Fig. 38. Livestock inventories in all types of farms, thousand head Until recently only the population of poultry was primarily concentrated in corporate farms; at present the bigger part of cattle and pigs is also kept there. Household farms still account for slightly over one half (51.4%) of sheep and goat inventories, for 46.8% of cattle and for about one third (32.7%) of pig population. However, corporate farms intensely increase stocks of not only pigs (by 4.1%) and poultry (by 5.6%) but also of sheep and goats (by over 6% per annum). A small reduction of cow number in all types of farms (by 2.3% as compared with 2009) goes in line with rising of their productivity – the average annual production of milk per cow grew by over 110 kg up to 3910 kg per head. It’s well above the indicators of early 1990s (1.4 fold higher as compared with 1990) but still remains dramatically lower than in developed countries of the world1. However, the growth of average milk yields has not resulted in bigger milk output – it reduced by 2.1% down to 31.9 million tons. The current trends in livestock and poultry inventories entailed larger sales of meat (by 5.2% - up to 10.million tons) and eggs (by 2.9% - up to 40.6 billion pieces) in 2010.
The drop of crop production influenced prices received by farm producers. They didn’t grow much by the end of the year. By November 1, 2010 the index of prices for crop products received by corporate farms was 109.5% while that for livestock products – only 104.1%.
Taking into account that by November 1, 2010 consumer prices rose by over 9% as compared with December 2009, there are grounds to suggest that incomes of farm producers were re-distributed to the benefit of other links of the food chain. The Rosstat data support this suggestion as well: the indicator of current liquidity in corporate farms equaled 169.1% (while in the country at large – 178.8% given the recommended value of 200%), the availability of own circulating assets – minus 36% (minus 17.9% and plus 10% respectively), the equity-assets ratio – 35.2% (minus 46% and plus 50% respectively). So, the indicators of financial sustainability of corporate farms are below the averages for economy at large and far below the rec In 2006 average milk production per cow in Canada reached 7.6 tons, in the US – 9.1 tons, in Mexico – 6.tons, in Finland – 7.5 tons, in Germany – 6.4 tons, in China – 3.0 tons (http://statinfo.biz/Geomap.aspx region=world&act=6243&lang=1).
The Real Sector of the Economy ommended levels. Although last year the share of profitable corporate farms increased up to 68.2% (versus 66.6% in 2009), the total amount of their profit reduced by 9.3% while the amount of loss grew by almost 55%. Financial performance of individual private farms is not monitored. But the sharp reduction of the their output as compared with 2009 – by almost one fourth – gives grounds tor suggesting that this type of farm producers faced serious financial problems.
The drop of farm producers’ incomes in 2010 and unfavorable price situation in 2009 precluded them from repaying credits due in these years. Banks restructured the debts. By the end of October 2010 the amount of extended credits was 4.4 billion rubles1. Meantime the total amount of overdue bank credits and loans reaches 7 billion rubles2, i.e. about 37% of all overdue credits have not been restructured and their holders can be subjected to debt recovery by means of enforcement and bankruptcy proceedings. This is an evidence of aggravating instability in agricultural sector of the economy.
One should also note that as compared with 2009 the amount of investments in the farm sector in 2010 reduced insignificantly – by less than 3%. The reduction was due to smaller domestic investments while foreign investments in 2010 grew by 6.7% up to 2.24 billion dollars.
4.5.2. Situation on selected agricultural and food markets Grain market Grain crops were the most affected by the abnormal heat and drought in summer 2010.
Their output dropped to the lowest level beginning from 1999 – down to 60.3 million tons (Fig. 39). The gross output of wheat fell by 20 million tons – down to 41.6 million tons, that of barley – more than two fold (down to 8.35 million tons).
Fig. 39. Grain production in Russia in 2005- The report of RF Minister of agriculture E.B.Skrynnik in the Council of Federation on October 27, 2010.
Rosstat, as of November 1, 2010.
million tons RUSSIAN ECONOMY IN trends and outlooks The most difficult situation was observed on the market of fodder grain since outputs of feed wheat, barley and corn fell at the same time. The shortage of fodder grain was compensated by larger use of food wheat for feeding purposes and as a result by the end of 2010 the difference between prices for fodder and food grain started to shrink. The basic trend on the Russian grain market this year was the strengthening of prices for all grain crops beginning from August. Prices for barley and corn displayed the highest growth rates (Fig. 5).
