Product problems will begin in the poorest countries
As expected, Russia's withdrawal from the grain deal immediately came back to haunt world markets, quotes crawled up. At the Commodity Exchange in Chicago, wheat prices rose by %, to $278 per ton. It costs a little less in Paris — 264 euros. Price recovery is also observed in Russia itself, which is quite natural.
We have long been accustomed to the fact that the domestic prices of the country always follow the world ones. As officials keep repeating to us, Russia is part of the world economy, and there seems to be no escape here. Although for some reason they do not add that last season we had a record harvest of wheat. Why prices for the domestic consumer should rise is completely incomprehensible.
For us, the dynamics are depressing. Last week, when it was officially announced that Russia was withdrawing from the «grain deal», wheat prices rose from $230 per ton to $240-250. But now, according to experts, they can charge up to 250-260 dollars per ton.
At first we were happy for our peasants. Their profit from exports will grow, which, by the way, taking into account carry-over stocks, will again become a record. But now we shrug our shoulders: what will happen to the prices of bread in the retail trade?
It is clear that you don’t have to worry too much about bread. Bread is a noun in Russia, it is included in the list of 24 socially significant products, which are “looked after” by the state, regions and municipalities. And they will not let loaves and loaves rise in price significantly.
But there is also a large arsenal of bakery products that are not included in the «list 24», but they include rising in price grains.
How much will cookies, cakes, gingerbread, etc. cost?
Here, analysts have an unequivocal answer: we should not be deceived by last year's record harvest. Due to the fact that the price of bread is held back by administrative methods, retail chains will quite “recoup” precisely on bakery products, raising their prices by 10-15%.
Domestic livestock breeders have already howled, fodder grain is also becoming more expensive. How much will their products cost in the end, if already today consumer prices and the solvency of the population hit the ceiling?
And what will the world market be like tomorrow?
According to independent agrarian expert Alexander Korbut, there are several factors behind the increase in grain prices. These are the weather conditions, and the expectation of not the highest harvest in the US and Europe. The reaction to the stoppage of Ukrainian river ports on the Danube also has an effect.
«Prices can still be corrected down,» he believes.
Doctor of Economic Sciences, Chief Researcher of the Center for Agricultural Policy of the RANEPA Vasily Uzun reassures. The specialist says that the increase in the price of bread for the consumer due to rising prices on the domestic market will not be particularly noticeable.
Although this is a signal for an increase, I do not exclude that someone will try to take advantage of this. However, the share of wheat in the cost of bread is small, even its rise in price by 20% will increase the price of bread within 2-3%, no more, the expert suggests.
— After the introduction of export duties, our peasants have long dreamed of raising prices for grain, — he continues. — This will significantly increase the level of profitability of production. The growth of world prices for our farmers is a big plus.
— Export duties, which are rising following the rise in world prices. The higher they are, the higher the duty, and the lower the cost of products in the domestic market. This is a very powerful and effective lever. If the export price exceeds the threshold level, then 70% of this increase is immediately taken by the budget. Regulating, thereby, prices in the domestic market. If these funds were returned back to the manufacturer — for the further expansion of production and the use of new technologies — it would be absolutely great. But in fact, the return is quite small.
— Last season, thanks to the same duty, feed grain was cheap, and this is the basis, its concentration in the feed is very high. Pork prices have fallen to the level of chicken. By the way, both pig and poultry farmers have increased their exports.
Today there is a certain risk that these products may rise in price, because grain in feed affects the cost to a much greater extent than grain in the production of bread.
— So… I won't name the exact figure right now, but there are prerequisites for such a rise in price.
— A year and a half ago, the price was 430 dollars. As you can see, the current surge is far from its maximum, so this price is not high. Panic, at least in Russia, should not be. Problems with importers who buy bread. For them, the growth of export prices can be critical. By participating in the grain deal, Russia solved the problem of cheap bread for poor countries.