Moscow. December 25. “What will happen after you run the food program? A census of the remaining population.” Late this anecdote well illustrates the problems of domestic agriculture, which in the USSR, in Russia all the time something was missing, to finally feed the whole country. Now the industry is trying a new recipe for growth – mass bans import, laced with generous state support.
However, even the most greenhouse conditions, no guarantee: without quality control, the probability that AIC will never get rid of the definition of “black hole” in which the public lost billions, remains.
The outgoing year for Russian agriculture was the first full year of operation in conditions of food embargo. So summed up – the answers to many questions that arose after August 7, 2014, when food from the countries that supported anti-Russian sanctions, slammed the doors of the Russian market.
And the main, perhaps, that if the actual substitution? Did the domestic producers to fill a vacant market niche?
The isolation of Russia from the world market has affected other aspects of grain exports, which was imposed the duty.
The substitution occurred in the top leadership of the agricultural sector. Headed since 2012, the agriculture Ministry lawyer Nicholas Fedorov in April has replaced the Governor of the Krasnodar region, Alexander Tkachev economist.
The inertia of the ban
The process of limiting the supply of food from abroad, as flying mount snowball, acquired a large inertial force and new forms. First of all, even for one year – to August 5, inclusive – was extended food embargo. The basic list of prohibited goods remained virtually unchanged.
A year after the introduction of predamage, from 6 August 2015, the sanctions, the food that all by hook or by crook still penetrated into the country, not just replaced, and destroyed, crushed in landfills tractors, burned.
In the list of the countries, the food supply of which is prohibited, were included joining anti-Russian sanctions, Montenegro, Albania, Iceland, Liechtenstein. A ban on the importation of food is available from 13 August.
From 1 January 2016 under the food embargo fell within Ukraine, as they were not removed Russia’s concerns in connection with the entry into force of the agreement on Association between Ukraine and the EU.
And so in following the global political and economic developments already looks quite logical ban on imports of certain products from Turkey, which will be effective from 1 January 2016. Who else from trade partners in the current difficult geopolitical situation to have an argument with Russia – we can only guess.
The belief that domestic manufacturers and alternative suppliers will immediately fill the volume of dropped food from sanctioning countries (USA, Canada, Norway, EU, Australia), was from the beginning. All of those wishing to export their products to Russia, which enthusiastically announced the former leadership of the Ministry of agriculture, indeed, was long. But real replenishment of the Russian food market was accompanied by problems, in particular, with a new logistics solution veterinary and other problems.
The desire of many providers was cooled hard Russian requirements to the quality of imported products, because not all countries are safe to the epidemic. So, two dairy companies in India, listed in the register of suppliers of the Russian Federation in April, still can’t start a real delivery due to the fact that the Rosselkhoznadzor does not have full guarantees of safety of their products.
Therefore, as noted a year after the imposition of restrictions on the expert of the Analytical center for the government, counter-sanctions have led to a substantial increase in prices in the domestic market, intensified later in connection with the devaluation of the ruble. So, in may of this year, compared with prices of December 2013, food inflation reached 28.7%.
Consumer prices for all key socially important goods rose at a double-digit year values. In may, average consumer prices for beef increased by 23% from may of 2014, pork – 22%, cheese – by 20%, frozen fish – by 38%, carrot – by 39%, apples – by 37%, cereals and beans – 49.2%.
The experts drew attention to the fact that the goods fall under the embargo, more expensive, not slower: the sugar – 52.2%, sunflower oil – by 23.7%, macaroni products – by 21.6%.
According to experts of the Analytical center for the government, the potential for import substitution on the part of Russian producers in the short term, was not fully realized. And analysis of the imports showed that there is a significant reduction of the volumes of all food items, placed under embargo.
So, for 10 months of this year import of meat (excluding poultry) fell by 27%, of poultry by 40%, fish – by 1.7 times, butter – by 38%.
Analysts recognize that “partial substitution shortfall amount of import” but note that “the increasing volumes in certain sectors is the result of previously made investments, production growth insufficient to offset the dropped volume of imports”.
“However, most of the product categories this substitution doesn’t occur at the expense of increasing the supply of traditional foreign suppliers, nor due to the emergence of new,” said the authors.
This was confirmed by the analysis made by the Central Bank for January-September 2015.
