New agricultural records in Russia during pandemic
The food supply system and agriculture received special significance for Russia in 2020. Some relevant questions: 1) What impact has coronavirus crisis had on the Russian agro-industrial complex? 2) What role did government play in its successes during the pandemic? 3) What problems in the country's food supply has this year revealed?
According to the results of 11 months of 2020, the volume of production of Russian agricultural products amounted to almost 5.7 trillion rubles, which is 1.5% more than during the same period of 2019. The most significant growth was achieved in the grain segment: in 2020, the second largest crop in the post-Soviet period was harvested in Russia, it totaled 132.9 million tons. In comparison with the previous year, the grain harvest increased by almost 10%, and just a little bit was not enough to repeat the record of 2017 record (135.5 million tons).
Russia boosted agricultural exports 18.6% to $30.395 billion in 2020, from $25.6 billion in 2019. Agri-food exports weighed in at 78.545 million tonnes. The exports consisted mostly of grains - 48.654 million tonnes or $10.1 billion, followed by oil and fat products - 8.026 million tonnes or $4.878 billion, meat products - 524,900 tonnes or $885.3 million, dairy - 206,700 tonnes or $317.9 million fish and seafood - 2.26 million tonnes or $5.328 billion, food and processing industry products - 9.469 million tonnes or $4.496 billion and other products - 9.4 million tonnes or $4.385 billion.
The main buyers of Russian grain in 2020 were Turkey, Egypt and Saudi Arabia; oil and fat products - China, Turkey and India; meat - China, Vietnam and Ukraine; dairy - Kazakhstan, Belarus and Ukraine; fish and seafood - South Korea, China and the Netherlands; food and processing industry - Kazakhstan, Belarus and Uzbekistan; and other - China, Turkey and Belarus.
Both the good grain harvest and the devaluation of the ruble contributed to the intensification of food export.
Investment climate and government support
Nowadays subsidies for the agro-industrial complex ultimately lead to an increase in the volume of private and public investment in the industry. Moreover, the processing industry is becoming the main direction of investment activity: vast territories, the availability of a raw material base, measures of preferential support, the availability of a technological base and stable sales markets make it possible to speak of the attractiveness of the Russian agro-industrial complex for investors.
At the same time, representatives of agribusiness and related industries emphasize the need to increase government support. The current attractiveness of investments in the agro-industrial complex is difficult to compare with the period of 2014-2016, when a variety of measures to support the industry actively worked. The most important of them was the 20% reimbursement of capital expenditures to investors which allowed to create of a large-scale greenhouse sector in Russia.
New fronts for import substitution
However, the fall in the ruble exchange rate did not go unnoticed. This factor has had a serious impact on the cost of food. In addition, the rise in food prices was facilitated by a decrease in yields of a number of basic crops, especially sunflower (minus 13.7% for 11 months), sugar beet, the production of which fell by 40.5%, and potatoes (it was harvested by 10, 9% less than 11 months last year).
A significant part of raw materials and equipment for agriculture is purchased abroad. This affects the price of the final product. Russian agribusiness lost a lot in 2020 on the exchange rate difference. Russian agrarians buy seeds abroad. Fertilizers are in Russia, but their prices are formed in dollars because they are exported. Feed additives and starter cultures for cheese production are also imported. Therefore, the market players are forced to raise prices for their products. The limited consumer demand forces them to conduct a more flexible pricing policy.
Products that depend on the dollar exchange rate in the agro-industrial complex occupy about 25-30%. These are soybean meal, premixes, feed additives, veterinary preparations, amino acids, hatching eggs and day-old chicks for parent flocks, etc. As a result, about a third of domestic products types indirectly depends on the dollar exchange rate.
One of the most memorable episodes of 2020 was the boom in demand for basic foods ahead of the spring quarantine which led to empty shelves, sudden price increases and other imbalances in the market. All this reminded of the fact that in Russia there are still no significant accumulators of food products, not counting, of course, State reserve warehouses.
The warehouse capacities available in Russia are not designed for long-term storage of certain types of products, for example, fruits and vegetables. In fact, only large food suppliers’ chains completely cover their logistics needs. Even large agricultural holdings sometimes do not have their own storage facilities. Chains of chilled products like fish, meat, vegetables and fruits also suffer from lack of proper logistics facilities and system. Russia needs a logistics infrastructure that would play the role of not only a food storage unit, but also a unified system of food distribution for both large and small market players.
The same applies to food exports: for a serious increase in exports, again, improvement of the infrastructure is needed, like food storage facilities, which allow companies of all sizes to aggregate products at one point, from where they will be sent abroad by trucks, refrigerated containers or trains. The market experts believe that if Russia really wants to become a serious player in the world food market not only in the grain segment, state support for exports should be increased.
For the sake of creating favorable conditions for agricultural exports, federal projects until 2024 provide for an increase in the throughput of transport highways, the construction of six new export-oriented wholesale distribution centers, the construction of grain and oil-loading terminals. Accelerated deliveries of agricultural products to China by rail will also be organized, customs procedures for agricultural exporters will be simplified, and other measures are being taken to eliminate trade, tariff and administrative barriers.
Sources: Vzglyad, Interfax.
Agricultural team Moscow