Competition in the Russia’s industry has not changed significantly in the last years, an evidence of which is the dynamics of evaluations of the level of competition on competitive markets, i.e. markets where it exists and where its level is not equal zero. The only evident change is the increasing level of major types of competition (inside Russia and with countries outside the former Soviet Union). However, the proportion of these two types of competition has not changed. On the whole, Russian enterprises directly affected by competition evaluate the internal Russian competition to be at the similar level as competition with imported products. The level of competition inside Russia equal to or even higher than competition with imported goods is reported by the majority of industries. Only mechanical engineering demonstrates a stable evaluation of the level of competition with imports as higher, although only slightly, than the level of competition inside Russia.
At the same time, it shall be taken into account that the share of markets where effects of competition are clearly felt principally differs in terms of two types of competition mentioned above. In the case all sales markets are represented as 100 %, the internal Russian competition in October of 2002 is registered on 87 % of markets, while 13 % of markets are free of competition among Russian products. At the same time, according to reports of enterprises, the competition with imported products has place on only 55 % of markets, while on 45 % of markets Russia-made products do not compete with imports.
Estimates of changes in effective demand continue to lose points in terms of optimism. In October of 2002, the balance of estimates (will increase – will decrease) declined further by 11 points and turned out to be at the record low since the start of post-default growth. Estimates of an absolute decrease in cash sales prevail across the majority of industries. Only power engineering, mechanical engineering, and food industry still expect a growth in effective demand. However, in this situation barter transactions will be hardly used to compensate the declining cash sales. Enterprises expect a most intensive decrease in amounts of barter in the last 22 months. A growth in barter is possible only in food industry. At the same time, it seems most probable that amounts of promissory note and offset transactions will not change till the end of 2002. The overall balance of forecasts with regard to changes of this indicator for the second half-year is at zero.
Estimates of changes in output also loose optimism. Although in September and October the respective balance dropped by 12 points, it remains positive, and a growth in industrial output in Russia will continue.
A decline in this indicator is possible only in non-ferrous metallurgy, chemistry, petro-chemistry, and construction industry. The changes in demand and output affect the employment plans of enterprises. The October survey registered the most pessimistic estimations of this indicator (in 1999 through 2002) for industry at large and across the majority of industries. New employment is probable only in the forestry complex.
S. Tsukhlo Russian Sugar Market in 2002: Outcomes of Three Years of State Regulation Seasonal fluctuations are an immanent feature of the Russian sugar market both from the point of view of technological cycle (production of raw inputs, their processing, import of raw sugar for further processing in case of lacking domestic supply of sugar beets) and the state regulation of this market.
The basic problem of national sugar market being the primary concern of state regulation in the past few years is the continuous shrinking of share of white sugar produced out of domestic inputs and the growing dependence on import of cheap raw sugar for processing. The substitution of import for domestic production (Picture 1) results in regress of a traditional industry of the Russian economy and consequently in deteriorating performance of domestic sugar beets producers and heavier dependence of domestic market on the world market fluctuations.
Picture 1. Russian sugar market: consumption and structure of raw inputs supply, % 140,120,100,80,60,40,20,0,1994 1995 1996 1997 1998 1999 2000 2001 2002* I m por t s of whit e s ugar Sugar pr o duced o ut of im por ted r aw s ugar Sugar pr o duced o ut o f do m est ic sugar beet s C o nsum pt io n o f s ug ar * - 2002 - estimate.
** - consumption as percent of total supply.
Source: Bulletin of Russian Sugar Producers’ Union, Customs Statistics of Foreign Trade, corresponding years.
To solve the problem the state has chosen protective strategy of market regulation aimed at attaining two goals: halting of uncontrolled import of sugar (both white sugar ready for consumption, and raw sugar being an input for domestic processors) and favouring of domestic sugar beets production, recovery of domestic resource base, support of domestic agricultural producers. Two regulation tools were applied: import tariffs and quotas (in the past three years sold at autumn tenders).
What are the outcomes of this regulation in 2002 and what is the current market situation On the whole we can say that in 2002 the latter remained actually the same as in the past two years both from the point of view of demand/supply and the state market regulation.
The white sugar import is constrained at the level of about 0.3 million tons due to high import tariffs (in 2002 - 40% but not less than 140 EUR per ton and seasonal duty - 45% but not less than 160 EUR per ton).
For this item the tariff regulation turned out to be rather efficient.
Although in addition to import tariffs the supply of raw sugar is regulated by quotas, the effect of regulating this market segment is less vivid. While import quota for the whole 2002 is 3.65 million tons, 3.million tons have already been imported under it in the first half of the year. The remaining 0.3 million tons will be supplied in October-December. At the same time by the second half of September (i.e. the time when domestic-grown sugar beets start to be delivered to processing plants) 4.2 million tons of raw sugar have already been imported, i.e. the volume of supplies in excess of the quota reached 0.8 million tons.
Thus, the only meaningful result of market regulation is that quotas and import tariffs helped to separate the periods when processors get imported inputs (raw sugar) and sugar beets from domestic producers. On the whole the scheme of seasonal supplies works: almost all raw sugar imports are delivered in the first half of the year while in its second half sugar plants process primarily domestic sugar beets. At the same time two objectives of regulation remain unattained: first, deliveries of sugar in excess of quotas are beyond domestic regulation, world prices being their major determinants. In case world prices go down, the non-quota sugar is supplied to the Russian market despite all ordinary, seasonal and even special elevated import tariffs as low prices for raw sugar make up for suppliers' losses from paying duties. For example, in 2001 (i.e. already after the introduction of quota mechanism) raw sugar imports grew by 18% as compared to 2000 (although then no quotas existed) including over 1.5 million tons imported in excess of the quota. Second, no radical changes occurred in domestic production of sugar beets. The state has no idea of how to support domestic producers while private investments in this segment have not yet altered the existing market trends and, besides, negatively correlate with supply of imported inputs. One can hardly expect that investments in domestic production of sugar beets will grow despite excessive imports of cheap raw sugar.
