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Section The Real Sector of the Economy The change of product structure of output is due to the shifts in division of labour in agriculture. The end of centralized planning in economy entailed the change of production location principles. In the Soviet period production was located with regard to the location of population. It can be seen from the simplest correlation analysis: in the early 1990s there was a close linear correlation between the size of population in a certain region-constituent of the Russian Federation and production of milk and eggs therein, and a mid-level correlation between regional population and production of beef, pork and poultry meat. There was also a weak correlation between population and production of grain in a region. At present these relationships are not so strong: the proximity to market is no longer regarded as the decisive factor for locating production. Its being shifted to regions with the lowest unit production costs1. Areas under farm crops and livestock population are concentrating therein.

The trends in output of farm products evidence that agriculture is restoring after the production declines that accompanied restructuring in the sector. The government declared that in 2011 outputs of grain, sugar, potatoes, vegetables and poultry meat achieved the target indicators set in the Doctrine of food security. The trend in pig raising allows to expect that within the coming 2-3 years the output of domestic producers will fully satisfy the demand for pork2; besides, in 2012 Russia will become a net exporter of vegetable oil. Its evident that the future structure and volumes of agricultural production will be primarily determined by the ability of Russian farm producers to produce competitive output and not by the pre-reform performance patterns.

4.5.2. Situation on selected agricultural and food markets Grain market In 2011 the share of milling wheat in the total wheat crop amounted to 73%, the share of wheat #3 to 30%, of wheat #4 to 43%3. Feed wheat is in the greatest demand on the domestic market and its deficit is increasingly compensated by the use of milling wheat for feeding purposes.

Last year 16.9m tons of barley were harvested. Its above the previous year level but below the 2008-2009 indicators. This decline of barley output is due to the reduction of areas planted to 7.2m ha down from 9-10m ha sown in the period after 2000. The shrinking of acreage was most remarkable in the southern regions where barley is ousted by higher-yielding winter wheat. The decline of barley production in Russia entails the rise of prices for pork and its derivatives.

From the start of 2000s exports of grain from Russia grow at higher rate than its production. From August 2010 till July 2011 the ban on export of grain was in effect in Russia. After the lifting of embargo the ratio of exports to output in 2011/2012 MY can set a record: 25% for grain in general and 35% for wheat4. Along with Ukraine, Kazakhstan and the United States Russia is one of leading world exporters of grain. In 2011/2012 MY it can take the sec The process is facilitated by the development of technologies that allow to transport fresh products to longer distances and by the lowering of administrative barriers.

Report of RF Minister of agriculture E.Skrynnik at the meeting with top officials of regional bodies administering agrifood sector and rectors of higher education institutions on January 12, 2012, Moscow.

http://mcx.ru/news/news/show/5198.195.htm Estimate of Sovecon.

Estimate of Sovecon.

RUSSIAN ECONOMY IN trends and outlooks ond place in the world wheat exports after the US. In the recent decade the share of young countries-suppliers (Russia, Ukraine, Kazakhstan) in the world wheat exports grew from 13% to 27% while the share of traditional exporters fell from 11% to 9%.

So, Russias integration into the world grain market is increasing. In this respect the question arises as to whether Russia will manage to become the largest exporter of grain.

The growth of exports resulted in shifts in the regional structure of grain production in Russia. For the southern regions of the country export became more attractive than supply to the domestic market. Their export orientation encouraged development of respective infrastructure. Meantime, the infrastructural isolation of Siberia and the Urals aggravated. As a result the share of export-oriented South of Russia in the total grain production increased from 26% in 2000 to 35% in 2011.

Export demand furthered growing production of wheat and the enlargement of its share in the total grain output up to 64%. So, grain production becomes less diversified and grain export increasingly mono-crop. Exports primarily consist of wheat (mostly wheat #4) while barley is losing its importance as an export item.

The increasing domination of a single crop and a single region in the total grain output entails the risk of sharp production drops and consequently export swings in case of unfavourable climatic conditions and outbreaks of crop diseases.

In the longer term growth of exports is constrained by several factors.

First, there are strong limitations to increasing output by means of expanding areas planted. The potential for enlarging grain acreage in the South is actually exhausted. In Russia the reclamation of abandoned lands that are mostly situated in areas with low bioclimatic potential is likely to be more costly and less efficient than in the EU, the US and other countries.

