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In 2002, growing consumer demand is a factor compensating for a slowdown in rates of investment demand. As compared with the figures registered in January through October of 2001, the increase in the retail trade turnover made 9.0 %. It shall be noted that in the 3rd quarter there was observed an outpacing rate of growth in demand for non-food products as compared with foods. At the same time, the demand for nonfood goods significantly outpaces real household incomes.

An intensive growth in household incomes was a major factor behind the expansion of consumer demand.

At the same time, on the one hand, the continuing intensive growth in wages and salaries supports the positive dynamics of real incomes. In January through October of 2002, the increase in real disposable household incomes made 8.9 % as compared with figures registered in January through October of 2001, while real wages and salaries grew by 17.4 %. On the other hand, the widening gap between wages and salaries and productivity of labor initiates a growth in production costs and decrease in profitability. This year, the share of gross profits in GDP decreased from 40.7 % registered in the 1st quarter to 37.7 % observed in the 2nd quarter.

In the case the rates of growth in proceeds of enterprises decelerate further, the existing trends will persist.

In the situation, where the internal funds in the real sector of the economy are limited and it is impossible to borrow funds for a long term, the Russias economy reproduces the conditions provoking the shrinking of investment demand. An analysis of major trends of development of the Russian economy over the last three years demonstrates that cardinal changes in the structure of investment in the real sector oriented towards a large scale modernization of fixed assets, increase in productivity of labor and competitiveness of domestic products on the internal and external markets is a key factor behind further economic growth.

O. Izryadnova Grain Interventions in The new grain crop in Russia is rather good although not record high as its sometimes declared in the home press (Picture 1). Large beginning stocks, scarce increase of domestic demand and complicated export exert strong pressure on the domestic grain market: its prices fell far below the world ones. By the end of October prices for soft wheat FOB Novorossijsk port ranged from $90 to $100 per ton while in Europe they amounted to $120, in the US Gulf to about $160. Grain prices were sliding down during harvesting and right after it. In Siberia they fell very low to $50 per ton of wheat #3, FCA.

Picture 1. Grain production in Russia, million tons 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 Source: Data of the RF State Committee for Statistics.

In this situation the government for the second year round decided to carry out grain interventions. For this purpose Sberbank9 grants a 6 billion rubles loan guaranteed by the federal government that is to be used for purchasing and storing grain (40 rubles per ton monthly), for paying commission (2,7% of the grain value) and for servicing the credit.

Maximum prices to be paid in the course of state purchase interventions were set as follows:

- soft food wheat #3 2300 rubles per ton;

- soft food wheat #4 1800 rubles per ton;

- food rye group A 1400 rubles per ton.

These prices include costs of delivering grain to elevator, its acceptance, primary processing, drying and insurance.

As different from 2001, intervention purchases are made in 6 other sites in addition to Moscow. This is a de facto recognition of grain market decentralization in the country: bigger demand in the Central region does not result in the corresponding rise of prices in other regions. The state unitary enterprise Federal Agency for Regulating Food Market is hors concours authorized to be the states grain purchasing agent, while in 2001 the choice was made by tender. This simplifies the procedure and, to our mind, does not infringe upon market operators interests. Some other procedures of the intervention mechanism are simplified as well (e.g. security deposit becomes smaller and easier to call back). Besides, the amount of budget funds to be spent on interventions is notably enlarged. Given that the most over-saturated markets are those of feed wheat and rye, in 2002 these crops will also be subject to interventions in addition to wheat #3 purchased in 2001. Interventions are combined with temporary duties on import of respective grains. Their rate is set at EUR per ton seeming to be a sufficient protection against substitution of imports for the sterilized domestic grain10. In all other respects the 2002 intervention mechanism copies the 2001 one.

Trading sessions in the framework of state purchase interventions started only on November 13, and those for rye even later on November 20. The delivery period under signed contracts is 45-90 days (depending on the terms of delivery). Due to that its still hard to assess the interventions impact on prices for grain on the primary and secondary markets. Besides, one cannot judge how beneficial they are for market operators basing only on price rise during or just after purchases. The costs of storing grain till the spring-summer price peak should be compared with grain prices during this peak. It may turn out that even though prices have grown as the result of interventions, its more profitable to store grain till spring and to sell it at the end of marketing year rather than to do it right now.

Nevertheless, some conclusions can already be made.

First of all, it should be noted that in 2002 prices for basic grains began to rise several weeks before trading sessions started but already after the intervention intentions had been announced. Experts point out that purchases of grain from agricultural producers grew as well. Still, one cannot assert that this growth is entirely the result of announced interventions since at the same time exports of grain notably expanded and might have also led to higher prices on the domestic grain market. From the beginning of harvesting till the end of November over 5 million tons of grain were exported, from January 1, 2002 almost 11 million tons.

Grain with South of Russia delivery terms is traded far less intensely than in Siberia while the price for it is generally higher. This fact evidences that the Russian grain market has at least two relatively independent segments: before and after the Urals. Operators in the Central part of the country, and first of all in the South, have an opportunity to export grain (Rostov oblast is the major grain exporting region of Russia), and, besides, the demand for their feed grain is higher since livestock production here is growing. The supply of grain on the Siberian market is excessive due to the good crop and low demand inside the region. Accordingly, the market situation in which intervention purchases are made in these two regions is shaped by different alternative traders costs. Besides, this is an evidence of relatively high transportation barriers to delivery of grain from the eastern part of the country. Such barriers are posed not only and not so much by railroad tariffs as by availability of vans and by other factors (the fact needs a more detailed examination).

