Growers asked to release export prices due to loss of revenue

According to plant growers, an incompletely thought-out policy regarding the regulation of selling prices for grain exporters leads to the loss of huge volumes of export revenue.

“Apparently, this is a development process for our officials,” says Igor Abakumov, candidate of economic sciences, host of the “Rural Hour” program. – In their minds there must be an evolution from administrative management to market management. But the fact is that the market will not wait, managers must understand how the grain market operates…

Cheat sheet from the ministry

The crux of the problem is this. The export of Russian grains (we are becoming world leaders in this indicator!) is one of the hottest topics in the domestic media. And perhaps every Russian knows approximately which country we supply to and what volumes. At the same time, there is a common opinion that, being under severe economic sanctions from the collective West, Russia sells its bread at a large discount, that is, with discounts in price.

In fact, unlike oil, we trade grain without discounts. There are, however, some exceptions when we deviate from this rule: – due to a complex logistics route or high insurance rates for ships when entering the Black Sea. Well, in general we keep, so to speak, a high price bar. Moreover, it is established for grain traders… by the Ministry of Agriculture.

The department introduced this procedure on March 19, 2023. Prices from the Ministry of Agriculture, “recommended, minimum and regulated” are on average 10-40 dollars per ton higher than market prices.

In practice it looks like this. For example, 10 Russian companies participate in a tender for the supply of products. The Ministry of Agriculture gives them a “cheat sheet”: sell wheat for $250 per ton. And they all name this price – 250 dollars.

Our competitors from other grain countries become aware of the recommended prices even before the start of trading, this is no secret. They announce their price – let’s say $249. And they win. And we, accordingly, lose…

The result for the past year, when the village switched to the prices recommended by the department, is deplorable: due to lost volumes of wheat exports (more than 4 million tons, however!), the Russian budget received less than 19 billion rubles in export duty.

The world market is much larger than the Russian market; you cannot impose your own opinion on it. As a result of command-administrative management methods, domestic farmers are losing traditional sales markets. Which, by the way, took years to conquer.

Noteworthy is the extensive list of countries whose grain exports have sharply decreased: Nigeria, Congo, Vietnam, Jordan, Ghana, Angola, Cameroon, Mongolia, Morocco, Philippines, Thailand, Sri Lanka.

List of losses

The analytical note provides a number of examples where we lost export tenders.

On March 28 last year, the Turkish TMO took place, in which Russian exporters traditionally participate. However, not a single company of ours was among the winners. Russian offers, according to those recommended by the Russian Ministry of Agriculture, were 10 or more dollars per ton higher.

Why should importers buy more expensive if there are cheaper offers from other countries?

On June 1, 2023, the Saudi GFSA tender closed with a final price of US$261.76 (CFR). The price recommended by the Russian Ministry of Agriculture was $280. And our farmers again found themselves in the “flight”.

Since the end of August, we have stopped winning tenders from the Egyptian GASC. The auctions took place on 08/22/23, 08/30/23, 09/20/23, and 09/27/23. Having come out with a minimum recommended offer of $270, which was higher than the prevailing market price, Russia lost its volumes to European countries. Only on October 12, 2023, Russian traders entered the tender with a price of $265, which resulted in the signing of a contract.

The list of losses goes on…

According to Igor Abakumov, the agricultural regulator wants to maintain income due to the high prices set. “But because of them we lose the auction,” he explains. -We are giving up market share with our own hands, giving neighboring countries, which are also exporters of grain crops, an advantage over Russian bread. Without export duties and price controls, these countries can offer lower prices, which increases their global market share at Russia’s expense.”

If the reader believes that the “minimum” prices “recommended” by officials are not binding, he may be deeply mistaken. As they say, not a step back. Problems may “unexpectedly” begin.

Thus, the company AGRIC SA (South of Rus’ group of companies), which won the GASC tender in June 2023, sold a batch of wheat of 55,000 tons at a price of 229 US dollars – with the minimum recommended by the Ministry of Agriculture of 240 dollars

Immediately she was informed that the wheat cargo for delivery to Egypt could not leave the territory of the Russian Federation under any circumstances. Despite the possible loss of the company in the amount of 500 thousand US dollars in fines for non-fulfillment of the contract to GASC.

