THE RUSSIAN FARMER’S NIGHTMARE: WILL BE THE SANCTIONS SUDDENLY CANCELLED?

THE RUSSIAN FARMER’S NIGHTMARE: WILL BE THE SANCTIONS SUDDENLY CANCELLED?

The dream of the domestic manufacturer of agricultural products has come true — food embargo has been prolonged.

To get Russian products on the shelves of the shops became easier. But where were the products, and what still prevents farmers to fill up the shelves of fresh goods at affordable prices? Mr. Vladimir Arda tried to understand the reason.

Mr. Vladimir Arda, MIA “Russia Today”: In response to the EU sanctions, which have been extended until 31st January 2016, Russia has prolonged its food embargo for another year – until August 5th next year. Import of agricultural products was prohibited, as well as raw materials and food from countries supporting the anti-Russian sanctions.

 

DREAMS MAY COME TRUE OR MAY NOT.

According to data of Federal Customs Service, the import volume from countries called “the far abroad” from January to April this year decreased by 37.7% – to $ 50.967 billion in comparison with the corresponding period of the last year. In particular, import of grain crops has decreased twice, vegetable oil – by 24.7%, fruit – by 19%, dairy products – by 12.7%.

“A year ago, the introduction of food embargo became a real gift to Russian farmers,” claims Ms. Tatiana Rybalova, who is a leading expert of the Institute of Agribusiness Market Studies (IKAR).

“Our farmers have struggled to raise import duties on food products for many years, trying to show and prove the Government, the President, and legislators, that they are not in a position to compete with the powerful flow of import, prices were often lower than the production cost of the same goods in Russia. And here is the embargo! Of course, the industry perceived it as a chance. Another thing is how they will manage to take advantage of this chance,” says the analyst.

She admitted that they had managed to take advantage of the situation in different ways. For the same period (from January till April) manufacture growth of domestic agricultural products has amounted 3,3%. But this general figure is not enough regarding what we talk about – as “the average temperature in the hospital”. The situation in various agribusiness sectors develops ambiguously. For example, according to the Ministry of Agriculture of the Russian Federation, today the Russian market of grain has already been presented by domestic grain by 98,9% – more than half of the percentage of the last year, though less than it was expected (99.5%). The shares of native produce of potatoes and sugar, on the contrary, have decreased – up to 97.4% and 82% respectively. The obvious tendency in livestock farming is that meat production is increasing significantly better than milk and dairy products.

 

RUSSIAN “RUBBER” PARMESAN INSTEAD OF ITALIAN

According to Ms. Tatiana Rybalova, the particular situation in dairy processing industry is alarming. All significant and triumphant increases in cheese and butter production have nothing to do with the real situation because in many cases, properly speaking, the high-quality imported products on the supermarket shelves have been substituted by surrogates, which having little in common with the original.

“They can be called imitation products manufactured in violation of all technologies, where animal fats are replaced by cheaper vegetable ones. Cheese market share of such counterfeits is ranked, according to my estimates, up to 70%. Most unfortunate thing is that they are not produced by artisans in garages or basements but by large specialized companies. Taking advantage of the recess formed as a result of the sharp drop in imports, the big companies rushed to fill the niche without worrying about the quality of the products. They focus only on the profit margin extracting sustainable earnings from the half-forgotten concept of ‘deficit’,” she says.

Data confirmed by Federal State Statistics Service has just been fueling suspicions of this kind. Domestic production of cheese has jumped as much as 30% for a year, although milk production in the country increased by only 3%. Against the backdrop of such a significant reduction in imports of almost all food products, condensed and powdered milk and cream are imported into the country in almost the same volume as that of a year ago, and the import of palm oil and other vegetable oils has grown significantly (from 12% to 21%).

 

IS IT ANY WONDER THAT PARMESAN ON THE SHELVES TASTES LIKE RUBBER AND IS SAVOURLESS?

THE CONSUMER WILL PAY FOR EVERYTHING!

Processors are reluctant to increase purchases of milk from domestic livestock breeders for quite understandable reason – the high price. Russian milk is now more expensive than milk from Europe and the same is in Belarus. The reason is that all difficulties and economic problems are plugged in its price. Taxes, not timely paid subsidies, high interest rates on loans, weakening of the national currency. And, of course, the absence of those grants, which European governments can afford to pay their farmers but the Russian government cannot offer to their farmers.

As a result the growth of expenses on manufacturing agricultural products finds its objective which always becomes the consumer as a final link. According to the Ministry of Agriculture, Russian shopping basket has risen by almost 460 rubles – almost 11% since the beginning of this year.

“The introduction of food embargo is certainly not a panacea but in fact, it helped prevent the catastrophe to which slowly but inexorably Russian agriculture was moving,” believes Mr. Andrey Danilenko – The Chairman of the National Union of Milk Manufacturers.