Nov- Jan- Mar- May- Jul- Sep- Nov- Jan- Mar- May- Jul- Sep- Nov08 09 09 09 09 09 09 10 10 10 10 10 Food wheat #3 - North Caucasus Food wheat #4 - North Caucasus Feed wheat - North Caucasus Feed barley - North Caucasus Feed corn - North Caucasus Food rye - Volga region Source: Sovecon.
Fig. 40. Average offer prices for grain crops in 2008-2010 (VAT included, EXW) In the Central Black Soil and Volga areas the output of grain fell dramatically (Fig. 41). As a result the supply of the whole Russian grain market depended on three Southern (Krasnodar, Stavropol and Rostov) and four Siberian regions (Altay, Novosibirsk, Omsk and Krasnoyarsk).
21,6 21,20,18,18,13,8,8,6,5,3,Central FD Southern North Volga FD Urals FD Siberian FD Caucasus FD FD 2009 2010 forecast FD- federal district.
Fig. 41. Grain output in basic producing federal districts in 2009-rubles per ton million tons Section 4.
The Real Sector of the Economy Concerned about the potential shortage of grain on the domestic market and the speculative growth of prices, the Russian government imposed a temporary ban on export of wheat, meslin, barley, rye, corn and wheat or wheat-rye flour from the 15th of August till the end of the year1. The restriction of Russian grain export had an immediate effect on the world market where grain balance was tight as it was – world prices for wheat started to escalate. From July to December 2010 prices for wheat (soft, France, f.o.b.) surged from 190 to 330 USD per ton, prices for corn (USA, f.o.b.) – from 170 to 250 USD per ton2.
The imposition of embargo first of all affected producers in export-oriented regions in the South of Russia where grain crop was not bad. Producers in the Southern and NorthCaucasian federal districts had to re-orient their deliveries from the foreign to domestic market. But when the embargo came into effect, grain sales in the South actually stopped. There was poor demand for Southern grain taking into account the cost of delivering it to droughtafflicted regions. As a result the purchase prices for wheat from the country’s South automatically fell by the amount of transportation costs. But the price to be paid by drought-afflicted regions didn’t suit Southern producers.
The Siberian regions that also became suppliers of grain to drought-afflicted areas were less affected. This is due to the fact that logistical costs of delivering grain from these regions to the European part of the country are comparable to those of delivering it to ports. So, due to logistical factors the supply of grain from the Southern regions was less competitive than that from the Siberian regions. In order to improve the market situation the government lowered tariffs for transporting the Siberian and Southern grain to other regions of the country.
From September 1 till December 31, 2010 the tariff for deliveries from Siberia to the distances above 1,100 km was reduced from 50 to 30% of the standard one and for deliveries from the South – from 100 to 50% of the standard one for the distances above 300 km. As a result for most regions-consumers the railway tariffs for grain from the North Caucasus fell more than those for grain from Siberia. The lowering of tariffs supported growth of prices for grain in the North Caucasus and somewhat pulled down prices in the Central Russia.
The drought and the imposition of embargo had a negative effect on the future 2011 crop.
The long-drawn drought in some regions led to arrears in sowing. Smaller areas sown in winter crops will result in their smaller output next year. Besides, due to the export ban purchase prices for grain in the South of Russia fell (as mentioned above) thus undermining producers’ incentives to make investments in production (as a result - smaller purchases of farm machinery and fertilizers, transfer to reduced technologies).
Tension on the grain market could be alleviated by massive imports and commodity interventions.
In 2009/2010 Russia imported 0.35 million tons of grain, in 2008/2009 – 0.6 million tons.
According to forecasts of Sovecon in 2010/2011 about 4.0 million tons of grain (including flour in grain equivalent) can be imported. Kazakhstan and Ukraine were regarded as potential suppliers. But in October 2010 Ukraine imposed quotas on export of grain till the end of 2010 to the amount of 2.7 million tons, including quota on export of corn – 2 million tons. At the end of 2010 import of grain from Kazakhstan was economically inefficient due to its high price. Import deliveries of grain to Russia are also possible in the framework of intergovern RF Government Resolution No.599 of August 5, 2010.
