Page 126 - RusRPTNov21

making products that were almost entirely imported before the sanctions like cheese.
Agricultural growth has been one of the motors for Russia's economy in recent years and the export of grain that earned some $25bn in 2020 has overtaken arms exports to become Russia’s second biggest export product after raw materials. But this year’s slow down came as a surprise.
“The starkest number in the August first-tier data was a -10% y/y drop in agri output, which stands out among more or less expansion elsewhere since 2Q21,” Alexander Isakov, chief economist at VTB Capital said in a note. “The contraction has a meaningful cross-read beyond agriculture itself (~4% GVA) as food price pressures are a crucial piece of the disinflation puzzle – and thus of the broader outlook for post-recovery economics.”
Isakov says the fall can be blamed on grain production as wheat grinding fell -13.1% YTD y/y), but despite the contraction, he believes that the price effects of the August reading will prove to be capped for two reasons.
“First, the key driver of domestic wheat prices is global prices, rather than domestic production levels, and this link has been loosened by the introduction of the grain price damper,” Isakov said.
“Second, and this is somewhat secondary, wheat production is still projected by MinAgriculture to exceed domestic consumption (in a broad sense): as wheat producers expect output for the full 2021 to reach 75mnt which, despite a -12.7% y/y decline, is high by historical standards,” he added.
Deputy Minister of Agriculture Oxana Lut has proposed introducing a separate quota for wheat exports (from 15 February 2022), along with the possibility to subsidise grain transportation from the south to the centre of Russia.
The ministry has also announced its grain market forecast, which envisages a harvest of 127mnt and exports of 34.5-35mnt, with wheat to account for 90% of the latter. 14mnt of wheat exports are to occur in January-June 2022, and the ending stocks of this amount are to be used as the basis for the wheat quota calculation from 15 February. No details on the potential grain transportation subsidies have been provided as yet.
The announced grain harvest is 4% lower YoY, while exports are estimated to decline 30% YoY in MY22F. For the current season, grain exports are going to see a floating export tariff and export quota as the core regulatory initiatives.
The floating export tariff currently stands at USD 57.80/t, or 20% of the export price (Wheat, from 6 October).
The government has imposed export quotas in the last two seasons (17.5mnt in February-June 2021) in order to secure domestic supply. According to the Ministry of Agriculture, export quotas are to remain in place in the next few seasons. We do not see them as being materially
126 RUSSIA Country Report November 2021 www.intellinews.com