Regular year of records and problems in the Russian agro-industrial complex





Another year has receded into the historical distance, and before we recall the main events of 2017 in the agro-industrial complex of Russia, I would like to traditionally give a general, brief characteristics. And it does not have many changes compared with the previous year one, when we characterized the year-2016 as a period of records and challenges. However, there is still a certain difference – most problems of 2017 developed, due its records.


Agricultural growth rates: no planned records

Nevertheless, it is necessary to begin with the basic indicator for the agro-industrial complex which in 2017 absolutely did not become a record. It is about the growth rate of agricultural production. In 2017, the agricultural commodities production in Russia grew by 2.4% only compared with the previous year figures, but in 2016 the growth rates reached 4.8%, reported the Minister of Agriculture of the Russian Federation, Alexander Tkachev.

The rapid growth of agricultural production during several recent years assumed that in course of time the agrarian sector will require establishment of radically new technologies, active development of innovative directions of production, etc. Otherwise, the growth rates will begin slowing down. And here we observe the reporting growth rates. In absolute terms, in 2017 the growth of agricultural production in Russia continued developing, and the result of the last year harvesting campaign was the main driver of such achievements. And the harvest volumes really demonstrated record figures.


Main record of the year

According to the Ministry data, in 2017 Russia produced the record harvest of grains and pulses – 134.1 mln tonnes in clean weight, up 11.2% compared with the previous year (120.7 mln tonnes), and up 35.3% compared with the average figures for 5 recent years (98.1 mln tonnes). In addition, the harvest volumes exceeded the previous historical record fixed in 1978, by 3.5%.

In particular, for the first time Russia produced 85.8 mln tonnes of wheat in clean weight, up 17.1% compared with 2016 (73.3 mln tonnes), and up 50.4% compared with the average figures for 5 recent years (56.5 mln tonnes). Also, buckwheat production reached a new maximum – 1.5 mln tonnes.

As for the achievements of Russian crop farming in 2017, I should specify the growth of soybean production, which reached 3.6 mln tonnes – up 5 times compared with 1990, up 1.6 times compared with the average figures for 5 recent years (2.3 mln tonnes), and up 14.1% compared with the previous year (3.1 mln tonnes). In addition, Russia broke a record in rapeseed harvesting – 1.5 mln tonnes in clean weight, up 50.5% compared with 2016 (998.9 thsd tonnes).

However, the original conditions were unlikely to reach such significant figures. If the winter-2016/17 provided rather comfortable conditions, then the cold and snowy spring, especially April and even May, and also rainy beginning of the summer made clouded prospects of the new harvest results.

At that time, in terms of some lagging in the spring crops planting campaign, the Ministry estimated the further harvest of grains at rather modest level of "more than 100 mln tonnes, but not more than 110 mln tonnes", and hoped for "smile of the weather in August-September", reported the Director of the Department of plant growing, chemicalization and plant protection at the Ministry, Petr Chekmarev. And the weather really smiled: at the end of summer and in the autumn it was the perfect time for harvesting works, which strengthened the confidence in receiving of a good, record harvest.


Unexpected record

High harvest volumes in 2016 and record volumes in 2017 made Russia to achieve one more maximum results – in the sphere of grain exports.

So, in 2016/17 MY Russia supplied 35.474 mln tonnes of grains on foreign markets, up 4.7% compared with the previous season. The country demonstrated a fairly uniform dynamics of shipments during the whole marketing year.

At the same time, Russia lost the title of the main global exporter of wheat, which it had for several previous years. In 2016/17 MY, the shipment of Russian wheat on foreign markets increased by 10% – to 27.075 mln tonnes, but the USA exceeded the results and exported nearly 29 mln tonnes of wheat. However, this retreat was quite temporary, and in the current marketing season the situation will resume its natural course.

The Ministry of Agriculture of Russia expected that in the current season the exports of grains from Russia will reach 45 mln tonnes, including nearly 40 mln tonnes of wheat. The results of the first half of 2017/18 MY confirm the reporting estimations – more than 26 mln tonnes by the end of December, including 20 mln tonnes of wheat. Thus, in terms of keeping of uniform shipment rates throughout the season, the forecast is quite real. Also, many Russian analysts of the grain market consider the forecast of the Ministry rather "restrained", and forecast the final figures of grain exports within the range of 49-50 mln tonnes.

The last year demonstrated one more trend – active expansion of Russian grains on foreign markets, including new ones. Egypt and Turkey became the key buyers last year, which nevertheless significantly increased their purchasing volumes. At the same time, Russia significantly increased grain supplies to other countries, primarily Asian ones. Thus, Russia increased grain exports to Iran, Saudi Arabia, Lebanon, Bangladesh, and started regular deliveries to China. In addition, Vietnam, Venezuela, South Korea, etc. purchased Russian grains for the first time. Generally, the geography of exports already covers more than 130 countries.


Problems of the record harvest

At the same time, the record harvest became a catalyst for a number of problems on the domestic market.