RUSSIAN ECONOMY IN trends and outlooks mental agreements. The basic components of potential Russian imports can be wheat, rye and barley.
As to the commodity interventions, experts and market operators expect them to be carried out not earlier than February 2011. However, according to estimates of Sovecon even a complete sale of feed wheat and barley intervention funds (3-3.5 million tons) won’t be sufficient for relieving tension on the market of fodder grain at large. It will lead only to the stabilization (temporary) in regions where this grain will be sold.
Table Estimate of grain supply and demand balance in 2009/2010 and its forecast for 2010/2011 (million tons) 2008/09 2009/10 (estimate) 2010/11 (forecast) Supply (resources) 116.65 117.1 84.Beginning stocks 7.85 19.65 20.Including intervention stocks 0.2 8.25 9.Market stocks 7.65 11.4 10.Production 108.2 97.1 60.Imports* 0.6 0.35 4.Consumption, total 97.0 96.9 76.Domestic consumption 73.5 75.0 72.Exports* 23.5 21.9 4.Intervention purchases 8.05 1.75 - Ending stocks 19.65 20.2 7.Including intervention stocks 8.25 9.5 3.Market stocks 11.4 10.7 4.* Including flour in grain equivalent.
Source: data of Sovecon.
Potato market In addition to grain crops, dry spring and hot summer largely affected potato production. In 2010 all types of farms harvested 21.1 million tons of potatoes which is 32.2% less than in the previous year (Table 45). Households continue to account for the major share of output in the structure of potato production by types of farms: in 2010 – 84%, in 2009 – 81%. Gross output in household farms fell by 29.3%.
A typical trend is the seasonal lowering of prices for potatoes in July-September but in 2010 they grew due to the poor crop – almost two fold as compared with 2009. In November 2010 retail prices for potatoes averaged 25.6 rubles per kg while in November 2009 – 13.rubles per kg.
Table Potato production in 2007-2010, million tons 2007 2008 2009 2010 2010 as % of Potato production 27.2 28.8 31.1 21.1 67.Source: Rosstat.
The Real Sector of the Economy 2009 Source: Rosstat.
Fig. 42. Russia: dynamics of average consumer prices for potatoes in 2009-In the previous years Russia’s self-sufficiency in potatoes was 95% and imports didn’t exceed 850 thousand tons. The total domestic demand for potatoes is estimated at 27-29 million tons of which about 16 million tons is used for personal consumption and the rest – for production purposes (planting potatoes and potatoes for industrial processing).
Given the shortage of home-grown potatoes their imports in the 2010/2011 MY may increase. Deliveries can be made from Belarus and Ukraine. Traditional suppliers of fresh potatoes to the Russian market are the Netherlands, Azerbaijan, Egypt and China (they account for about 70% of the Russian potato imports). In order to cope with market deficit the RF government abolished import duties on potatoes including planting potatoes from November 2010 till July 20111.
The deficit of potatoes in Russia and poor crop in some European countries triggered growth of potato prices in Europe. In the beginning of 2011 the stocks of domestic potatoes on the Russian market will be exhausted and the imported product will be offered for sale thus determining the price. So, in 2011 the upward price trend on the Russian potato market will persist.
Meat market The effect of the drought has not yet impacted the annual indicators of livestock sector performance in 2010. But this effect is only postponed and will affect the performance of livestock farms already in the beginning of 2011.
According to Rosstat data (Table 46) in 10 months 2010 output of livestock and poultry (live weight) in all types of farms increased by 6.3% up to 7.8 million tons. The most dynamic sector was pig production – during this period the output of pork in corporate farms grew by 20.3% (up to 1292.6 thousand tons live weight). Positive trends in poultry production observed throughout the last 10 years preserve – the output in corporate farms increased by Decision of the Customs Union Commission No. 475 of October 14, 2010.
rubles per kg July May April June March August January Oct ober February November December September RUSSIAN ECONOMY IN trends and outlooks 13.3% (up to 2787.7 thousand tons). Meantime the production of beef fell by 0.8% (down to 785.4 thousand tons).
Table Russia: meat production in all types of farms in 2007-2010, million tons Jan.-Oct. 2010 as % of 2007 2008 2009 Jan.-Oct. Jan.-Sept. Slaughter livestock and poultry, live 8.7 9.3 9.9 7.8 106.weight including:
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