Besides, the expansion of acreage under grains is hindered by their perpetual competition for land with oilseed crops.

Second, the increase of production by means of extensive factors requires notable growth of investments in agriculture. At present the average yield of wheat in Russia is slightly over 2 tons per hectare while the world average is 3 tons. The sector gets increasingly dependent on import supply of grain and oil crop seeds.

Third, domestic demand for grain in Russia is expected to rise due to the development of livestock breeding. It was the deepest drop in livestock sector in the 1990s that conditioned Russias entry to the world grain market as a large exporter.

By the beginning of November 2011 high volumes of wheat exports resulted in substantial reduction of producer stocks. For instance, in Krasnodar kray the stocks of wheat were 1/below the ones of the previous year. The possibilities for replenishing export resources from the wheat stocks remaining at farms in the southern and central regions were limited.

The replenishment of resources for both export supplies and domestic processing through deliveries from the eastern regions met with a whole range of logistical difficulties. The decisive factor of supply from these regions was not the purchase price for grain but the possibility to deliver it.

The remarkable reduction of wheat stocks conditioned the strengthening of prices for this crop, first of all in the central and southern regions of Russia. From the point of view of regaining impact of Russias grain export on the world market, the principal consequence of embargo was the discount with which Russian wheat was marketed after its lifting. Time was needed to restore the countrys positions on the world grain market. The main partners expected Russia to dump like it was the case in 2002 when the country was entering export Section The Real Sector of the Economy markets. So, till the end of October 2011 the FOB price for wheat shipped from the Black Sea ports was the lowest. By November the price advantages of Russian wheat faded away. On the one hand, domestic prices were rising due to the growing exports and lowering grain stocks. On the other hand, prices for Australian and Argentinean wheat fell by $20-30 per ton as compared with the end of October, down to $222 per ton (ASW, shipment from the eastern states) and $230 per ton, respectively. At the same time, at the Egyptian GASC tender Russian grain was offered for $247.7-249 per ton1. So, Australia and Argentina are becoming the principal competitors of Russia on the world grain market.

According to estimates of USDA, the world production of wheat in 2011 reached 691.5m tons (Table 42). In 2011/2012 MY record exports of Australian wheat are expected that can put competitive pressure on the Black Sea grain in countries of South-East Asia, Persian Gulf and East Africa.

Table World balance of wheat in 2009/2010-2011/2012 MY*, million tons MY Production Supply Trade Consumption Ending stocks 2009/10 685.4 852.5 135.8 650.3 202.2010/11 651.7 853.8 131.8 653.9 199.2011/12 (forecast) 691.5 891.5 139.4 681.4 210.* MY for wheat - July-June.

Source: USDA.

Market of sunflower seeds and sunflower oil In 2011 a record crop of sunflower seeds was harvested 9.35m tons. Production of sunflower oil in Russia grew by 1.28m tons up to the record 3.47m tons. Export is supposed to become the major channel for marketing this surplus output its volume is projected to grow by 1.05m tons up to 1.23m tons.

Table Russia: supply and utilization balance of sunflower seeds in 2007/2008-2010/2011 MY and forecast for 2011/2012 MY*, 1,000 tons 2007/08 2008/09 2009/10 2010/11 2011/12, forecast Difference Beginning stocks 51 80 171 106 88 Gross output in standard weight 5670 7300 6300 5690 9350 +Imports 11 16 15 40 25 Total supply 5732 7396 6486 5836 9463 +Processed into oil 5335 6760 6040 5380 8300 +Other consumption 250 275 290 330 390 +Used for seeds 30 30 30 30 30 Exports 37 160 20 8 520 +Ending stocks 80 171 106 88 223 +* MY for sunflower seeds October-September.

Source: Sovecon.

Data of Sovecon.