As stated in the report on monetary policy, published in December, the food embargo, together with the weakening of the ruble in late 2014 and early 2015 has resulted in a reduction of food imports and created prerequisites for the growth of domestic production. Most of the types of sanctions production, the growth really happened. Thus, the production of beef and potatoes increased by 25%, pork by 18%, cheese and cottage cheese – 15%, poultry meat – by 11%, butter – by 6%, vegetables – 3%. Only decreased fish production by 5% and sausages – 4%.
However, despite the increase in domestic production to fill the deficit proposals failed at most food markets, says the Central Bank. “Although the share of Russian products on them has grown, the volume of the market, including domestic and imported products reduced,” the report said.
Most decreased offer of those commodity markets where the share of imports was traditionally high. The supply of beef declined by 42%, butter 15%, fresh and chilled fish – 14%, vegetables – 10%. Positive dynamics was shown only poultry meat, which increased by 6%, pork – by 7%, potatoes – by 19%.
Not so casual was the negative public reaction to the decision to destroy the illegally imported products and offer to distribute it to socially vulnerable citizens. From 6 August to 20 December to landfills has sent more than 1.2 thousand tons of crop production and 115 tons of livestock breeding. This was motivated by the potential risks posed by these products.
But, according to the President of the consulting company Agrifood Strategies albert Davleyev, the question of safety has arisen to justify a purely political decision. “Sanctions products was not so much, it was quite possible to give to social institutions, he said. – In most cases they were the normal products of European quality that have been illegally imported”.
Their own and others
Which is better – the Minister “from the inside” or the Minister “from outside”? The age-old dispute with a mass of opposing arguments. “Stranger” doesn’t know the specifics and is forced to trust the advice (which can be both good and bad), but no one tied and looks at the matter with fresh eyes. “Your” good deep understanding of the subject, but what about conflict of interest?
Agriculture this year got “their” Minister: Alexander Tkachev has experience not only in public policy (this could boast and Nikolai Fyodorov), but also in building a large agricultural holding and management of an agricultural region.
One of the first applications Tkachev on the post of the Minister was devoted to the intention to increase the profitability of the industry. Experts this business-oriented approach pleased. According to Davleyev, the main advantages of the new Minister is a farming and business background.
“Fundamental knowledge in the field of law and Economics its predecessor Fedorova required on the posts of the President and the Federation Council, gave him advantages for effective practical work in the Ministry of agriculture, – the expert believes. – Understanding of the Russian agricultural industry from the inside from Fedorov has taken too long, although he actively “immersed in the subject,” having, perhaps, a record for the Minister the number of trips to the regions”.
According to him, the change of leadership of the Ministry of agriculture has already led to a change in the number of priorities in the development of the industry. Speech first of all goes about redirection and focusing of the system of state support for selected industries – dairy farming, greenhouses, the establishment of logistics centers. “Now, in crisis, is more important than ever to make quick and quality decisions, but political developments leave the Ministry to more challenges that build up and “bump” each other, especially with the constant redrawing of state budget and growth of accounts payable in the agricultural sector”, – he said.
Changes in the Department, in shaping its policy notes and managing Director of the agribusiness sector “Basic element” Andrey Oleynik. However, he said, “it is connected not so much with the personality Tkachev, more charismatic and ambitious, but with new conditions in the economy, external and internal challenges that force both the state and business to develop a new strategy of agricultural development and to seek new ways to improve the efficiency of the industry.”
According to Davleyev, to rebuild the industry based on the profitability of the tough and sometimes unpopular decisions. “To this the Russian agricultural sector is not yet ready,” he said.
Besides, in his opinion, the positive profitability of Russian agriculture is a myth because statistically it includes state support, and in many cases very inefficient. “If Tkachev will be able to create at least a break-even agricultural production in most agricultural companies on the basis of own funds, then, indeed, we can speak about the increase of profitability”, – said the expert.
Director of “SovEcon” Andrei Sizov sees in the new leadership of the Ministry of agriculture “more energy in defending the interests of the industry.” The main achievement he called that the size of the agricultural budget for 2016 has not changed significantly with the decline in costs for most other areas.