The Savings Bank.

The Russian Customs Code does not allow to introduce a variable import tariff. Since purchases are projected for two years, the rate of 12 EUR per ton may at some moment turn out to be too high or too low depending on the world grain market situation.

Picture 2. Statistics of trading sessions for soft wheat #3 in November (volumes purchased and minimum/maximum prices) 2 400 120 2 100 2 80 2 2 60 1 40 1 1 700 20 sales, tons minimum price maximum price Source: trade information (htpp://www.birja.ru/session.html).

The prices received at trading sessions are about 200-500 rubles per ton (10-30%) higher than the average purchase prices in corresponding regions. It would be a mistake to conclude that this is the amount of real prices growth. First of all, the auction price includes costs of delivering and primary processing of purchased grain, and so the difference in prices is approximately 5% smaller. Besides, the above described intervention mechanism with maximum prices and the total amount to be spent both fixed by the state determines Dutch auction the one with lowering bids. The world experience shows that in case of applying the Dutch type of auction prices are usually higher than in case of applying the English one (with elevating bids).

Second, given the selected mechanism the auction price is not directly translated into the market price. The offered for auction sale volumes are not entirely determined by supply of grain in the region they also depends on local traders ability to register as trading sessions participants. In case the competition thereat is not strong, the price settles at the level that is not much below the upper limit announced by the government.

Meanwhile, when brokers that signed contracts on delivery of grain to the state enter the cash market for buying it, the supply may be so large that the actual purchase price will be far below the trading sessions rates. In this case brokers will be the ones who benefit from the price margin. Its important that such a situation is possible even without the brokers collusion at auction (this year large number of market operators participating in trading sessions helps to diminish the possibility of such collusions). Some traders sign contracts on delivering grain that they have already bought and stored in elevators. For instance, one can guess that brokers participating in trading sessions in Russias South offer to state the grain that is already stored in elevators since the auction prices are close to the actual purchase prices in the region (otherwise purchases for future deliveries become non-profitable given that auction prices are to be reduced by costs of delivering and primary processing of grain). In this case auction prices wont affect primary market (purchase) prices at all: the only result of trading sessions will be guaranteed marketing of some traders grain and the corresponding lowering of their risks.

The adopted intervention mechanism has one more unclear provision complicating market operators business planning. The state has fixed the total amount of purchases and the maximum purchase prices. Its also envisaged in government resolutions that interventions will be conducted in 2002-2003. However, there are no indications under what circumstances these purchases will begin and stop. Will the 2002 trading sessions be held until all the 6 billion rubles are spent or will they be halted and regained later Who and how takes the decision In this situation market operators cannot estimate their risks and choose the proper moment for entering the market. In other words, the states actions increase uncertainty on the market and accordingly the risks of its operators.

And finally, the government decisions do not contain a clear mechanism of control over non-penetration of intervention stocks into the domestic market. In case it happens, the excessive grain wont be sterilized and intervention purchases will become senseless. In the US intervention grain stocks are sometimes colored tons rubles per ton 1.1.1.1.1.1.

1.1..13.14.15.19.21.26.28.with food dyes in order to control their movement since inspection of elevators is found non-sufficient. Instead such mechanism in Russia we have only promises of the Ministry of Agriculture officials.

Although the impact of 2002 interventions on grain prices is not yet clear, their importance for development of exchange trade in grain is evident: despite all imperfections the currently held sessions make their participants used to public auction, to an open price quotation and basic procedures and organization of exchange trade. In this respect the positive role of 2002 interventions is doubtless.

Picture 3. Statistics of trading sessions for soft wheat #4 in November (volumes purchased and minimum/maximum prices) 1900 110 100 90 1700 80 70 60 1500 50 40 30 1300 20 sales, tons minimum price maximum price Source: trade information (htpp://www.birja.ru/session.html).

The adopted intervention mechanism has one more unclear provision complicating market operators business planning. The state has fixed the total amount of purchases and the maximum purchase prices. Its also envisaged in government resolutions that interventions will be conducted in 2002-2003. However, there are no indications under what circumstances these purchases will begin and stop. Will the 2002 trading sessions be held until all the 6 billion rubles are spent or will they be halted and regained later Who and how takes the decision In this situation market operators cannot estimate their risks and choose the proper moment for entering the market. In other words, the states actions increase uncertainty on the market and accordingly the risks of its operators.

And finally, the government decisions do not contain a clear mechanism of control over non-penetration of intervention stocks into the domestic market. In case it happens, the excessive grain wont be sterilized and intervention purchases will become senseless. In the US intervention grain stocks are sometimes colored with food dyes in order to control their movement since inspection of elevators is found non-sufficient. Instead such mechanism in Russia we have only promises of the Ministry of Agriculture officials.

Although the impact of 2002 interventions on grain prices is not yet clear, their importance for development of exchange trade in grain is evident: despite all imperfections the currently held sessions make their participants used to public auction, to an open price quotation and basic procedures and organization of exchange trade. In this respect the positive role of 2002 interventions is doubtless.

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