Protective export duties have lead to reduction of trade operations and revenues 2.5 times
SINCO Trade, one of the leading grain exporters in Samara Region, has stopped cargo shipments by inland water ways. With introduction of protective export duties for grain and oilseed last July, trade operations and revenues have dropped 2.5 times, SINCO Trade Director Vartan Mnatsakanyan told IAA PortNews.
Amid the current situation in the market, SINCO Trade is not planning any shipments in the navigation season of 2022 which is to last from late April to the end of November. In the navigation season of 2020-2021, the company involved 34 ships and carried 115,000 tonnes of grain and oilseed products, mainly towards the Black Sea and the Caspian Sea.
“There are several reasons (behind rejection of transportation by IWW - Ed.): a) introduction of overloading export dues last July which accounted for almost a half of wheat cost thus making exports unprofitable.
b) fair yield in the southern and central parts of the country located closer to the deep-water seaports. c) poor yield of winter wheat in the Volga Region and long distance from the ports of the Black, Azov and Baltic seas resulted in 20-30-pct increase of prices by milling plants. That has lead to the farmers’ decision to hold on to a product hoping for further increase of prices.
State regulations of retail business has also played a negative role. Curbing the rise in prices of 20-30% and more, which would hardly hurt the consumers, weakens the producers as they are deprived of resources needed for production development… Artificial market control has lead to the situation when wheat in Russia was half of the global price. A lot of grain remains unsold. Other products are in the same situation. For example, we still have 50,000 tonnes of sunflower seed. Our storage and handling facilities are underloaded,” says Vartan Mnatsakanyan.
One more negative impact of protective measures is introduction of duties for both strategic products and niche ones.
“Although the duties for wheat seem to be logical strategically, regulation of niche categories such as flax is not understandable. 20-pct dues are expected here and now, and not below $100. The entire market of Russian flax is about 1 million tonnes mainly bound for exports to Belgium and Germany where it is used for production of high quality auto and printer paints. In the Russian market, the demand is limited,” says Vartan Mnatsakanyan.
As of the end of March, the company exported 640 tonnes of flax. After 24 February 2022, supplies were suspended with about 7,000 tonnes remaining unsold, according to SINCO Trade. The company estimates its lost income at RUB 100 million.
The company Director believes that redirection to the internal market is unlikely to solve the problem since its capacity does not meet the scope of production. Internal market of Russia needs no more than 15 million tonnes of wheat per year as food. A total of 75 – 77 million tonnes of grain is used including feeding crop.
“It is export that develops the market. Alternative sales markets such as Iran and China are under consideration now. However, the demand of Iran is limited while exports to China imply transportation costs challenging the profit. Russian Railways’ tariffs exceed cost of transportation across the Black Sea or the Caspian Sea 3.5 times and more. Real implications of the market changes will be obviously seen in a half of a year or a year. So far, it seems fair to say that manual control of the economy is not the most effective method of development. The duties can destroy the industry if they are not lifted or reduced considerably. The business has nothing to do except for adjusting to new realities and continuing their activities. As usual,” the export concluded.