Grain: from duty to China
In 2015, as in previous years, the grain harvest in the country exceeded 100 million tons and, according to preliminary data, amounted to 103.4 million tons (to 105.3 million tons in 2014). And the passing year is celebrated with new records. Primarily to collect oil, which may exceed 14 million tonnes due to record soybean harvest. According to “SovEcon”, it will be 2.8 million tons (2.6 million tons in 2014). In addition, increased fees of sunflower and other oilseeds.
Historical record – under 13 million tons – is expected in corn fields.
But the main intrigue of the grain market was that, despite the high harvest and large carry-over stocks, despite fears of exporters, the export of grain was limited. The Ministry of agriculture explained the need for this, above all, sharp fluctuations of exchange rate and the desire to stabilize the situation on the domestic market.
First, the fee was 15% of value plus 7.5 euros, but not less than 35 Euro per ton. It operated from February 1 to may 15. Then due to the depreciation of the ruble, it was decided to introduce from 1 July “floating” export duties on wheat at the rate of 50% minus 5.5 thousand rubles, but not less than 50 rubles per ton. But she could not hold back delivery. Therefore, from 1 October 2015 the fee has changed and now is 50% minus 6.5 thousand rubles, but not less than 10 rubles per ton.
The experts negatively assessed the role of export duties on the market and prospects of its influence on the grain industry. Besides horse racing and unpredictable currency price changes on the world market in the early stages of introduction of the “ruble” fees were accompanied by the reluctance of customs to the new solver. In early July, this resulted in slow deliveries on some contracts.
According to Sizov from “SovEcon”, the loss of farmers from the fees this year will amount to from 10 to 20 billion. “This means a decrease in the level of agricultural technologies, agricultural machinery and nakupenda, as a consequence, increase the risks of crop failure,” he said.
According to him, the restriction of export of Russia became the only country in the world with relatively well-developed agriculture that attempts to regulate prices on the grain market with the help of export duties for wheat.
“Export to Russian conditions is a function of the size of the harvest, – said Sizov. – Whatever the prices, exports will still be, because to the Russian peasants can’t afford to hold grain waiting for higher prices and cancellation fees”. “Just in the future, the size of this harvest will be reduced,” he warns.
Davleyev of Agrifood Strategies notes the “indirect effect” duties on poultry industry. “The introduction of fees has raised the price of wheat is 9 to 12 thousand rubles per ton, then stabilized it to the level of 12-13 thousand rubles, – he said. – This indicator negatively affects the profitability of poultry production, since the proportion of grain in the cost price is about 60%”.
At the same time, according to Oleynik from Basel, grain market quickly adapted to the new conditions. “But in a global sense to export grain needs stability, established rules that allow exporters to predict their actions on long-term and medium – term Outlook,” he said.
Shortly before the New year the first Deputy Minister of agriculture Evgeny Gromyko said that the Ministry of agriculture proposes to reduce or zero out the duty on wheat because the prices on the world market began to decline. This proposal, according to him, already in January can be considered in the government. The statement caused a positive reaction in the grain market.
Meanwhile, this year, despite export restrictions, completed a long and difficult negotiations on conditions of deliveries of Russian wheat to China. This grain was not in the Chinese market nearly 30 years.
Now China has allowed the supply of grain grown in the Altay and Krasnoyarsk edges, Novosibirsk and Omsk regions. Corn, soybeans, rice and rapeseed can be supplied from Khabarovsk, Transbaikalian and seaside edges, the Amur region and the Jewish Autonomous region. This grain should be used for processing.
In Rosselkhoznadzor, who in December brought six years of negotiations to specific documents, the signing of protocols on the conditions of supply of grain in China breakthrough. However, experts of the grain market, recognizing the importance of these decisions, export prospects appreciate still without optimism.
According to the President of the Russian grain Union Arkady Zlochevskiy, despite the reached agreement, supplies can not be. The Chinese market is built in such a way that it will still wait for the command from “above”, he explained.
According to the forecast Sizov, the supply of wheat in China, if will begin, that will be small – a maximum of 100-200 thousand tons. He said that in recent years China imports 2-3 million tons of wheat. “This is much less than the import of sorghum and barley”, – he added.
IPO and M&A – in spite of or thanks to the crisis?
