Russian market of oilseeds to see records and fall downs in the nearest seasons — M.Maltsev

APK-Inform

For several recent years, Russia is seeing the upward trend of oilseeds production and there is new record crops every year. In our interview, the Executive Director at the Fat-and-Oil Union of Russia, Mikhail Maltsev told that the growth of oilseeds production would lead to the increase of production and exports of its by-products. However, the records here may cause the abysmal records in other industries and display the problems of the oilseeds industry earlier less visible.

Note

The Fat-and-Oil Union of Russia is the non-commercial organization aimed to consolidate the efforts and coordinate the performance of the companies, in order to provide the sustainable and stable functioning of the oilseed industry under the Russian economics reformations. There are 50 companies within the Union that together cover 76% of the general vegetable oils production and other by-products of the oilseeds.

 

In 2018/19 MY the analytics forecasted another increase of the production of three main oilseeds. What are the estimations of Fat-and-Oil Union of the crops and their quality considering the weather conditions?

It is safe to say that the upward trend will continue. Despite the unfavorable weather conditions, we plan to receive another record crop, which is expected to reach 18 mln tonnes, with more than 11 mln tonnes of sunflower seeds, 2.3 mln tonnes of rapeseeds and 4.4 mln tonnes of soybeans. Of course, we were able to reach these results owing to the increase of the planted area and in some case because of good yield. In terms of the need to increase the production of oilseeds twice until 2024 as part of the federal project of agriproducts export, the gradual growth of the oilseeds share in the crop rotation is the long-term task.

If we speak about the crops and yield, there is some small deviation, especially regarding the sunflower seeds and rapeseeds. By the end of September, the yield of these crops was 3-4% lower compared to the last season. However, it is not the final estimates as the harvest is not complete. For example, the harvest of sunflower seeds is 25% complete (as of the start of October). Consequently, the final yield figures will be corrected.

 

How do You estimate the export potential of oilseeds and by-products in 2018/19 MY?

We expect that in 2019 Russia will export 7 mln tonnes of by-products. Speaking of raw material, there might be some abysmal records. In 2017/18 MY the export reached 2 mln tonnes of raw materials. Next season this number can increase to 3 mln tonnes which is 15-16% of the general production that is not the worst figure at the first glance. On the other hand, this number is almost equal to the annual volume of the processing of one of the largest crushing plant.

 

To what extent does the current infrastructure in Russia allow to take full advantage of the export potential of agriproducts?

The current volumes of the export there are no severe problems with the transportation and logistics. Our seaports allow maintaining the export widely: via the Azov and Black Seas the exporters ship the products not only to Turkey, Saudi Arabia, Iran, Iraq and Egypt, but also to far abroad countries such as India and China. But taking into account the aim to increase the export by 2024, the infrastructure (including seaports) needs significant increase of the throughput capacity.

 

To what extent does the enlargement of the raw materials base allow to cover the workload of the crushers?

In January-September of 2018, the workload of the processing capacities totaled 67%. This is higher than the last year when there was a higher export of sunflower seeds to Turkey. Nevertheless, the current situation is not satisfactory. The crushers have to compete to gain the raw materials. Moreover, there is a specific situation in terms of soybeans. The main areas are located in the Far East. Herewith, there are a lack of processing capacities. Theoretically, the soybeans produced there can be shipped to the processing plants in central parts of Russia where is a significant lack of raw materials. However, in this case the logistics is economically unprofitable for the crushers without the governmental subsidies. Thus, this season the larger part of the crop is exported to China.

 

What was the main factor that influenced the development and formation of the prices on the market of oilseeds last season? What are Your forecast for the price trend in 2018/19 MY?

The main factor is going to be the currency exchange and the cost of transportation, and also the export policy of the countries-partners. For example, Turkey regularly adjusts the trading conditions for the exporters via rising or reduction of taxes.

In general, but for the changes of these factors, the market conjuncture is going to be rather stable comparing the previous seasons.

 

More than a year ago, the Fat-and-Oil Union asked the Ministry of Economic Development and Trade of Russia to increase the export tax for sunflower seeds by 10%. Are there any changes?

Last season the importance of this issue was lower due to the falling of the sunflower seeds export volumes. Based on the current exports growth of soybean and rapeseed this question is going to be raised again.

 

What are the results of the oilseeds industry can be achieved in case of sunflower seeds export tax increase?

The main aim is to stabilize the economic performance conditions for every market participant. Until now, the profitability is the advantage of the agriproducers whereas the processors work on the edge of the cost-effectiveness.

 

Please, share Your opinion towards the prospects of Russia as the exporter of soybeans and by-products. What is necessary to do to increase the volumes of soybean production? Would You support the implementation of the premiums for agriproducers for GM-free soybeans?

Today both Russian farmers and processors highly rely on soybeans. And the first steps aimed to increase the production have already been made: the areas have been widened, the agro technologies are developing, etc. The export demand on this crop is formed largely by China. The country buys almost all Russian GM-free soybeans and soybean oil. Here farmers put the premium to the cost as the domestically produced oilseed in terms of protein content is losing to soybeans with GMO.

 

Last year the largest exporters of agriproducts signed a Charter on refusal from the use of the questionable methods of tax improvement, connected with the VAT refund. How do You estimate its impact? Is there any positive change on the oilseeds market?

The market of agribusiness had faced complicated but important times. It get rid of the shadow-companies that harmed the Russian economy in general, and oilseed processors and exporters in particular. The implementation of the Charter forced every market participant to take the responsibility for its supplier thus ensuring the transactions credibility. The use of the “shadow” schemes put a risk on the receiving of the margin and VAT refund.

 

How do the small and medium businesses develop? Do they manage to compete on the oilseed market of Russia with the large players?

If we speak about the competition, the market of processing is highly intense. At the same time, the margin of producers is rather low — 1-2% (considering the profit before the upper range). Naturally, in such conditions it is difficult for the small farmings to stay on the market comparing to the large companies.

Moreover, the negative marginality can be witnessed among the large holdings.

 

To what extent are the investors and the companies interested in the construction of the new processing plants or the modernization of the existing ones?

There is an understanding that the construction of the new plants will not be relevant until the existing plants reach the tight bottom of the loading capacities. However, the modernization of the plants is possible anyway. If we speak about the construction of the new plants, it will be possible in several years.

 

What are the aims and tasks of the Fat-and-Oil Union in the short and long-term perspective?

Both in the short and long-term perspective we will deal with the challenges appearing in the industry. Today, the first task is the fair distribution of the profitability on the market. The second is the technological breakthrough in terms of the raw materials base. And taking into account the scope of the project of the export potential development it is necessary to act fast. Moreover, we will work through all the sensitive issues, including the logistics improvement, removing the trade barriers and the exploitation of the promising markets.

 

Interviewed by Anna Bulatova, APK-Inform Agency