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Apr 25, 2022
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Harvest 2022 in Russia promises to be good – but expensive

Harvest 2022 in Russia promises to be good - but expensive

Photo: Kirill Kukhmar/TASS

The costs of farmers for the sowing campaign this year will increase by 20-40%, which means that prices for final products, that is, food, will also rise, the Bank of Russia predicted.

“The sowing campaign in 2022 is taking place in the context of rising prices for material and technical resources, which is largely due to the dynamics of the ruble exchange rate. The high level of import dependence on machinery and spare parts for it, seeds of individual crops has a negative effect. According to the estimates of the unions of agricultural producers, the cost of sowing in 2022 will increase by 20–40%, which will affect the final cost of production. About 80% of spring field work is provided through soft loans,” the Central Bank said.

The Ministry of Agriculture reassures that the rise in prices will be partially offset by a good harvest this year. According to preliminary estimates, this year the volume of grain and leguminous crops will amount to 123 million tons, which is 1.3% more than a year earlier. More than 96% of winter crops are now in good and satisfactory condition. The total sown area in Russia this year will grow by 1 million hectares and exceed 81 million hectares.

However, changes in the settlement system, logistics channels, uncertainty with the supply of seeds, equipment and plant protection products may have a negative impact on the course of seasonal field work in the future, the Central Bank said in a report. Some of these problems, such as the disruption of supply chains, will still make themselves felt in the future, for this season, fortunately, the main purchases have already been made. Although some positions are already experiencing problems.

Siberian agricultural producers have already noted the refusal to supply some imported plant protection products, now the possibility of purchasing analogues in China is being considered, but the logistics have not yet been built. Due to the sharply increased demand for domestic and Belarusian analogues of imported equipment, there was a shortage and queues of up to 10 months. Some enterprises are already experiencing a shortage of spare parts and consumables for equipment.

Also, farmers are afraid of problems with the supply of certain varieties and hybrids of plants due to sanctions, although now there are still stocks of seeds. Thus, dependence on imports of potato seeds in Russia is 80–90%. At the same time, Crimean farmers note that the yield of Russian potato and vegetable seeds is four times lower than imported ones, Expert writes.

Since January 2022, official inflation has exceeded 11%, and for the year amounted to 17.6%. At the same time, the food sector accelerated to 19.6%. As explained “SP” former Deputy Minister of Agriculture and Food, Doctor of Economic Sciences Leonid Kholod, it is not yet possible to say how much prices will rise in autumn, since this is a “problem with many unknowns”. But there is no doubt that there will be growth.

— Firstly, we do not know whether inflation will remain at the current level or not. Secondly, we do not know what the dynamics of income will be. We have a market economy. Yes, prices will tend to rise due to the fact that farmers have cost inflation. But whether the market will accept them depends on purchasing power.

Farmers can, of course, raise prices in accordance with the growth of their expenses, but will people be able to buy goods with them, and even in the right volumes? Let’s say the increase in costs will be 100% and the manufacturer will raise the price on them. But the buyer can say that this is an “elastic demand” product, that is, not a product that he cannot do without, and generally refuse to buy it or buy 50% less. And then the manufacturer’s losses will be much greater than the decrease in profitability.

There is indeed cost-push inflation, and it is decent. In addition to problems with logistics and payments for imported components, planting material, technical equipment, there is also inflation in domestic costs – this is fuel, labor, fertilizers. Everything rises.

“SP”: – How will all this depend on the harvest?

– In addition to inflation, according to the laws of a market economy, supply dynamics play a role in determining prices. If the production of grain or other crops is greater, the rise in prices will be slowed down. If there are problems with exports and it will be impossible to sell the surplus, inflation will slow down even more noticeably.

Now no one can say how much prices will rise in the fall. There will be growth, but it will differ in the direction of outpacing general inflation, not as much as it is today. If there is a good harvest and the same logistical problems with exports as now, it will slow down more noticeably.

“SP”: – Is a good harvest possible, taking into account all the difficulties?

– If we take grain, the harvest consists of two parts: winter crops, which give most of it in good condition, and this year they overwintered well, and spring crops, the sowing of which started in early March. By this time, seeds had already been purchased from most farms, fuel had been contracted, and loans had been taken at the previous rate. That is, the sowing season should have been ready, so the current problems should not greatly affect it.

Difficulties may arise in the process of harvesting and processing winter and spring crops, as imported equipment may fail. But she has a decent margin of safety, I don’t think that these will be massive breakdowns, so they can be replaced with domestic equipment. So in terms of grains, I would not be particularly afraid.

As for potatoes and vegetables, the dependence on imports for seeds, even the simplest ones, is high. But even here, the seed material should have been bought in the main before the sanctions. What they did not have time to buy can be replaced with domestic products or purchased abroad. I emphasize that no one has declared an embargo on seed and planting material, as well as on mechanization means. There are obstacles from the sanctions confusion, when it is not clear what is banned and what is not. For example, no country has declared an embargo of fertilizers or plant protection products. But it is not clear how this is combined with a closed barrier on the border with the West. Some of these restrictions are not an official position, but sanctions voluntarily taken by someone.

In addition, our market depends on large agricultural holdings, but in fact, a huge number of medium and small enterprises produce the same potatoes and beets. Today they enter the market with great difficulty and expense. If measures are taken to liberalize such enterprises before the harvest, stop inspections, weaken total control, allow trading everywhere, then the market funds of the simplest open-ground vegetables will easily be replenished with domestic products. In this case, there should not be a shortage and a serious increase in prices.

Meat production is rhythmic. Our businesses are heavily dependent on the import of genetic material, such as breeding eggs or piglets. But even here it is possible to use domestic analogues and give access to the market to medium and small enterprises. Then the rise in price will not be so sensitive.

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