Arkady Zlochevsky: “We ourselves are pouring water on the mill of competitors”
The prospects for the 2023 agricultural season in Russia look very optimistic. The harvest is predicted, although not a record, but very decent, plus weighty carry-over stocks. True, this does not make it easier for farmers and consumers. The peasants have no money for the development of production. Prices for bread in stores are not reduced. Meanwhile, restrictions on the export of Russian grain — duties, quotas — prompted competitors from other countries to increase production areas and, as a result, increase wheat stocks. Can the world's interest in Russian grain really be considered irretrievably lost? Arkady Zlochevsky, President of the Russian Grain Union, said what is happening in the agricultural market now and what we will see in the near future.
“We can count on a fairly confident harvest. It will be quite enough to satisfy domestic needs, and significant amounts of resources will remain for export. It should also be taken into account that we are entering the new season with record reserves of 33 million tons. An unprecedented figure: we have never recorded such carry-over volumes. This is despite the fact that Russia also exports at a record pace: before the end of the season, 62 million tons of grain will be sold abroad.
Now it is difficult to give accurate estimates of what the harvest will be. We haven't sifted through spring crops yet. For winter crops, according to the Ministry of Agriculture — 17.7 million hectares against 18.4 last year, that is, there is a slight decrease. But we must also take into account that these 17.7 include 700 thousand tons of rapeseed, and these are not grain resources. Grain will be less than last year, definitely. It should be taken into account that last year's record harvest was obtained in absolutely ideal weather conditions. Not due to the fact that we have expanded the area under crops or increased technological production, but solely due to the weather. This year, don't expect us to be as lucky. Therefore, based on the average yield parameters, we can assume that we will get around 120 million tons of crop. Plus carryover stock. This is a very large amount of resources and quite a good export potential.
— Availability of capacities — a small problem. We can even store in polyethylene sleeves, and this practice is used during the season. This is a long established technology. Another issue is that long-term storage can be provided only in adapted warehouses, elevators. But it's not paying off right now. Better to store in a barn. Yes, the grain will deteriorate over time there, there will be some quantitative losses, but it will still cost producers less than paying for warehouses.
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— Duties are the most painful thing. They take a huge amount of money from the pockets of farmers and from the country's budget. Let me remind you that world prices have fallen quite decently. A year ago, they paid $440-450 per ton, and now it's $280. If the duty is removed, domestic and world prices will be equalized. This will suit all peasants perfectly. Now sales are at a loss for them, otherwise there will be good profitability and a low price. So, for example, a year and a half ago, a ton of wheat of the 4th grade was traded for 16-17 thousand rubles on the domestic market, and now for 8. If duties are canceled, then the price will be about 13 thousand per ton. This is a normal price level at which peasants can live without curtailing production.
—Of course. In total, losses go over a trillion. And this is only from the pockets of peasants.
— The initiative looks strange. What does suspend mean? Telling Russian exporters “don't export” is actually a matter of jurisdiction. And who will obey? After all, exporters have an infrastructure that is involved and requires money. She's not free. Who will pay for downtime? This is complete absurdity and sabotage. How else can this be regarded?
— The logic can be as follows. Previously, there was information that if we restrict exports, this will increase world market prices. This was based information stuffing. But we must take into account: the world market cannot live without our resource. If we stop exports altogether, it will lead to a complete paradigm shift in wheat consumption. Demand will move to competitors, and then it turns out that they have enough resources, they just trade at higher prices, and we at a discount. It is because of the discount that demand has returned to our grain, even despite the fantastic sanctions risks. The point is that the world buys our grain because of the attractive price, and not because they cannot live without it.
— Naturally. Why are world prices falling now? Because the whole world adjusted to all the changes, to high prices and invested in expanding wheat production. Western farmers began to sow wheat because it became very profitable for them. And it is unprofitable for Russian farmers, because the duty inside the country takes away a huge amount of money from them. And in the West, the prices are «chocolate», why not sow. So it turns out that world wheat stocks are growing, and prices are falling. Thus, we pour water on the mill of competitors.