“Farmers sighed with relief — new opportunities for marketing their products appeared in all sectors of the industry. The truth is that the restriction of imports coincided with other unfavorable factors such as falling of oil prices and devaluation of rouble. Manufacturers had to raise the prices,” he comments.

 

IMPORT SUBSTITUTION OR REPLACEMENT OF THE IMPORTERS?

“Not only import substitution has been carried out for a year but also a change of importers has been done. South America and South-East Asia began to occupy the Russian market and replaced the suppliers from Europe, USA and Canada,” says the head of the media group “Krestyanskie Vedomosti” – Igor Abakumov, who is also  a member of the Public Council under the Ministry of Agriculture of Russia.

“The joy of Russian agricultural producers from the fact that their rivals are not already on the market has been overshadowed by a process called ‘import substitution’, which was finally assigned to them,” he said. The thing is not the lack of government support – it exists either associated or not, but there are obvious steps ahead. However, in terms of the budget deficit, the government does not have many options.

“In order to really fill the domestic food market, we need financial infusions, comparable with the defense budget. We have recently had new tanks, new aircrafts. However, there were no new breeds of cows which could survive in our climate and do not depend on the whims of weather,” Abakumov speaks.

According to him, Russian agricultural sector can earn as much as possible effectively if two problems are solved: firstly, to create an effective system of subsidizing and crediting agricultural producers; secondly, to provide them with a real solution for the consumer market.

The first problem is more or less understandable. Real rates on credits for farmers ranges from 14% to 20%, whereas the optimal rates for this kind of business worldwide are considered to be 4% -5% a year, due to the shock jumps of oil prices and  money market, the Central Bank is forced to realize its discount rate but it cannot even be dreamt of it.

However, even in the case of stabilized economic situation, the things cannot be done without the financial assistance of the state – subsidies, state guarantees and other measures. Agribusiness by its very nature is always fraught with risk – a bad harvest, loss, natural disasters. In addition, it has a very definite natural production cycles depending only on the nature and not on human activities.

The second problem is more complicated. Today manufacturers growing crops, getting meat, milk or eggs should take care of the realizations of their production. Selling their products is not an easy task. Carrying the produce to the markets to be sold needs additional transport and extra helping hands. Transportation, distribution and merchandising the produce around the shops and warehouses will be the same. It would be better to deliver products to the large retail chains but they have their own requirements and interests. Large supermarket networks require large regular suppliers as big as them. They need the provision and delivery of a steady volume of agricultural production of good quality so they prefer to have nothing to do with farmers.

A recent, unfortunate example: a well-known, prosperous farm near Moscow called Lenin traded strawberries all over Moscow last year. Today, it runs the risk of leaving their entire crop of strawberries in the fields because the authorities of Moscow refused them a permission to trade their production in trays in the underground.

“The creation of a wide network of wholesale and retail trade and the diversification of products from different manufacturers have been expected for a very long time. For example, the famous Dutch flower market, which is already a hundred years old, sells its beautiful goods all around the world or no less famous company Danish Crown, which also trades meat and meat delicacies all over the world,” says Igor Abakumov.

The government is thinking of creating such centres but they have not been established so far – even at the rural areas. And there is no agreement about what they should be – public or build up on a cooperative basis.

 

CHICKENS ARE COUNTED IN AUTUMN!

Living a year under the ban on Western food imports is a very short period of time to show the outcomes of this prohibition. Agriculture has its cycles over time. For example, from three to four years are needed for a heifer to turn into a cow giving milk. All experts agree with that.

They also agree with the absolutely clear fact that after the first year of embargo and in the beginning of the second year no import substitution will occur, nor the farmers will be able to raise their heads again and the shelves will not be filled with high-quality agricultural goods.

“The country needs a systemic, perspective programme for food sector development. The current is calculated up to the year 2020 but now there is need for long-term investments,” believes Andrei Danilenko.

“In the absence of a systematic approach, it is difficult to predict how the situation may develop further. Apparently, this year pig, poultry and crop production should give good results. However, the sowing was very difficult this year, the price of mineral fertilizers rose, which means that forage would rise too. Credit rates are too unstable. We can only hope for the best, even though it would be much better to have clear estimates and projections!” Tatyana Rybalova agrees with him.

Food embargo, as well as its prolongation became a good stimulus for the development of Russian agriculture. Nevertheless, it cannot be considered as a tool for any reforms, of course. If reforms are sought, more serious, real, thoughtful and valuable steps are needed to be designed as a comprehensive set of measures. And of course a lot of money,” says Igor Abakumov.

At the same time, he notes that despite all difficulties, most of Russian farmers are afraid of sanctions cancelling and as a consequence – the elimination of embargo.

Source: www.meatinfo.ru