FAS against banning western grain traders from Russia amid monopoly concerns

MOSCOW. Oct 7 (Interfax) - The Federal Antimonopoly Service thinks proposals by VTB to limit operations by western grain traders in Russia would be premature as this could harm agricultural producers financially, a source familiar with a letter from the FAS to the Russian Agriculture Ministry told Interfax.

But the FAS agreed with the state bank's assessment of the Russian grain market situation, according to which global traders control "25-30% of domestic grain purchases."

VTB's proposals were set down in a letter from the bank's head, Andrei Kostin, to the Russian president. They include issuing a decree prohibiting companies owned by "entities associated with unfriendly states" from carrying out transactions with grain and oilseeds inside Russia for subsequent export. In addition, it was proposed to ban firms associated with "unfriendly" states from owning blocks of shares in Russian companies involved in grain transshipment and storage. At present, exporters from such countries own about 15% of Russia's port capacity, the letter says.

"The FAS agrees with the assessment of the Russian grain market market set down in the proposals but considers it premature to implement the VTB Bank proposals since amid the current sanctions and anticipated high grain harvest on the Russian market, this could lead to a deterioration of the financial and economic position of Russian agricultural producers due to a possible increase in the monopolization of key segments of the Russian grain market, which in the medium term could lead to a reduction of Russian grain exports," the letter says.

Proposals to overcome the dependence of the Russian agro-industrial complex on global grain traders, according to the FAS, contain risks of lowering the competitiveness not only of Russian grain exports, but also the agro-industrial complex as a whole. "The proposed ban on companies owned by entities "associated with unfriendly states" from purchasing pulses, oilseeds and their products in Russia for subsequent sale, including for export, will only lead to increased monopolization in what is already not the most competitive segment of the Russian agro-industrial complex, and, consequently, to higher costs for agricultural producers," the FAS said.

It said narrowing the choice of buyers of farm produce for many producers, especially small farms that are deprived of the opportunity to independently enter foreign markets, could in the context of an expected record harvest lead to a drop in procurement prices and, as a result, to reduced profit margins, which are currently fairly low, for agricultural producers, especially small ones.

"Also, amid the current financial, organizational, logistical and other restrictions on Russian exports, imposing additional bans on the grain market for commercial entities with a developed commodity distribution infrastructure may strengthen the effects of sanctions pressure and, as a result, reduce Russian grain exports in the current season" the FAS said. "The proposed ban could lead to the further monopolization of export commodity distribution infrastructure in the grain markets by companies that already own a considerable share of export capacities for the storage and transshipment of grain and oilseeds," it said.

Carrying out VTB's proposals, according to the FAS, should be accompanied by measures to develop export infrastructure both in Russia and abroad, as well as putting conditions in place to encourage competition throughout the Russian grain market's commodity distribution network, including the export network.

The service recalled that in 2019, on its initiative, the Higher School of Economics drafted a report on a strategy for Russia's presence in the world food markets. Its key proposal was to build a platform for long-term partnership with the main consumers of Russian grain in the countries of the Middle East and North Africa - the so-called "Agrofinmost", which will reduce the role of financial speculation by global traders manipulating world grain prices. The project presents specific mechanisms for partner financing of Russian agricultural producers.

The FAS press service did not comment on the information. The Economic Development Ministry forwarded Interfax's request for its position on VTB's letter to the Russian Agriculture Ministry. The AgMin's press office said it was looking at the request.