— This season, Egypt returned to the first place, last season it was inferior to Turkey. Türkiye is in second place. Saudi Arabia came in third. Iran dropped to fifth. Bangladesh and Pakistan returned to purchases, that is, those countries that in past seasons shifted their demand for Australian grain. But Russia is cheaper! Even such a traditional consumer of French resources as Algeria has switched to purchasing from us.
— Technology has dropped. Peasants are reducing the use of fertilizers, because it is expensive. All this will eventually be reflected in gross indicators, crop volumes, and so on. But, as I said, with carry-over stocks, the total amount of grain is enough for everyone.
— The volume of state support is reduced. But the fees are coming back. The Russian budget received 250 billion rubles from grain duties. But the duties are returned to the Ministry of Agriculture, and in the end, farmers do not see this money. Where are these billions going? For example, bakers, processors, but not peasants. Anywhere, but in the wrong pockets. Surprisingly, for example, livestock breeders have already received subsidies by lowering domestic prices relative to world prices by the level of duties. This is called cross subsidization. But, despite this, they still receive money from the collected fee.
— The volume of loans has grown in relation to the last season. But this is because the producers have no money. Naturally, agrarians are forced to borrow, look for any ways to survive, for example, collateral. Otherwise, you will simply go bankrupt. As for various benefits and compensations, the issue of allocating an additional 10 billion rubles in addition to the 10 that have already been allocated earlier is being discussed. But just what does it look like? I talked to the peasants. They promised to compensate 2 thousand rubles per ton of sold wheat. In reality, farmers are promised a maximum of 300 rubles, not 2,000, while now they are given only 100 rubles with kopecks, and the remaining 200 — at best by the fall.
Nobody really explains anything. As a rule, federal money comes to the regions in the form of transfers. In the regions, when distributing, there are their own standards for how much a subject must add to federal money. The region, as a rule, says: “But I don’t have that kind of money. I can’t allocate in such a volume, ”and gives as much as he can. Based on this, such strange amounts of compensation are obtained.
— Well, what kind of help to the poorest? It was a PR hysteria, not based on any foundation. What did she lead to? To crazy price increases. The entire argumentation by the Ukrainian side of the need for this grain deal in relation to poor countries looks ridiculous and absurd. How will high prices help poor countries replenish food supplies? The main problem is not that there are not enough resources, but that there is not enough money to buy them. But all this hysteria, inflated from scratch, led to the implementation of the grain deal with Ukraine.
If you look at what underlies Ukrainian deliveries to the foreign market, you suddenly find out: this is not food grain, but fodder, mainly fodder corn. According to statistics, the cat wept for deliveries of wheat, not like ours. It turns out that a grain deal is needed to sell Ukrainian corn to the poorest countries. But do they need it? They don't have animal husbandry, they don't feed cattle. By definition, initially this deal could not have had any effect on the food supply of poor countries.
— At the beginning of the grain deal, Turkey abandoned the purchase of Russian wheat and began to buy cheaper Ukrainian grain. Then they ran out of Ukrainian grain, they don't really need corn, and again they returned to purchases in Russia.
— I understand that someone made some money on this deal. Probably, both the UN and the subordinate World Food Program (FAO) received their gingerbread. Someone won, but not the market at all.
— Everyone is now increasing production: the European Union has decently added to last year, and the Americans, and we, and Canadians, and Australians, and even the Argentines. In a word, all large grain crops.
How have prices changed? With its duties, Russia has driven up world prices for wheat. With their introduction, the domestic price did not go down, and the world ones rose exactly by the size of this duty. Now this boomerang is back and can hit us in the most painful way. A crisis of overproduction came due to high prices. No wonder they say that the best cure for high prices is high prices.
— World prices for wheat have fallen, but has our bread become cheaper? Here is your answer. Of course not. The cost share of grain in each loaf of bread is scanty — from 12 to 23%. And we must take into account that this is the price of a loaf of bread at the factory. But it still needs to be brought to the store shelf, and by the time this loaf reaches the counter, it will rise in price by 30, or even 50%. Transportation, logistics procedures greatly affect the final price. As a result, on the counter, bread can be one and a half times more expensive, or even two. Let me emphasize once again: the price of grain has fallen. And the fact that delivery or production costs have risen in price is not the fault of grain at all.