RUSSIAN ECONOMY IN trends and outlooks Table Russia: supply and utilization balance of sunflower oil in 2007/2008-2010/2011 MY and forecast for 2011/2012 MY, 1,000 tons 2011/12, 2007/08 2008/09 2009/10 2010/11 Difference forecast Beginning stocks 86 149 134 100 187 +Production 2190 2815 2598 2190 3470 +Imports, total 146 35 52 148 10 including bottled oil 62 5 7 9 5 Total supply 2422 2999 2784 2438 3667 +Consumption 1950 2025 2179 2070 2300 +Exports, total 323 840 505 181 1230 + including bulk oil 226 663 358 68 1000 +bottled oil 97 177 147 113 230 +Ending stocks 149 134 100 187 137 Structure of aggregate consumption - bottled oil (market capacity) 1170 985 1020 890 930 +- bulk oil (household consumption) 70 80 95 105 95 - mayonnaise 320 400 430 400 430 +- margarine 92 250 245 225 345 +- paint and varnish products 82 73 90 123 135 +- formula feed 123 122 171 195 210 +- soap 5 16 17 7 15 +- other (production of canned food, bakery 88 99 111 125 140 + products, etc.) Source: Sovecon.

After a deep drop in 2010/2011 MY record exports of all main kinds of vegetable oil are expected. Russia will again become its net exporter. Exports will grow almost 4 fold up to 1.million tons while imports will reduce from 892 to 634 thousand tons (Fig. 66). The biggest reductions are expected in imports of bulk sunflower and palm oil.

1000 797 800 108 02/03 03/04 04/05 05/06 06/07 07/08 08/09 09/10 10/11 11/forecast exports imports Source: Sovecon.

Fig. 66. Russia: trends in export and import of vegetable oils in 2002Domestic consumption of sunflower oil in Russia is about 2.1-2.2m tons (Table 45). Production of margarine and mayonnaise accounts for its bigger share. In the new 2011/2012 MY the expected replacement of palm oil by sunflower oil (prices for which fell due to the abun1,000 tons Section The Real Sector of the Economy dant crop) on the domestic market will result in the growth of sunflower oil utilization for margarine production up to 345 thousand tons.

For several years in turn the principal company-exporter of sunflower oil from Russia has been Yug Rusi (South of Russia) whose share reached 47% in 2010/2011 MY. Other suppliers of Russian sunflower oil are Aston, SolPro, Bunge, Glencore, Efko.

Table Russia: structure of bulk sunflower oil exports by companies-exporters 2008/2009 2009/2010 2010/Yug Rusi 34 32 Aston 10 22 SolPro 8 5 Bunge 8 8 Glencore 9 4 Efko 1 2 Other 30 27 Source: Open JSC Sunny products.

In November 2011 the Russian market of sunflower seeds reached its seasonal minimum while the market of sunflower oil its seasonal maximum. Domestic prices for sunflower oil amounted to Rb 33,200-34,000 per ton (EXW). The level of domestic prices for sunflower seeds in the South or Russia was about Rb 11,500 per ton, in the Volga region Rb 8,500 per ton, in Voronezh Rb 9,300 per ton1. As output of oil grows, prices for it will fall since one will have to market record export volumes in the situation of gradual strengthening of prices for oilseed inputs. Prices for sunflower oil are expected to rise at the end of the season owing to the reduction of its manufacture and stocks.

Market of vegetables The climate of Russia allows to grow a wide range of vegetables and fruits. Still, Russia is among the five leading importers of these items in the world. The share of imports on the vegetable market amounts to 25%, on the fruit market to 80%2. The basic problems of the sector stem from its low productivity, insufficient financing of the production process, complicated logistics, the risk of unfavourable weather conditions in the production regions, the lack of long-term planning.

In 2010 due to the dry spring and hot summer vegetable and fruit producers sustained great losses that resulted in the surge of prices for respective products. The output of potatoes fell noticeably by 30% as compared with the previous year while selling prices more than doubled from Rb 8.5 per kg on the average in 2009 up to Rb 23 per kg in 2010.

In 2011 the situation changed cardinally as the gross output of vegetables notably increased. The output of potatoes was record for the last 10 years over 32.1m tons and areas planted in commercial farms (not including smallholder farms) grew by 10-15%. The output of onions set an absolute record 1.7m tons. Production of cabbage, beets and carrots also grew as compared with 2010.

The positive dynamics of output will result in lower imports and smaller areas planted in vegetables (onions, cabbage) and potatoes in the 2012 season.

Data of Sovecon.

Data of APK-Inform: vegetables and fruits.

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