In the current year the expansion of areas planted to sugar beets was minor, but yields grew by about 5% most likely due to larger fertilizer application and renovation of agricultural machinery inventories (being the effect of investments). Still, processing of new crop showed that the output of sugar per ton of sugar beets is 2% less than in the previous year and thus the production of domestic sugar will hardly exceed (or will only slightly exceed) the 2001 level.
It's hard to expect any improvements in 2003 since the approaches to state regulation remain the same.
The resolution on regulating sugar market in the coming year6 adopted in mid-July doesn't alter the support mechanisms introducing only quantitative amendments: the quota is increased up to 3.95 million tons and tariffs are notably elevated: the duty on raw sugar - up to 0.2-0.23 (beginning from July 1) EUR, the duty on white sugar - up to 0.24-0.27 EUR per kilogram. The results of import quota tender held in late September prove the invariability of selected market support strategy.
Summing up the results of the tender we'd like to underline several facts.
First, the activity of tender participants was rather high resulting in rapid price rise during trading sessions.
A year before an average purchase price was 50-51 USD per ton, in 2000 - 60 USD per ton while this September - 100-105 USD per ton.
The number of tender participants didn't grow much since principal players on the domestic sugar market are already known. In 2001 they played rather cautiously and actual prices remained far below the upper limit. This year the quota prices didn't fall below 100 USD per ton. There is nothing strange about it. By the time the tender was held market operators already knew that the 2003 import duties on sugar supplied in excess of the quota will be record high - 200 EUR per ton in the first half of the year and 230 EUR - in the second. This fact explains high activity of tender participants: given the new tariff level import of non-quota sugar becomes unprofitable and thus the focus is shifted to getting quotas.
According to "RusAgro" (one of the largest market operators and buyer of the biggest quota at the recent tender - 19 lots) the prices were pushed up by Western companies - for them Russia is a strategic market and they can afford to inflate prices given low world prices for raw sugar. To our mind, the price rise was provoked by high demand for sugar quotas conditioned by high import tariffs.
Second, the sale of quotas becomes a good source of federal budget receipts. The first quota tender brought to it 214 million dollars, the second - 185 million dollars and the recent one - 397 million dollars.
Probably, the key answer to the question of why state policies of regulating sugar market remain unchanged are these 800 million dollars "earned" by the budget during three years.
Third, it becomes obvious that 2003 can repeat the 2001 pattern when prices for quota and non-quota sugar levelled off due to low prices on the world market and thus the effect of tariff regulation was brought to nought. Companies that participated in the tender and paid for quotas can then incur losses. Such a situation is quite possible given over-production of sugar in the world and the forecast price drop throughout 2002/2003 marketing year7. Having made losses, these companies will again start to lobby their interests insisting on elevation of import duties on non-quota sugar.
Fourth, the tender results are a clear indication of forthcoming domestic sugar prices' rise already in the first months of 2003, i.e. by the time quota sugar will start to be supplied to Russia. Personal consumption will hardly go down in response to it due to the enormous market inertia, the population's non-readiness to substitute alternative sweeteners for sugar. The overall drop of demand will most likely be an outcome of smaller use by large consumers: producers of confectionery and beverages. Their shifting to alternative imported sweeteners and the deliberate maintaining of high sugar prices by companies that paid for quotas may result in domestic sugar market collapse.
According to the latest WTO estimates, in the first six months of this year the total amount of Russian import increased by 7 % as compared with the figures registered in the respective period of the preceding year. As concerns this development, as well as imports from China, which grew by 10 %, it is an exception from the general trend observed on many leading world markets, where was registered a significant decline in the amounts of import. According to WTO, it January through June of 2002, the imports from USA and Western Europe decreased by 6 % as compared with the figures registered in the first six months of 2001. At Government Resolution № 536 "On tariff regulation of raw and white sugar imports in 2003", July 15, 2002.
Forecast of the International Sugar Organization (ISO), Bulletin of Russian Sugar Producers' Union № 37 (264), September 26, 2002.
the same time, it shall be noted that in 2001 imports on US and European markets were by 3.5 % and 3 % respectively lower than in the preceding year.
In Japan and Latin American countries, the decrease in imports was most pronounced than on any other world market and made 10 %. According to WTO experts, this trend is related to the fact that the “investment bubble in information and communications sectors burst, the general economic activity abated and the rates on stock markets went down.” In August of 2002, the Russia’s foreign trade turnover made US $ 14.6 billion and grew by 5.8 % in comparison with the figures registered in the respective period of the preceding year. As compared with last August figures, both exports and imports increased (by 6.4 % and 9.4 % respectively). Exports made US $ 9.6 billion (the record high since January of 2001) and imports made US $ 5.0 billion.
As compared with this July figures, in August exports grew by 4.9 %. This increase in exports was mostly related to growing deliveries of machinery and equipment, as well as energy resources. As compared with this July figures, in August imports fell by 7.5 %, i.e. after a sharp July surge imports practically returned to the June level. The active balance of trade increased up to US $ 4.5 billion and was at its maximum in the period from August of 2001.
Figure 1. Main indicators of Russia’s foreign trade (in US $ bln.) -1997 г. 1998 г. 1999 г. 2000 г. 2001 г. 2002 г.
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