15 Nov 2022 09:53

Russian grain export quota should be raised to 30 MT, govt procurement purchases to 10 MT - expert

MOSCOW. Nov 15 (Interfax) - The quota for Russian grain export should be expanded in 2023 to 30 million tonnes, and purchases for the state intervention fund to almost 10 million tonnes, which will remove the overhang from the grain market and secure adequate prices for the agrarians' product, ProZerno CEO Vladimir Petrichenko said.

"The quota volume, considering the current balance, should be raised to 30 million tonnes, but basically, the quota had better be lifted. This mechanism should be abolished since it is hindering the trading process," Petrichenko told Interfax.

The reason is primarily the historical principal of the quota's distribution, he said. "The structure is flawed: if you haven't exported grain this season, you won't obtain a quota for the next season. This is squeezing small and medium-sized exporters in favor of big ones," he said.

An example showing that the quota contributes to export market consolidation is the rating prepared by ProZerno at the end of the season. While the share of top-25 companies in grain exports accounted for 83.3% in the 2020/2021 agricultural year (with 16.2% left to the all the rest), it grew to 85.5% the following year, with the share of the rest subsiding to 14.5%.

"Besides, as practice shows, the quota is never fully utilized for technical reasons. As a rule, large companies with extensive quotas don't fully use their capacities. And anyone who wishes to increase their contribution in the second half of the season [the quota applies from February 15 to June 30], just cannot do this because they have exhausted the quota. So the mechanism is detrimental in itself, regardless of the volume of the quota," Petrichenko said.

In the expert's opinion, it also requires expanding grain purchases for the intervention fund to stabilize the situation on the market. "The planned contribution of 3,000,000 tonnes is too little given such a crop, given such an overhang on the market," he said. "Considering the export potential of 55 million tonnes and the quota of 25.5 million tonnes, approximately 30 million tonnes have to be exported before February 15. However, there is no guarantee it will happen. A total of 15.5 million tonnes have been exported in the four months [July-October] of this season."

According to his calculations, 24-25 million tonnes may be left on the free market provided that the quota and purchases to the state fund remain the same. "This is 10,000,000 tonnes more than at the beginning of the agricultural year. The planned volume of purchases for the state fund should be enhanced. It would be nice if they grew to almost 10,000,000 tonnes," the analyst said.

In this situation, agrarians could get adequate money for their goods, he said. "They won't have their grain lying dead until the next season. They could engage in reproduction," Petrichenko said.