Translated material
Tiny inflation
An abnormally hot summer may lead to a slight rise in bread prices
The drought, which has practically destroyed grain crops in more than a dozen regions of the Volga region, the Southern Urals and the Central Black Earth region of Russia, will not lead to an increase in prices for bread in stores. President of the Russian Grain Union (RGU) Arkady Zlochevsky assured consumers of this yesterday. Other experts do not share such optimism.Mr. Zlochevsky admitted that recently grain prices have increased by an average of 100 rubles. per ton. But, according to him, the share of the cost of grain in the price of bakery products has been constantly decreasing in recent years. Two years ago it was 23.5%. Since then, grain prices have fallen by two and a half times, which has not affected the change (downwards) in the cost for consumers of flour products. “Currently the share of grain in the cost of bread is 9%,” noted Mr. Zlochevsky.
But, as you know, in our country, raising consumer prices often requires not so much economic prerequisites as a reason. So, according to the head of the RZS, there is not even such a reason. The expected grain harvests still exceed the country's needs, and there are still huge reserves left over from past high-yield years.
The drought has indeed affected large parts of the grain-producing regions. Abnormally high temperatures are observed in many places for the first time in 130 years of meteorological observations. Crops are damaged on almost 20% of the area (9 out of 48 million hectares). In 14 regions of the federation, a state of emergency due to drought has already been introduced; in four more regions, as Arkady Zlochevsky said, the relevant documents are now being prepared. “But all the rumors and excitement about the fact that there won’t be enough grain have no basis, the foundation under them and other fears is zero,” assured the head of the Russian Grain Union.
Firstly, the RZS considers the forecast of the Ministry of Agriculture regarding the expected grain harvest at the level of 85 million tons to be quite reasonable. This, of course, is less than the 90 million tons expected at the beginning of summer, but still more than the country’s internal needs, which do not exceed 77 million tons. Meanwhile, just yesterday a fresh forecast from the specialized agency Sovekon was published, according to which 77-81 million tons of grain will be harvested in Russia this year. The report states that “starting grain yields in the Volga region and the Central Black Sea region are the lowest since 1998 and 1999, respectively.” But these figures still remain sufficient to cover domestic demand.
Secondly, Arkady Zlochevsky recalled the 24 million tons that remained from previous years. This volume also includes 9.5 million tons of grain held in the so-called state intervention fund. This is grain that was purchased with budget money in past harvest years to stabilize rapidly falling market prices for grain. Now, if necessary, the state will be able to organize those same commodity interventions to maintain stability in grain prices. “The drought will normalize the situation with carry-over stocks,” the specialist is convinced. According to Mr. Zlochevsky, by July 1, 2011, carryover grain reserves may decrease to 12 million tons.
However, the General Director of the Institute of Agricultural Marketing, Elena Tyurina, believes that in the context of a reduction in gross grain harvests, an increase in bread prices is almost inevitable. Given seasonal variations, it is usually most noticeable towards December. But the expert refused to predict the scale of possible growth. “Such assessments have a very subjective impact on the market. Any statements may trigger a sharp rise in prices. This has happened more than once,” explained Ms. Tyurina.
According to her, long-term observations of price dynamics indicate that “the increase in the cost of grain and bakery products for end consumers occurs proportionally.” “If the price of grain rises by 20%, then bread will rise in price by 15 percent. This influence is very noticeable. Moreover, grain prices increase - flour and bread become more expensive, then grain becomes cheaper, but bread remains at the same price,” notes Elena Tyurina.
“Grain prices will not affect the cost of bread in any way,” Yuri Katsnelson, president of the Russian Guild of Bakers and Confectioners, assured Vremya Novostei. -- The drought will not affect the dynamics of prices for bakery products. It's slowly getting more expensive all the time. This growth was within the limits of inflation and will remain so. Bakers need 20-22 million tons of grain with a reserve. There is enough grain in the country for this. There can only be a rise in prices if the state sits with folded hands at the guys who are playing all sorts of tricks with grain and its derivatives.”