First of all, it is necessary to note lowering of domestic prices for grains, which was quite expected, but not less painful event for agrarians. In the first half of the season-2017/18, the market faced a downward price trend, which developed until the end of October, when the prices reached their "bottom". As of November 1, 2017, bid prices for 3-, 4-grade and feed wheat in the Siberian Federal District varied within the ranges of 5`900-7`000 RUR/t, 4`700-6`500 RUR/t and 4`400-6`200 RUR/t CPT, down nearly 2`000-3`000 RUR/t compared with the same date of the previous year.

In the European part of the country, in particular in the central Federal District, bid prices for 3-, 4-grade and feed wheat varied within the ranges of 7`800-10`000 RUR/t, 6`500-8`000 RUR/t and 5`400-7`600 RUR/t CPT, down nearly 1`500-2`000 RUR/t compared with the previous year figures.

Many experts forecasted such development of the situation with prices: the expected growth of grain harvest volumes in combination with its significant carry-over stocks will significantly disbalance the domestic market.


Methods of solution

It should be noted that some methods of solution of the domestic grain problems were unconventional for previous years. In particular, for the first time in many years the Government refused to provide public purchasing interventions on the grain market, but at the same time, kept the opportunity to use the measure in some regions in early 2018.

Therefore, the Ministry proposed to solve the domestic grain problems in a completely new way – subsidizing of grain shipments from the regions which are remotely located from the major export sites, towards the seaports, especially Siberia and the Urals. The Government's decision was made official on December 22, and on December 26, the Prime Minister Dmitry Medvedev said that the authorities already provided 1 bln RUR for the specified targets.


Worsening of infrastructural and logistical problems

Transport subsidies indicated the Government's plans to solve the grain market problems by increasing of the exports. But such method actually outlined the existing infrastructural and logistical problems of the reporting sphere. In 2017, Russia provided rather active work for development of the transshipment facilities. In particular, the country significant increased the storage capacities of the terminal of Novorossiysk Bakery Products Plant PJSC, developed the shipment capacities of the seaports of Zarubino and Taman and a number of other solutions for the deep-sea ports.

But logistical problems, in particular the deficit of grain rail cars, remained almost unchanged.


Uniting of the market participants

Also, I should note two important events in 2017 aimed at improving of the market functioning.

The first one includes signing of the Charter in the sphere of agricultural products turnover on May 19 by more than 20 Russian companies-exporters. The document, initiated by the National association of exporters of agricultural products of the Russian Federation, All-Russian Union of Oils and Fats, and the Federal Tax Service of Russia, focused on ensuring that all participants of the turnover of agricultural products fairly bear the tax burden, all trading operations to be carried out by transparent methods and exclude multistage processes of reselling of agricultural products, etc.

The main purpose of the Charter is solution of the problem that some agricultural producers pay the so-called single agricultural tax, which does not provide VAT payment, while the rest ones pay the VAT at the rate of 10%. And since export operations include the VAT repayment, its non-payers make various schemes to receive the funds, attracting often numerous intermediaries.

As for another significant event, on June 8 the Russian Grain Union announced the foundation of a self-regulatory organization "Union of grain storekeepers". The new organization will focus on protecting the interests of grain storehouses, consumers of grains and oilseeds, increasing of availability of loans and investment attractiveness of the industry. The Union will create necessary legal, economic and other conditions for the most effective work of participants of the agricultural market. All these measures should assist to clean up the market of goods and services from unfair participants.

However, the initiative can be considered as declarative one, because effective work of the Union requires adoption of the law "On grain commodity storehouses". But the authorities still failed to adopt the draft law.


Longest event of the year

The last point of summaries of 2017 agrarian year is not even an event, but rather a process which started in 2016 and lasted throughout the whole last year. It is referred to attempts to fully renew the trade relations between Russia and Turkey, which received the unofficial name of "Tomato war".

It started in January 2016 after Russia imposed a number of economic sanctions against Turkey, including the ban on the supply of fruit and vegetable products. Within the following 2 years Russia gradually removed the limitations, up to the almost complete cancellation in late 2017, and to date there are only some quantitative restrictions on the supply of Turkish tomatoes to the Russian Federation, which gave its name of the whole process.

In turn, Turkey took various own measures on the issue. Thus, since March 15 Turkey changed the order of imports of some types of agricultural products for processing on the domestic market, including wheat, corn and sunflower oil from Russia. In some cases, the changes increased the duties to 130%, which made impossible to supply Russian agricultural goods.

After many mutual accusations and consultations held in early May, the parties managed to solve the issue. But in a couple of weeks, Turkey imposed quotas for the supply of Russian agricultural products at the level of 20-25% of all issued import licenses. However, in a week Turkey again cancelled the limitations.

All these impositions and cancellations of various bans were accompanied by the gradual lifting down of restrictions on the supply of Turkish vegetables and fruits to Russia, which by the end of the year actually disappeared.


Alexander Pryadko, APK-Inform Agency