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Behind-the-scenes talk with DowJones: Agricultural market of Russia between stagnation and development

2012.01.26

Behind-the-scenes talk with DowJones: Agricultural market of Russia between stagnation and development

Frankfurt (DowJones) According to expectations expressed by Stefan Duerr, President of EkoNiva, Russian Agricultural Holding, in his talk with DowJones magazine, the development of different segments of the agriculture industry in Russia will be uneven in 2012. While stagnation is the best one can hope for in dairy production, there are some trends signifying further growth of grain crops production. A large number of smaller dairy producers will go out of business, while big-scale producers like us will continue their expansion believes the head of the agricultural holding engaged in cash crop and dairy production. Taking into consideration the increase in milk share produced by large dairy enterprises and decrease of the share produced by smaller enterprises stagnation is more likely than growth.

 

The situation with grain crop production takes a completely different turn. Mr Duerr sees the growth potential for yields in 2012. The purchase price rate remains high within the country and moods in agriculture are optimistic. Farmers keep buying fertilizers, new machinery and high-quality seeds. If we are lucky with weather, we can expect an increase in yields in 2012. However, the President of EkoNiva refrains from specifying his estimations: Calculation of the new yield rates at the moment would be similar to fortune-telling by reading coffee grounds.

 

For the current 2011/12 fiscal year Mr Duerr expects a grain export of 30 million tonnes. EkoNiva President also comments on the decrease of export rates in February/ March predicted by many grain wholesale market participants in Germany, - Vice Premier Victor Zubkov has already declared that in case the fixed export volumes are exceeded, the Government of Russia will raise export duties. Stefan Duerr finds this scenario plausible: The market is under a close observation of the Government. At the same time, the entrepreneur is not very critical about the governments interference with the market: in year of plenty, the agriculture would make profit if prices were going down rapidly. We should also put up with the fact that prices are not going to skyrocket in the nearest time, as the government takes measures to establish price ceilings, says Mr Duerr.

 

Russia has won some space for maneuvers in accordance with WTO regulations.

 

Management of EkoNiva anticipates mutual benefit, i.e. for both Russia and international trade partners, from Russias accession to the World Trade Organization (WTO) in the middle of December. In the course of the WTO accession, Russia has already announced its willingness to reduce import duties in the agricultural sector and limit subsidies for local farming.

 

In both cases Russia can use the situation to its advantage. So, the November issue of The Expert, a Russian economic journal, stated that governmental subsidies aimed at the support of specific products, such as pork, will be limited maximum to 30% of the total amount of the government support.Sector experts, according to edition, do not take it critically: currently, the total support of certain products reaches maximum 15-16%. Stefan Duerr also maintains this position: Accession limitation of subsidies is established at the rate twice as high as the existing support and it will be reduced over time only. Russia, thus, will win some time to adapt. As for the meat and dairy sectors, currently they are subsidized in terms of innovation support. And innovation support is always a temporary measure. The support is provided in the form of significantly reduced basic interest rates of loans granted, for example, for construction of modern barns. At the moment, the interest rate for such loans usually amounts to 12% , of which 11.5% is subsidized. Mr Duerr sees it as a certain favourable opportunity within the framework of WTO accession: a wider access to world markets, in industrial segment as well as in agriculture, can result in prospective interest rate reduction and, hence, the amount of investments into innovation support of agriculture will increase.

 

Livestock production has been subsidized in Russia since 2006. According to S. Duerr, poultry farming has also held tight on to these programmes, which is understandable bearing in mind shorter production cycles: Its possible to buy a ready automated broiler farm with fattening period of 40 days. Moreover, as compared to cattle breeding and dairy production including more production stages and longer cycles, less qualified staff can be engaged in poultry fattening. Therefore, in poultry farming, Russia is getting closer to the self-sufficiency rate. As for the cattle breeding sector, some big-scale projects have been launched, but it will take five ten years more before the country will begin to fully provide itself. In the dairy industry, it has to take much longer than ten years, in Mr Duerrs opinion.

 

Stefan Duerr believes that the import duties, which Russia promised to reduce in the process of WTO accession, provide some advantages during the transition period.