As a result, in order to fulfill the obligations under the tender, the exporter had to change the origin of the grain from Russian to Romanian.

The next company was Demeter. She offered GASC 480,000 tons of grade 4 wheat at a price about $20 below the minimum recommended.

And it so happened that four Demeter vessels, which had already completed loading, were unable to leave due to “suddenly” problems with obtaining phytosanitary certificates for the exported cargo:

In order to fulfill obligations to Egypt and not put supplies to other countries at a complete stop, the company also had to change the origin of wheat for GASC supplies from Russian to European: France, Romania, Bulgaria,

In addition, the trader, while waiting for a quality certificate, suffered significant losses when paying demurrage, that is, a fine.

The ships stayed in the port for more than 7 days. Typically, paperwork takes one, maximum two days. Each subsequent day of downtime causes losses for the company in the total amount: $35,000 per day.

Needless to say, by changing the origin of wheat from Russian to French or Romanian (unfriendly for Russia), Demeter caused reputational and property damage not only to itself, but also to the Russian Federation. Investing money in the development of a foreign plant grower, rather than a domestic one.

“This practice violates the interests of agriculture,” says Arkady Zlochevsky, head of the Russian Grain Union. – The Ministry of Agriculture wants to control the market, that’s why it built such a scheme. But we don’t have an administrative economy. As far as I know, the ministry did not hold consultations on this topic with anyone, except perhaps with a “narrow circle of people.” Therefore, the result of “price regulation” is disastrous. I remember relatively recent history, when Russia did not have direct grain supplies to Iraq. Our grain went there… through Turkish companies. Ultimately, the market finds its way to the consumer or buyer. Only this road turns out to be more expensive. And it ends with the withdrawal of money from the pockets of the peasants.

The expert is confident that it is time to end this practice.

The market does not tolerate a vacuum

We are already accustomed to the fact that the Russian village is “ahead of the rest”, every year it sets another record. In his February address to the Federal Assembly, Vladimir Putin set new tasks for the agro-industrial complex: by 2030, increase the volume of agricultural production by no less than 25% compared to 2021. And exports are 1.5 times.

However, it is unlikely that with the current “costs” the peasants will be able to successfully reach these milestones.

“Now the number of advertisements for the sale of agricultural businesses in the country has increased exponentially,” explains the host of the “Rural Hour” program. – The peasants are on the verge of ruin. They took out loans to grow grain, but there was nothing to repay the loans with, there was no price for this product. There is too much grain in carryover stocks and it continues to become cheaper. Even large farms intend to reduce their crops. However, wheat is in a crop rotation – in three-, five- or seven-field. If some other crop takes its place, then wheat will return, at best, only after three years. Or even after 5 or 7 years. And we will lose our status as a leader in world exports…

Indeed, due to the overcrowding of Black Sea grain storage facilities, exporters are forced to significantly reduce the purchase price from domestic grain growers or even suspend purchases. The price on the domestic market has dropped significantly.

The question arises: why are officials trying to “command” world grain prices? Most likely, they believe that, as the main exporter in the world, they are able to offer their terms to buyers. But this market is very lively, volatile, subject to price fluctuations almost daily. A dozen large grain-producing countries do not listen to the position of our managers.

And besides, the higher the export price set by the agricultural department, the higher the export duty, which goes to the Ministry of Agriculture. After all, it is calculated from the price in dollars, and its exchange rate to the ruble, as you know, is growing. That is, the ministry’s desire to earn as much money as possible from exports is obvious.

For example, at the moment, the duty is calculated based on the price recommended by the Ministry of Agriculture – $235 FOB. And the market “red” price is $195. That is, the overpayment for the grower is 3,000 rubles per ton, due to the inflated export duty.

Some farmers are convinced that if the Ministry of Agriculture’s policy does not change, the consequences will be difficult to reverse. In particular, one should keep in mind the delayed negative consequences that will make themselves felt in subsequent agricultural years…

The market, as we know, does not tolerate a vacuum. If Russia doesn’t sell its grain, supplies will come from Ukraine.