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Food Security and Grain Market Regulation in Russia

Abstract

The article analyzes the threats to the stable functioning of the agri-food system of Russia from the grain market and discusses current issues of its regulation, taking into account spatial development trends and growth in grain export volumes.

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Notes

  1. 1.

    In accordance with the Food Security Doctrine of the Russian Federation, the share of domestic grain in the total volume of commodity resources of the domestic market (including stocks) should be at least 95%. Since 2001, this indicator has been at the level of 99%. The Doctrine also establishes that bakery products must be physically and economically available in volumes that meet rational nutritional standards (since 2016— 96 kg/year). Now the average per capita consumption of these products, according to the Federal State Statistics Service, significantly exceeds the level of rational norms both on average in Russia (in 2017—117 kg/year), and in the vast majority of regions.

  2. 2.

    A striking illustration of export-related risks is the sharp rise in prices on the domestic oil product market in 2018, which was determined, first of all, by an increase in world oil prices, which coincided with a decrease in the ruble exchange rate. Under such conditions, export has become more profitable for oil companies than supplies to the domestic market. A similar picture can be observed in the domestic grain market in case of rising world grain prices and/or weakening of the ruble.

  3. 3.

    At present, grain is the main product of Russian agricultural exports. The possibilities of expanding export supplies of other types of agricultural products (pork, poultry meat, grain processing products) are still uncertain.

  4. 4.

    Given that the share of feed in the cost of production of these products is approximately 70% (in retail price, 50–55%), and the share of grain in the structure of feed for poultry and pigs varies from 50 to 70%.

  5. 5.

    According to the Federal State Statistics Service [4], in 2017, the share of expenses for the main raw materials (flour) in the structure of the average retail price of bread was 22%, and the share of expenses for grain in the wholesale price for flour was 66%.

  6. 6.

    For example, for poultry and pork production, an increase in grain prices by 20% leads (ceteris paribus) to an increase in cost by 7–10%. This, given the growing competition between domestic meat producers, often means a significant decrease in the profitability of their production, even to the point of loss.

  7. 7.

    That is, the minimum amount of stocks before harvesting a new crop.

  8. 8.

    If in 2001 the port capacity for transshipment of grain for export was estimated at 5.3 million tons, then by 2010 they increased to 22.5 million tons [7], and by 2018, to 55 million tons Taking into account the already implemented projects for the construction of new grain terminals, transshipment capacities in ports should increase by another 30 million tons by 2023 [8].

  9. 9.

    The average annual gross grain harvests in 2014–2018 amounted to 116 million tons, imports 1 million tons, domestic consumption 74 million tons, and exports 39 million tons.

  10. 10.

    According to our estimates, based on data from Rosstat, the net export of grain from these regions in 2013–2017 amounted to approximately 75% of total Russian net exports.

  11. 11.

    Thus, in 2017, the cost of producing 4th grade wheat in the South of Russia, according to the Ministry of Agriculture of the Russian Federation, amounted to 5–5.5 thousand rubles/t, in the Central Federal District 5.5–5.8 thousand rubles/t, in the Volga region, in the Urals and in Siberia, above 6 thousand rubles/t [11].

  12. 12.

    The work of D. Rylko et al. [12, p. 55] describes the relationship between prices on the Russian grain market and the price of export parity: the closer the region is to export terminals, the higher the price of grain in it. This relationship persists for most of the year and disappears only during periods when there is no significant surplus on the market.

  13. 13.

    It implies that during the period of excessive supply of grain in the domestic market and the price going beyond the lower limit of the preestablished price corridor, the state has the right (but not the obligation!) to purchase grain in the intervention fund, thereby creating additional demand and forming the prerequisites for an increase in prices, and in case of price increases and going beyond the upper limit (during periods when demand exceeds supply), the state can sell part of the accumulated reserves of the interventional fund, forming the preconditions for lower prices. Purchasing interventions are carried out as part of auctions for lowering the offer price with a starting price corresponding to the lower limit of the established price corridor, and selling interventions are carried out as part of auctions for increasing the price with a starting price at the level of the upper level of the corridor.

  14. 14.

    One of the proposals is a refusal of an auction to reduce prices for purchasing interventions and a transition to guaranteed (minimum) prices, following the example of the USA and the EU.

  15. 15.

    Even in case of low prices, i.e., with possible losses. Subsidized exports (or humanitarian aid) may be one of the channels of implementation.

  16. 16.

    At the same time, these opportunities should be correlated with the risks of increasing price volatility in the domestic grain market, which are intensified by the expansion of the price corridor due to an increase in the extent of permissible price variation. Ultimately, the goal of regulation should not be the receipt of revenue by the state, but the maintenance of prices on the domestic market in a given corridor.

  17. 17.

    A complete rejection of formal and informal grain export restrictions seems unlikely under current conditions. At present, the state does not actually have alternative regulatory instruments that would allow them to absorb the fluctuations in foreign trade conditions and protect the domestic market.

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  2. 2

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  3. 3

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  4. 4

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  8. 8

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  12. 12

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  13. 13

    Ministry of Agriculture of the Russian Federation, The Long-Term Strategy for the Development of the Grain Complex of the Russian Federation until 2025 and for the Future until 2035 (2018). http://mcx.ru/upload/ iblock/04c/04c91c2c72fbd773540ec908f9410edd.pdf.

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Correspondence to D. A. Polzikov.

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Translated by S. Avodkova

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Ksenofontov, M.Y., Polzikov, D.A. & Urus, A.V. Food Security and Grain Market Regulation in Russia. Stud. Russ. Econ. Dev. 30, 606–613 (2019). https://doi.org/10.1134/S1075700719060078

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