There are certainly prospects for an increase in grain prices this year, Andrei Sizov, executive director of the Sovecon agency analytical center, is convinced. “On the domestic market, the crop failure is already affecting the cost of grain. In the south, which has begun massive harvesting of the new crop, prices have risen by 10% over the past few weeks. Plus, the growth in prices is also facilitated by the situation on the external market, where prices have also shot up quite strongly in recent weeks, adding over 15% - more than $30 per ton (from $170 to $200 per ton),” he explained to Vremya Novostei "
The scale of price increases will depend on the period in which the decision is made to bring grain from the intervention fund to the market. “It would be nice for agricultural producers if the price increased a little, since last year was simply unprofitable for most grain producers,” says Elena Tyurina. But if the state deems it expedient to maintain price stability in the consumer market, then it is quite capable of ensuring this through the intervention fund.
The coming season will probably provide an opportunity for the state to sell part of the grain from the intervention fund, Andrei Sizov is convinced. “But we, like millions of agricultural producers, would like to know the answer to the question at what point the state will decide to enter the market with this grain. Its implementation must be approached extremely carefully, done in an extremely predictable manner, communicate your plans and strictly adhere to them, involve all market participants in the discussion, and not just exporters or agricultural producers or just livestock breeders, whose interests often do not coincide,” says the specialist .
For greater confidence in the stability of bread prices, the head of the RZS said that Russia is quite capable of exporting grain abroad this year. “It is advisable to cover our niche in the world market of 20 million tons,” Elena Tyurina agrees with him. “If we cannot supply this volume, we will be replaced by suppliers from other countries.”
In particular, the issue of providing subsidies for grain exports from Siberian regions, where there are “colossal surpluses that need to be exported,” is now being discussed. The head of the RZS is confident that it is necessary to expand benefits for them when exporting through Far Eastern ports. Currently, the 50% railway tariff for this grain is effective from the 1100th kilometer; This benefit needs to work from zero kilometer. Exporters need government support for the reason that “the level of world reserves is high and this does not provide a chance for an increase in external prices.” The strengthening of the ruble against world currencies also worsens the export opportunities of Russian grain.
Agricultural producers in drought-affected regions will not be left without government support. According to Arkady Zlochevsky, a decision has already been made to extend their bank loan obligations for three years. Livestock farmers from the affected regions will be offered preferential loans at 2% per annum, as well as “a commodity loan from the grain intervention fund for five years with 100% subsidized rates and deferred repayment.”
A crop insurance system could free agricultural producers from the habit of relying on budget support. Currently, no more than 20% of farmland is insured. However, the spread of this practice, as Mr. Zlochevsky admitted, is hampered not only by paternalistic sentiments among the villagers, but also by insurers, who always “manage to find loopholes in Russian legislation so as not to compensate for the damage.” According to the head of the RZS, the problem can only be solved by introducing compulsory insurance of agricultural crops and establishing strict control over it by the state.
They thresh as hard as they can
Russia, as of July 12, threshed almost 10.3 million tons of grain, which is 335.2 thousand tons more than on the same date last year. According to the data available to INTERFAX from the Ministry of Agriculture of the Russian Federation, grains were threshed on 3.07 million hectares compared to 3.03 million hectares last year. The yield amounted to 33.5 centners per 1 hectare, which is 0.7 centners/ha more than in the corresponding period last year. By July 12, the farms of the Southern District had collected, as last year, 6.4 million tons of grain, threshing crops on 1.7 million hectares. The yield was 38.6 versus 35.2 c/ha last year. In the North Caucasus, 3.5 million tons of grain were threshed compared to 3.4 million tons last year. Grain was harvested from almost 1.1 million hectares (a slight lag from last year’s pace). The yield in the district is 32.7 versus 30 c/ha for the same period last year. In the Volga region, which was seriously affected by drought, the grain yield is only 8.6 compared to 11.7 c/ha last year. 247.9 thousand tons of grain were threshed here compared to 61.4 thousand tons last year. Crops were collected from 286.8 thousand hectares versus 52.6 thousand hectares. Due to drought, the region's harvest began earlier than last year. The grain yield in the Central District is also lower than last year - 19.4 versus 24 c/ha. According to the forecast of the Ministry of Agriculture of the Russian Federation, this year the gross grain harvest will be 85 million tons compared to 97 million tons in 2009.