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Saturday, January 20, 2018

“Grain symbiosis” Russia and Turkey are close to rupture

Thanks to the Russian wheat and the violations of the rules of the WTO Turkey became an important player in the global market of flour, declare in the Ministry of agriculture. Now, after the actual ban on the supply of Russian wheat to Turkey, such abuses on the part of Ankara will have consequences for both countries.

“Our nearest neighbor Turkey on our grain with gross violations of all the rules of the WTO for the last 15 years has built a very powerful, subsidized by the state milling industry and took essentially all of the Arab-Asian markets that we could,” said Deputy Minister of agriculture Sergey Levin in hearings in the state Duma. “We do not, we continue to export grain, not the products of higher repartition”, – he added, reports “Interfax”.

“The small Russian flour exports due to uncompetitive price levels Russian producers in comparison with subsidized Turkish flour millers”

Such charges were made shortly after it became known that Turkey from 15 March stopped issuing licenses for duty-free import of Russian wheat, corn, sunflower meal and oil. The import of these products may begin to act duty of 130% which means the actual cessation of supplies. The Ministry of agriculture has not yet received official statements from the Turkish authorities on this issue. The Ministry of economy of Turkey has denied the information about the restriction of imports of goods from Russia.

However, apparently, the same duties are imposed. The night before, a member of the governing Council of the unions of exporters of Istanbul, Zekeriya mete openly admitted what the reason. “Russia has imposed a ban on deliveries of certain agricultural products from Turkey. Many of our colleagues-exporters was in a difficult situation and bear losses. It turns out that Turkey buys Russian goods, and Russia is our product do not buy”, – quotes RIA “Novosti” his words.

“This situation was more balanced, the Ministry of economy on request from March 15, imposed a new rule on Russian wheat. The official statement was not, but I, as head of sector know about this”, – said Mr. meta. In other words, Turkey was offended that Russia does not allow the supply of Turkish tomatoes and cucumbers.

Now, in response to obstacles to Russian wheat the agriculture Ministry has accused Turkey of violating WTO rules.

Russia has long been a major supplier of grain to the Turkish market. On the one hand, it is a stable market. But on the other, Russia contributes to the development of the Turkish exports of flour. But Turkey would not be able to export flour, if they did not use protectionist measures, which can be considered as a violation of WTO rules. In the framework of the world trade organization fall under the prohibition of export subsidies. It may include measures of support provided by Turkey to its millers.

As the Chairman of the Board of Directors of the agricultural company “the Miller” Alexander Bedarev, the Turkish government supports exports of flour due to the issuance of licenses. Licensed local companies get right, firstly, buy from the Turkish grain Union wheat at prices below domestic commercial. Second, they do not pay import duty of 130% for wheat and VAT when it is sold. Turkey produces flour almost 2.5 times more than it consumes itself.

“Turkey supports the private millers. But it uncompetitive industry, artificially supported by taxpayer money. This is one of the pillars of their food industry, but unreliable. Sooner or later, the existence of such support, the food industry will collapse,” – said the Director of the analytical center for agrarian markets, “Sovekon” Andrei Sizov.

In addition to Turkey, another major player in the export market of flour is Kazakhstan. And until the collapse of the USSR Kazakhstan third of the flour was taken in Russia, but since 2000 years, he built a system of production and grain processing so that up to half of flour to export. In fact, Kazakhstan ousted Russia from its traditional markets in Central Asia.

Kazakhstan is locked, he has no access to normal seas and oceans. And he is forced to deliver grain to flour in Central Asia”, – said Sizov. However, Astana also had to seriously work on transport routes. So, together with China, Kazakhstan has built a railroad with access to the Indian ocean, and together with Turkmenistan and Iran railway to Iran. Thus he got a direct path, bypassing Russia to the markets of Middle East and North Africa.

According to IKAR, export wheat flour from Russia to 2016 fell by almost 8% compared to 2015. Although compared to 2013 and 2014 when it was delivered 100 thousand tons of Russian flour exports in General has doubled. Characteristics of the Russian exports, of course, is far from Turkey and Kazakhstan. Turkey is a market leader, exporting nearly 5 million tons of flour. In second place is Kazakhstan with the supply nearly 3 million tons. The third – of the EU, which exports about 1 million tons of flour.

However, Russia, according to Sizov, to abandon export of grain in favor of the export of flour does not make sense. “The flour market is small and not so important. The flour market is about 10 million tons. The world market of maize and wheat is 300 million tons”, – the expert says “Sovekon”.

The development of this segment of exports will require from the Russian government no less protectionist measures than in Turkey or Kazakhstan. The main problem is a complex and costly logistics due to long distances, pointed out Alexander Bedarev. For example, the cost of sending flour from Altai region to the ports of Vladivostok, St. Petersburg, Novorossiysk, Zabaykalsk, on average, reached 20% and above of the total cost.

The lack of state subsidies and expensive logistics are making the Russian flour exports unprofitable. “The low exports of Russian flour is due, first, non-competitive price level of Russian producers in comparison with subsidized Turkish flour millers. Secondly, Russia logistics loses to Kazakhstan, which is in close proximity to the major world’s importers of flour, Uzbekistan, Turkmenistan, Afghanistan,” – said Deputy Director General of IKAR Irina Glazunov.

Note the reduction of flour production in Russia does not pose a disaster. According to Levin, the volume of production from 2013 to 2016 by 1.5%, production volume of bread and bakery products decreased over the same period by almost 3%. Glazunov notices that in comparison with the beginning of the century, the production of flour has fallen by almost 20%. This happened due to the reduction of the size and growth of incomes of the population. When incomes are rising, declining bread consumption and increasing the consumption of more expensive food.

“However, in recent years, flour production is relatively stable. The population of Russia has stopped to decline. At the same time significantly increased the number of migrants. It is the migrants – the population group in which there is a high per capita level of consumption of bread – two times more than the average consumption of the permanent population of Russia”, – says Glazunov. Migrants bread usually baked in small bakeries, so their volumes do not fall in official statistics. Besides not fully taken into account and the volume of bakery products baked in its own mini-bakeries in stores.

As for restrictions of export of Russian grain to Turkey, the Russian exporters will find alternatives for the sale of grain to other countries. “Demand for Russian grain is in Tunisia, in Egypt, in Iraq and in Iran. So we seek new markets,” – said the Chairman of the Duma Committee on economic policy Sergei Zhigarev. The grain market is not limited to one Turkey, so the closure of some segments means the transition to the other, said press Secretary of the President Dmitry Peskov.

On the other hand, Turkey, not to be left without grain and its flour export added value, will find instead another supplier. In other words, there will be a redistribution of flows. However, there is still hope that Turkey will remove restrictions for Russian wheat after some time.


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