Inner grain market needs a new model of price formation, which would be able to provide not only simple reproduction, but also allow agricultural manufacturers to expand business, use more professional management techniques, and expand the base for foodstuff manufacture in the country.
I International Agrarian Forum “Innovations in agribusiness (plant growing)” was carried out on July 31-August 1 in Tyumen. Initiators and organizers were group of companies “AgroIntel” (Russia) and International Corporation “SMOLENTSEV and Partners” (Canada) with support of Canada Eurasia Russia Business Association (CERBA), as well as authorities of Tyumen region and Tyumen regional Duma.
Organizers are hoping that Forum will become an annual event. Not only agribusiness but also working with it consulting, financial, investment, insurance companies, agricultural machinery manufacturers, selectors, operators of grain market spoke about the necessity of such communication platform. Tyumen was chosen as a place to carry out the forum because it is a region of high activity of AIC, and in regional center Zavodoukovsk, where second day of the Forum was carried out, whole conglomerate of innovative plant growing companies is operating.
Despite of loudly declared format, list of participants has been thematically narrowed. This allowed to concentrate on debating over questions of state government regulation of plant growing market; analysis of development of world and Russian grain markets, processing grain and bean cultures; providence agricultural production with qualitative seeds; prospects of cooperation among agricultural production manufacturers of Russia, Canada, Belarus, Ukraine, Kazakhstan; agribusiness management; exchange of innovational experience.
What’s with grain
First of all the forum has dispelled a myth that there are problems with food, therefore products rise in price. President of Russia Grain Union Arkadiy Zlochevsky has explained: there are enough resources, but 80 million people in the world suffer from hunger because they don’t have means to pay for foodstuffs. Forecasts show that manufacture of grain in 2008-2009 in the world will reach 1,7 billion tons, which is equal to demand. Critical situation of last season when demand for wheat exceeded supply has been overcome: several countries actively increases manufacture of grain, prices are decreasing.
India as one of the largest consumers has left world market: there’s enough harvest.
Last year Russia has exported a record number of grain (13,5 million tons), and is in first 5 largest world manufacturers. Domestic wheat is competitive on world markets mostly because of its price, caused by high risks of following contracts. Risks are mostly caused by infrastructure problems: shortage of elevators, ports, wagons (there’s only 12,5 thousand under grain). This season as well they will be the main influencers on price formation.
This year it is expected to export 18 million tons, press of good harvest (by tentative estimations, Russia will collect not predicted 85, but more than 95 million tons of grain) will even more press infrastructure. “It’s impossible not to export,- claims General Director of Institute of Agricultural Market Studies Dmiti Rylko. – Right now we’re fully covering demands of domestic market, surplus of wheat is estimated in the upcoming season to be 15-20 million tons. If they stay on domestic market, prices are going to fall, and manufacturers will bankrupt.” That’s why this season will be characterized by increasing government role in price formation: export opportunities of players will depend on escalating state stocks – volumes of purchases in interventional grain fund. That part of grain which won’t be purchased by the government, has to be exported abroad.
What’s with prices
It was said on the forum that till now the government is using inefficient model of price regulation. Its defect is that it does not motivate to expend reproduction in AIC, to increase areas under crops (by 25 million hectares). Factually 3rd class wheat is being bought even for 300-400 rubles per ton cheaper than interventional prices, which are besides everything, already cheap and do not influence market. And most importantly, this model does not provide an obvious necessity – produce as much foodstuffs as possible, to increase Russia’s influence on world politics. In the mean time the food market, as well as energy market, becomes more and more political, meaning that its turning into a factor of influence on political processes.
-This is our Russian potential, – concretized Arkadiy Zlochevsky, – we’re taking into consideration realization of this problem in vein of strategy development up to 2020, which is now being developed by Ministry of Economics of Russian Federation. To realize that, grain union puts out their requirements for the government. First of all, national project on plant growing is needed, which will be just as stimulated on big scale and in complex, as animal industry today. Second of all, certain government criteria are needed to access budget money, to provide high level of AIC technologies. It is necessary to stimulate the most effective manufacture, to form such parity of net cost of production and sale price which will provide not only simple reproduction, but also development of branch.
Profitability for simple reproduction in plant growing today is 40%. For expanded reproduction, increase in the areas of crops and improvements of parameters of productivity landowners should have profitability of 70 %. This corridor at the forum has been suggested to stake out in normative base then there will be no problems with selling production.
Stone in a garden
Competence and problems in managing AIC were topics that participants were especially interested in. Large business, which in the past six years has been investing in villages big money, got convinced: it’s not enough to create large holdings, buying land for them and implement imported machinery. Majority of holdings in Russia today – a set of former collective farms and state farms with a former infrastructure. In such condition they are not able to provide efficient pay off of invested means. Companies with land size over 10 thousand hectares are becoming unmanageable. That’s why a lot of investors are reviewing business schemes. Two years ago group of companies “AgroIntel” has done the same, which was able to increase its production circulation by two. Production of grain is 800 tons per person in a year, while on average in Tyumen region its 168 tons. Participants of the Forum have viewed as an example its innovative experience of implementing new techniques of management. (In further “EU” issues, we’re going to write how “AgroIntel” was able to enter new level of business management.)
As Academician of IIA, Chairman of Board of Directors IC “SMOLENTSEV and Partners” Konstantin Smolentsev has noted, problem of management in AIC is complicated due to human resource “hunger” in agrisector: there aren’t enough heads, capable to adjust management techniques, provide quality jump start. And, it seems like staff crisis, if no cardinal solution will be found, will increase: 95% of university graduates aren’t going to work in AIC, plus agricultural education got stuck on a level of early 90’s. Western agrisector has gone much further than that.
«Expert Ural» ¹30 (339), August 11, 2008