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Volga Baikal AGRO NEWS Update on Wheat Duty Question !!!
The market is discussing a possible floating duty on wheat.
But this measure can be too harsh for the market.
The Ministry of Economic Development considers it necessary to work out and introduce from the new season an automatic and long-term mechanism for calculating export duties.
From June 01, 2021 Russia can introduce a “floating” duty on wheat exports. It could be up to 70% of the world price after deducting $ 200 per ton, Reuters reported, citing two market sources familiar with the government talks. A Kommersant source in the market confirmed that such parameters are being considered. According to the publication, this is not a final decision, but one of the options discussed, the result may be announced in the coming days.
According to the government decree, from February 15 to 28, the export duty on wheat will be 25 euros per ton, from March 1 to June 30, its size will increase to 50 euros per ton, in addition, duties on the export of barley and corn will be introduced – 10 euros / ton and 25 euro / t, respectively. These measures will apply to deliveries within the quota of 17.5 million tons of grain, and above it will be subject to a duty of 50% of the customs value, but not less than 100 euros per ton. Earlier in Russia, the floating duty has already been applied, reminds Kommersant. A little over a year, from the summer of 2015 to the fall of 2016, 50% of the customs value minus 6.5 thousand rubles / ton was taken for a ton of transported wheat.
Earlier, the Minister of Economic Development Maxim Reshetnikov said that the department considers it necessary to work out and introduce from the new season an automatic and long-term mechanism for calculating export duties, taking into account the current levels of world prices. “It is important to form an understanding of the market that from July 1 there will be no zeroing of export duties, there is no point in holding grain and waiting in the hope that the domestic market will be open to all winds,” he noted.
Director of the analytical center “SovEcon” Andrey Sizov believes that the new measure threatens” the deepest crisis “for the entire crop production. In fact, the industry is being put in conditions when the increasing costs of all material and technical resources are completely business problems, and market participants can get only 30% of any growth, Sizov told Kommersant. He also warns that news of a “floating” duty could lead to a panic sell-off of wheat in Russia.
A similar opinion is shared by the Director General of the Institute for Agricultural Market Studies (IKAR) Dmitry Rylko. According to him, the introduction of a duty in such a tough version can lead to a halt in the growth of yields, a reduction in purchases of agricultural machinery, fertilizers and plant protection products, which, in turn, will negatively affect domestic grain consumers, including livestock breeders, writes Kommersant.
President of the Russian Grain Union (RZS) Arkady Zlochevsky notes that any formula for calculating the duty is harmful, and the current one is “generally catastrophic.” “This is a demotivation for production processes, especially regarding the most expensive premium positions,” he commented to “Agroinvestor“. – In fact, it destroys the sales market for premium positions, and there is simply no domestic market for them. Why then produce it? Exports will be completely destroyed. Premium positions are very sensitive, we already have great difficulty competing in foreign markets with Canadians and Germans. We are becoming completely non-competitive. ”
Head of the analytical center Rusagrotrans Igor Pavensky assumes that the duty will be noticeable for the market in the near future. “Because it makes little sense to restrain wheat sales on the domestic market. The duty, which will be introduced, may lead to even lower prices on the domestic market than now, “Pavensky told Agroinvestor. In his opinion, first of all, the measure is intended to reduce domestic prices, to make them less prone to fluctuations in world prices and exchange rates. “Probably, this goal will be achieved in the coming weeks, and exports will recover. Some of the February and March contracts were not concluded, because everyone was expecting decisions on duties, now sales can recover, and we will be able to export a significant part of the export potential this season, ”the expert says. He adds that he hopes that the new floating duty mechanism will be discussed with major market participants.
According to Pavensky, this measure will put pressure on prices within the country, and “it would be advisable to consider the target price, so that it is adjusted throughout the season.” “As a rule, the price gradually rises until the beginning of the second half of the season and then starts to fall. It makes sense to consider a certain adjustment, although it is difficult, it turns out that the players do not receive any profitability on the market due to changes in the price environment, because they pay most of the possible income in the form of duties, the expert explains. “Agricultural producers, like exporters, must earn money, so setting such a duty for 12 months is a difficult approach for the market.”
Pavensky notes that there is an active increase in sowing areas in Russia, especially for winter crops: the purchase of high-quality seeds, a sharp increase in the purchase of fertilizers and agricultural machinery are the result of good prices, and he hopes that the proposed mechanism will not affect the positive trends in the market. “$ 200 per ton is not a bad price for the beginning of the season, then export quotations are gradually increasing. This season we have reached $ 290 and more, in recent seasons the peak levels were $ 230-240 per ton, ”he says and adds that in the near future Russia will remain on the market, given that domestic prices will be corrected downward, and export profitability will appear even after taking into account the duty. “From the point of view of the global balance in the current season, this is more a factor of pressure on world prices than growth,” Pavensky said.
