend not to let the peas out of the regions north to Voronezh, using the most effective mechanism - the purchase price and payment speed.
The offers of chickpeas have already been received from Altai and Saratov, but the prices of producers are quite optimistic. Most of them do not need to sell the goods immediately after harvesting, because in previous years there were warehouses built and the infrastructure for drying and conditioning created. The dry pulses without screenings, with minimal foreign material are perfectly stocked, thus there is no pressure from the sellers on the market for now.
- What are the main trading risks on the market of pulses in a new season?
- The main risks in trading are the same: impossibility to purchase the product at the price, fitting the contract price, impossibility to organize the logistics from field to port of a buyer because of the freight market conjuncture, the risk of nonpayment for the product or changes in price by the buyer because of the changes on the market (if the price declined, the buyer will use any means to change the price of a contract covered by obvious or alleged quality discrepancy).
Most of the risks can be managed. The issue of price competition due to overloading in road transportation has long been resolved in the Ministry of Transport and it seems that this year it can be successfully resolved – from September 15 the control over the terminals and carriers to identify overloads will be multiplied significantly. If this position remains as tough and uncompromising, the market will undergo positive changes. And all quality risks can be leveled by enhanced sampling control and survey during loading and acceptance. Non-payment issues are resolved by working with verified buyers, so traders can deal with this too.
- How do You assess the competition in the global market? What are the competitive advantages of Russia as an exporter?
- The Black Sea region is closer to the target markets than our competitors: Turkey is at arm’s reach, and Pakistan would receive our goods earlier than Canadian or Argentinian. Time is on our side. The same cannot be said about the reputation of the product. There is still an opinion that the quality of goods from Russia can be unpredictable, while the Canadian one will be 100% stable, and the container will be the same as in the photo. Thu the competitions is severe, which should stimulate the producers and traders to pay attention to the issues of quality compliance to contract specifications. The reputation is not built for one year, it is necessary to systematically implant the idea that the Black Sea origin is a brand, then the difference in prices with the goods of other origins will decline, and I’d like this difference to disappear completely.
- What do You think, is it possible for Russian traders to find an alternative to India as a pulses target market? Or, we need to hope for Indian market to open?
- It is very difficult to find an alternative to the largest global consumer of pulses. Saying it differently, the question will be: “If India remains closed, where should be send chickpeas subject to the current production volumes?” There are two options: to increase the domestic consumption which will take several years, or to lower the production. It seems that 3 years of the unsatisfactory prices is a factor which will make the producers to shift to the plating of the more profitable crops. As I’ve already said during the online conference of APK-Inform Agency “NICHE: FOCUS ON PULSES” the active export of chickpeas in the end of 2019/20 MY is not an evidence of the producers accepted the pries. On the contrary, they decided to sell the stocks in order to empty the warehouses and to end the “chickpeas story”. Anyway, until the prices begin to rise. The upcoming season will be representative, if the farmers are nog going to receive 100 USD/t more (this is the average opinion of 18 respondents with whom I discussed this issue), then the decrease in the area under it will be even more significant. For us chickpeas and lentils are not the issues of the country’s food security, the producers will decline chickpeas and will add sunflower or wheat and the farmers’ finances will not be affected.
- What are the prospects of Russia as a producer and exporter of peas and chickpeas byproducts?
- This is a very interesting market, and the competition is high. The artificial meat made from chickpeas and peas, chickpeas milk and snacks are the possible points of growth. The potential of these products are very high and the market is only being forming. The investments for researches, product development and expansion are prominent and soon these products will occupy their market share. Which one – we’ll see. Today it seems exotic, like electric cars, but it looks like soon the traditional markets will have to make room.
- Sergey, in recent years the work of a trader on the market of peas became harder because of higher competition from livestock and feed producers on the domestic market. In the beginning of the current season the prices for grains and pulses exceed last seasons. How in Your opinion this will influence the interest of the exporters in peas and its export in 2020/21 MY?
- I think that the interest will not decline significantly. The competition on the market of mass crops last year was so high that many sellers began to enter actively the niche market where there are fewer giant companies (some say "monopolists"). Still, on the container market 150 tonnes is a batch already. The market entry threshold is low. No complicated quality studies are required: any average manager is able to assess and examine the quality of a sample on his own, this is the advantage of pulses, so I do not expect a massive outflow of small exporters. On the contrary, they can go further, developing the export of niche and exotic crops such as coriander, safflower, many will again go further into millet, durum wheat, camelina, flax and rapeseed, which are exported by trucks in sacks and big bags. The outflow of traders from mass to niche cultures is noticeable, we only welcome it – competition always benefits the market.
- Agricultural producers of the Volga FD last season reported that a more significant price decline was limited by the interest of Kazakh buyers in chickpeas. Have you had to compete with them in your purchases? Do you expect this activity to continue?
- Rather, not the entire Volga Federal District, but only the south of Orenburg, we have not encountered this in Samara and Saratov oblasts. Producers who were previously "in a bearish corner" were selling to Kazakh traders at a very competitive price this year. We can only welcome this. If the logistics to Iran directly by trucks or through the ports of the Caspian Sea in Kazakhstan is considered to be better, and our manufacturer has the opportunity to grow and develop – this is great! It is important that it was not a gray import with the manufacturing of documents stating that chickpeas or lentils were allegedly produced in Kazakhstan by VAT farms, with the sole purpose of reimbursing VAT from the budget. In this case, we cannot talk about the competitive advantage. But, if everything is absolutely legal and Kazakhstan benefits from its geographic location and long-standing ties with Central Asia, we are only happy.
- More and more Russian agricultural producers are abandoning the cultivation of chickpeas. Are there any fears that, due to a decrease in chickpea production, Russia may lose its already won positions in the foreign market?
- Of course, there are such concerns, but keeping the market share at any cost is also not the best idea. This situation is typical for all crops, if there is a peak in prices, then next year the areas under this crop will increase. There is a drop in prices for 3 years now, thus it is quite logical that producers will reconsider the range of crops cultivated. At least temporarily, until the price becomes attractive again. But not everything is so tragic. Even if the areas decrease, pulses will still remain in the crop rotation: first of all, those who tried for a year or two, did not receive high quality and the expected price, decided to revise the set of crops. Farmers who cultivate chickpeas and lentils year after year have a different logic. They will receive less margin per hectare in chickpeas as a predecessor, but will take their own with increased wheat yield. It seems that the supply of chickpeas this year will significantly decrease, but it is possible that the average quality of batches will be higher.
- What measures does your company take to attract farmers to work in this segment?
- A year ago, I started a news channel, where I translate articles of our Indian, Pakistani, Australian and Argentine colleagues, the number of subscribers is constantly growing, there is a live contact, it is important that producers do not feel in an information vacuum. Let them read opinions, forecasts, articles about new varieties, the state of crops in each country, news from the world of chemistry. This is all we can do. It is not our position to forcefully plant and incite to grow. To give all the information to the interested person, provide the contacts of successful producers, so that there is an exchange of experience, provide seeds and then redeem the crop, help to earn extra money and bring it to the required quality – this is what, I believe, is required from a trader. Pressure and imposition do not work well on farmers - they are very pragmatic people who make any decision with a calculator. If the production of pulses is more profitable than of current crops, rest assured the farmers will begin cultivating them. Our job is to support them in this endeavor, to provide all the information. This is how synergy is born, and this is the most important effect for us.
Interviewed by Alina Timofeeva