The exit of foreign grain traders will not have negative impact on the Russian market, but will also improve competition between exporters from the Russian Federation. So, according to TASS, Deputy Prime Minister of the Russian Federation Victoria Abramchenko spoke to journalists on the sidelines of the St. Petersburg International Economic Forum.
According to the Deputy Prime Minister, the share of the departed companies accounted for no more than 15% of the market. Russian companies are ready to take up this business.
On March 29, the Ministry of Agriculture of the Russian Federation announced that it had received a notification from Cargill LLC, which is a subsidiary of the American supplier of agricultural products Cargill, about the termination of export activities in the Russian market. On March 30, the Ministry received a notification from Viterra Limited trader about the extinction of export activities from July 1, 2023 and about the further transfer of Russian assets to new owners. And on April 3, it became known that the subsidiary of the world grain trader Louis Dreyfus stops exporting grain from Russia from July 1, 2023.
How does the withdrawal of traders from the market improve competition, and not aggravate it?
Foreign grain traders have expressed a desire to leave the Russian market not only and not so much because of sanctions or for political reasons. One of the factors was that due to high export duties and export quotas imposed by the government, trade in Russian grain for foreign intermediaries became unprofitable.
Domestic agricultural holdings are in a more advantageous position, since part of the duties paid, thanks to the use of a damping mechanism, is returned to them in the form of subsidies. In addition, they prefer to conclude contracts with foreign consumers directly, which leads to the fact that global intermediaries lose their positions in the Russian market.
Can a decrease in the number of traders negatively affect the purchase prices of grain from farmers?
The level of purchase prices for grain is significantly influenced by the state, which regulates the indicative price used in the calculation of export duties, sets export quotas and subsidizes farmers in conditions of low prices. Therefore, the role of market mechanisms in pricing is very limited, and the departure of global grain traders at the level of purchase prices will practically not affect.
But if the market continues to consolidate in the hands of several large grain traders, then conditions will appear for possible collusion between them, which will have an extremely negative impact on purchase prices.
What consequences will the exit of foreign traders lead to?
It would seem that the withdrawal of international intermediaries from the Russian market opens the way for domestic grain exporters, but we must not forget that foreign grain traders in Russia own significant volumes of port infrastructure, some of them have their own fleet of grain carriers.
Cargill, which controls 4% of grain exports and occupies the sixth position in the ranking of the largest grain traders in Russia, has a share in the Black Sea grain terminal in Novorossiysk with a capacity of 4.5 million tons/year.
The share of the Canadian grain trader Viterra, which is in fourth place in the ranking, accounts for almost 8% of Russian grain exports. The company also owns a stake in a grain terminal in Taman with a capacity of 4 million tons/year, a shallow–water terminal in Rostov - 1-1.5 million tons/year, and it owns 50% of the shares of Idel Shipping.
Louis Dreyfus is the third grain trader in the Russian Top 10 and has announced its intention to cease its activities in Russia, owns a terminal on the Sea of Azov with an annual export capacity of 1.1 million tons.
The outgoing companies are not yet considering the possibility of selling their existing port infrastructure, although there are already those who want to purchase it. But if this infrastructure continues to function, the negative impact of the departure of foreign grain traders will be very short-lived, and others will quickly take their place.
