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Monday, February 19, 2018

Russian agriculture has almost reached his ceiling

In 2016, Russia harvested a record crop, has become a world leader in the export of wheat, and in General, the agricultural industry has shown a fantastic increase of almost 5%. The head of government urged to do everything possible so that the growth rate of agriculture did not decline. However, there are a number of circumstances that could prevent the Russian agricultural industry to grow at the same pace.

The last – in 2016 – the year was for the agro-industrial complex of Russia is very successful. Agricultural production in Russia grew by 4.8%, was obtained by a record harvest, and wheat exports Russia has become a world leader. However, will it be possible to surpass these successes in 2017?

“Let it be zero growth in 2017, but if we do not lose profitability, it will be a normal result”

Prime Minister Dmitry Medvedev at the government meeting on the eve urged to do everything possible so that the growth rate of agriculture did not decline. The government on its part continues to support the industry. In General, the support of agriculture in 2017, will be allocated 75 billion rubles.

However, experts believe that from the agricultural sector this year should not expect high growth and well, barring the fall.

“We had a phenomenal growth rate in 2016 – about 5%, as we predicted back in October. However, this year, barring a miracle (theoretically it is, of course, possible), we expect a growth rate close to zero. Because achieved a very high standard in 2016 and it will be hard to overcome in one year, even for purely natural conditions,” – says the newspaper VIEW CEO of the Institute for agricultural market studies (IKAR) Dmitry Rylko.

Miraculously, this year he calls, for example, the beautiful weather that would enable farmers to add grains and oilseeds. The last two years the crop has shown a significant growth thanks to good weather and, as a result, a record crop. However, this year yield is likely to be worse – good weather rarely develops three consecutive years. After a very productive years inevitably a decrease in fees due to weather. “2016 was the warmest for all history of observations. It is unlikely that such weather will be repeated in 2017”, – said Dmitry Lukashov from IFC Markets.

The miracle is the growth of world prices for agricultural products. While the majority of growth in agriculture sector was accounted for by crop production.

But the farming this year will be difficult to continue the growth. And the reason is not only high, but the saturation of the market and the decline in domestic demand. Russian farming is completely dependent on the domestic market. It would seem that the driver of growth would be the expansion of exports of meat. However, in practice it is almost impossible.

In animal husbandry strap production high, effective demand is not growing, while the Russian market looks saturated, said Rylko. “To expand export, we not that is not necessary, we just this is not possible. We are not competitive, our products are expensive. Even the chicken we were not competitive. In 2016, we have exported 100 thousand tons of food from chicken. If this year will be sent to exports the same – then it will be good. But even if we are not 100, and 120 kt will ship for export, it does not budge the whole situation, because it’s not the volume, which can give a significant growth in poultry production”, – says CEO of the Institute for agricultural market studies. In comparison with the volumes of production, exports drop in the sea.

In the last year there are high hopes for the access of Russian meat to the Chinese market. The Chinese believe imported meat better, and Russian – even more so. However, the negotiations with China on the lifting of restrictions and opening of access to the Russian meat to the local market has not yet led to the result. As, however, there is no guarantee that, having access to China, the Russian breeders will be able to win a major share of the Chinese market.

Output for Russian livestock – go deep processing of meat. Only then will they be able to retain current high performance, and even increase production volumes.

But to continue high growth in this year is able vegetable. Production of greenhouse vegetables for the last four years (2013 to 2016), increased by 52% open – 20%. The import has been reduced by 40% and 20%, respectively, cites the national Union of producers of fruits and vegetables. If the ban on the import of vegetables from Turkey, where they had imported the bulk of the tomatoes and cucumbers will continue for another three years, it will allow Russian production to hold double-digit growth.

In General, manufacturers did not see the drivers for the growth of agriculture this year. First, Russian agriculture began to gain amid rising world prices for agricultural products and increasing demand for biotoplivo and demand for food in Asia and China. Three years ago there are new drivers for the Russian agriculture in the form of double devaluation of the ruble amid falling oil and food embargo. However, by the end of 2016 these growth drivers is almost completely played out, need a new one.

In General, the AIC could help the ruble, if he went back to 70-75 per dollar/Euro.

“But, first, too, from the miracle, and secondly, in this case, Russian companies will have other problems,” says Rylko. In addition to macroeconomic instability and inflation, it is necessary to understand that in agriculture the share of imports is also high.

“The main problem of Russian farmers is a strong dependence on the essential imported components, as seeds, pesticides, veterinary drugs, feed supplements and so on. Farmers sell their products in Russia and the weakening of the ruble, they have financial problems. The strengthening of the ruble, on the contrary, improves the performance thanks to the ability to buy needed imports,” – said Dmitry Lukashov. If the growing appreciation of the import component still possible to compensate for export, the livestock do not go out.

The new driver of growth for Russian agriculture could be the growth of the Russian economy and the growth of real wages of Russians, coupled with the recovery in consumer demand. It was the Russians with their wallets could support agriculture. “As soon as people’s incomes start to rise, will increase the demand for meat and other costly products of farmers”, – said Lukashov.

This year to fulfill the requirement Medvedev not to reduce the rate of growth of agriculture will be extremely difficult. However, the tragedy in this no-no, I’m sure manufacturers.

“Because for us the main thing after all not the rate of growth to ensure and maintain the high profitability of this sector. Let it be zero growth in 2017, but if we do not lose profitability, it will be a normal result. Now the level of profitability of agriculture is more or less acceptable,” explains Rylko.

In crop production, for example, it is important that the average yield for three or five years, and increased growing acreage, and to set records every year is not necessary. In addition, there are a number of industries that are still inside the sector will continue to grow. “Domestic food market is still far from complete saturation with domestic products. And if a record grain harvest will be difficult to repeat, in such sectors as vegetable and fruit production and processing of agricultural products, the growth may continue for more than one year,” says Lukashov.


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