Overview of Russian Agribusiness Sector #1

Highlights of Russian Agribusiness sector prepared by the Office of Agricultural Counsellor of the Embassy of the Kingdom of the Netherlands in Moscow. - 1 March 2021

Russia imposes grain export quota of 17.5 mln tons, duty on wheat as of Feb 15

Russia has imposed an export quota of 17.5 million tons for wheat, rye, corn and barley effective from February 15 to June 30, 2020 with the aim of stabilizing domestic prices for flour and bread amid a steep increase in grain prices.

The quota does not apply to exports to Eurasian Economic Union (EAEU) countries.

The country is also imposing export duties as part of efforts to curb prices. The duty on wheat exports within the quota will be 25 euros per ton as of February 15 and will go up to 50 euros as of March 1. Duties of 25 euros and 10 euros, respectively, will go into effect for corn and barley exports within the quota on March 15. Rye, which market experts said is virtually not exported, will not be subject to a duty.

Exports beyond the quota will be subject to a prohibitive duty of 50% of the customs, but at least $100 per ton.

The Agriculture Ministry distributed the quota in early February, handing it out to 234 companies. The quotas were distributed based on the historical principle, so leading grain exporters received the largest shares: RIF Trading House with 2.69 million tons, Aston with 2.123 million tons, Mirogroup Resources with 1.759 million tonnes, Glencore Agro IGC with 1.234 million tons and Cargill with 892,530 tons.

Grain Exporters Union CEO Eduard Zernin said earlier that exporters intend to fully use up the quota and then resume talks with the government on the possibility of reducing the export duties to zero.

However, Russia plans to introduce a so-called grain damper, or floating duty on grain exporters as of June 2. The duty will be calculated based on price indicators with price cut-offs of $200 per ton for wheat and $185 per ton for corn and barley, and it will be 70% of the amount exceeding these figures.

Traditionally in February every year statistical information about agricultural production and export are published. At the same time future trends and perspectives are being discussed. Below are the main outlines of several sectors.

Russia boosted agricultural exports 18.6% to $30.4 bln in 2020 - Agroexport

According to the Agriculture Ministry's Agro export center, Russia boosted agricultural exports 18.6% to $30.395 billion in 2020, from $25.6 billion in 2019.

The exports consisted mostly of grains - 48.654 million tons or $10.1 billion, followed by oil and fat products - 8.026 million tons or $4.878 billion, meat products - 524,900 tons or $885.3 million, dairy - 206,700 tons or $317.9 million fish and seafood - 2.26 million tons or $5.328 billion, food and processing industry products - 9.469 million tons or $4.496 billion and other products - 9.4 million tons or $4.385 billion.

Sugar beet production

First Deputy Agriculture Minister Dzhambulat Khatuov is quoted as saying that Russia could increase sugar beet production in 2021 to 40 million tons and boost sugar production to 6 million tons.

Russia's sugar beet harvest in 2020 fell to 32.4 million tons from 54.4 million tons in 2019. Thus, this year's production may increase by 23.5%.

Livestock production

Livestock production both in the meat and in dairy sectors increased in Russia in 2020. The upward trend is expected to continue this year. 

Production of livestock and poultry for slaughter in live weight reached 15.6 million tons, an increase of 3.1% (+472 thousand tons) compared to 2019. Pork production showed the highest growth of 8.9% (+446 thousand tons). The implementation of investment projects and the expansion of export opportunities for Russian suppliers drove such progress. Yury Kovalev, Director-General of the National Union of Swine Breeders, stated that the annual growth rate in the pork industry would remain at 3-5%. The production is expected to reach 5.8 million tons in live weight by 2025.
There was also an increase of 0.3% in the production of both cattle and poultry. Egg production totaled 44.8 billion. According to Sergei Lakhtyukhov, Director-General of the National Union of poultry producers, the poultry industry’s performance allows to fully meet domestic needs and reduce imports. The production is projected to increase at a rate of 0.5-1% per year. 
The key factors determining the positive dynamics in domestic livestock farming are active use of state support measures, developing the breeding base, and strengthening veterinary protection.

Greenhouse vegetable production to increase by 7.6% in 2021

The Ministry of Agriculture of Russia projects that at least 1.45 million tons of vegetables will be grown in domestic winter greenhouses in 2021, a 7.6% increase compared to the previous year.

According to Mikhail Glushkov, director of the National Union of Fruit and Vegetable Producers, investments in greenhouse projects help to boost production. The greenhouses area has increased by more than a third in the past 4 years and reached a total of 2.8 thousand hectares in 2020, meanwhile, the production increased by 78%. Last year's production of vegetables in winter greenhouses grew by more than 18%, while imports fell by 15.2% to 558.9 thousand tons.

In 2021, agricultural machinery may become more expensive

In 2021, agricultural machinery may become more expensive. The reason for the price increase will be an increase in the recycling fee. This is stated in an open letter to the Ministry of Industry and Trade of the Russian Federation and the Ministry of Agriculture of the Russian Federation on the issue of increasing the utilization fee for agricultural machinery in 2021.

A 10-25% increase in prices, at least for imported equipment, before the start of fieldwork threatens to disrupt hundreds of contracts and more than a thousand units of equipment previously approved under investment loans and leasing financing. Many of the types of equipment do not have any or proper supply of domestic production, in particular: tractors of small and medium power, high-performance grain harvesters, self-propelled sprayers and a number of other items, where the share of imports is from 20 to 80%.

According to the Ministry of Agriculture of the Russian Federation, the industry is experiencing a permanent shortage of equipment: about 60,000 small and medium-class tractors, 40,000 energy-saturated tractors, which is about a quarter of the current fleet, about 40,000 grain harvesters or 40% of the operating units. Even with the doubling of the current rate of renewal of the agricultural machinery fleet, it takes from 3 to 8 years to cover these needs.

Since the introduction and application of the recycling fee in 2016, prices for Russian agricultural machinery have shown a significant increase, exceeding the rate of inflation. The task of developing domestic production does not demonstrate proper implementation. Offer for harvesting machinery, despite all efforts, is growing slowly, for tractors – a little better, but is measured in hundreds of units and is insufficient on the need to 100,000 units of the deficit and low power availability per hectare, lagging 3-5 times from countries with a high level of agricultural development.

Thus, the increase of the recycling fee in 2021 could lead to higher prices for agricultural machinery, both foreign and domestic brands, will create a shortage of supply in the market and the threat of supply disruption during the sowing campaign, and in the medium and long term will significantly reduce the rate of renewal of agricultural machinery in the country and will impact on the efficiency of the agricultural sector.

LAN Team Moscow

Sources: Interfax, DairyNews, Ministry of Agriculture of the Russian Federation