This year was also special because, despite the difficult situation in the economy, exchange rate and price fever, APK hosted several large M&A and even IPO. All M&A deals occurred in the so-called import-substituting.
First of all, certainty became apparent in the fate of the Agroholding “Razgulay”, which since 2009, after defaulting on bond for 8 billion rubles, tried to reduce debt by more than 30 billion rubles.
To the rescue “Roam” came another large player in the agricultural market – GK “Rusagro” has purchased the web – the basic creditor “Razgulyai”, he owned 19.9% of the shares of the agricultural holding. The transaction also includes the assignment of group “Rusagro” requirements under the loan agreements with the Bank “will Razgulyai”, sell the Bank bonds of the holding.
However, the web has provided Rusagro credit at 33.9 billion roubles for 13 years.
The most real prospect of “Razgulyai” – is the sale of its assets, which could begin in the first half of 2016. Rusagro, in particular, will qualify for several sugar mills. But while the company is dealing with debt “Razgulyai” and begin to serve them even before the deal with VEB.
If over the last few years a number of large public companies, the agricultural industry has left the exchange, but this year there was the first big break after the IPO.
PJSC “Novorossiysk Kombinat KHLEBOPRODUKTOV” (the name should not mislead – this is not a bakery, and the largest terminal for transshipment of grain) were placed 10.8% of shares sold minority interest – Belcarra Services Ltd. The stock price was close to the upper boundary of the corridor – 512 rubles, the entire package is 3.7 billion, the entire company – 34,5 billion roubles.
However, the IPO was not without a false start: the book of orders collected for almost a month, equities posted only the fifth attempt.
Experts attribute the company in the public sector with the prospects of increasing exports of Russian grain. NCHP owns a transshipment terminal with a capacity of 3.5 million tons per year and is currently revamping, which will allow to increase capacity to 6.1 million tonnes.
This year some of the leading agricultural holdings are the owners of companies who could not stand the press of the crisis. One of the largest milk producers in Russia – company “Eco-field” received permission of the Antimonopoly service for the purchase of farms “Revival” in the Voronezh region. The Cherkizovo group bought a pig farm in the Lipetsk region.
Changed the owner and group of the far East “Mikhailovsky broiler”, which was purchased by the structure of the ex-Deputy of the state Duma Edward janakova. The interest in this company and showed the group of companies “Rusagro”.
By the way, “Rusagro” in the beginning of December became a minority shareholder of SC “Uralbroiler” and within two months had planned to take it under full control. However, recently the company announced that refused to buy, because are unable to agree with the seller of the final terms of the transaction. The contract was terminated, all assets acquired will be returned.
But the most striking event of the year in the poultry industry, according to Davleev, was the purchase of the Thai Charoen Pokphand Foods (CP Foods) poultry farm “Northern” Agro Invest Brinky.
“A record high for the Russian market the price at $680 million greatly surprised the experts of the poultry industry and investment analysts and was regarded as the “premium ticket” on the Russian meat market,” he said, adding that CP Foods is just beginning the process of acquisitions of Russian selhozarteli.
In the end, the CP Group attended 6 Russian regions. They studied opportunities for expanding agricultural business in Russia and was looking for a platform for realization of project on creation of the large dairy complex.
According to Davleyev, the deal’s CP Foods for the purchase of the poultry farm has become an important signal for the M&A market, drawing attention to Russia. “A clear trend in poultry production is markedly increasing proposals for the sale and purchase of poultry assets, he said. – In 2015, companies in this sector experienced a severe shortage of working capital due to the rising costs of equipment, feed, veterinary preparations, consumables and low sales prices of finished products”.
According to him, many companies could not stand the pressure and become owners in the “suitcases without handles” when to maintain the asset becomes ruinous, and sell high is impossible. “One way out – to lock in a loss or minimal profit, offering the asset for sale”, – he said.
The analyst also drew attention to the fact that most accounts payable clients-poultry farmers have made the banks their hostages. “Control of poultry assets banks can’t, and sell debts to other banks or companies is practically impossible or possible only with a huge discount in order to lock in the losses,” he said.
All this, says Davleyev, promises in 2016 a significant and interesting deal in the poultry sector from the core and not-core, but close to it investors. “The consolidation in the industry inevitable, the only question is its speed and scale. Any emergency situation is only helping them,” he said.