The adjustment of export duties on grain crops, which the Russian Ministry of Agriculture expressed its readiness to do in response to the farmers’ request for the abolition of the grain export tax, will not completely reduce the financial burden and will not have a fully stabilizing effect on agricultural producers, given the persistence of current negative trends in the agricultural sector and the absence of new incentives. measures of state support,” says Mikhail Danilov, General Director of JSC Firm “August”. In the context of a sharp decline in grain margins, the company is considering options for optimizing the sowing area for spring wheat on its own farms in the central part of Russia and at the same time increasing efforts to increase the efficiency of grain sales and improve the logistics infrastructure. Despite the difficult situation in the agricultural sector, forcing agricultural enterprises to cut costs in many areas, the forecast for the development of the plant protection products market in 2024 year assumes a moderate increase in consumption (in general - about 2-5% in units of sown area): most farmers understand that the competent use of pesticides does not increase, but reduces the cost of agricultural products, while the indicators of the use of plant protection products by domestic plant growers have not yet reached the optimal level for obtaining maximum margin.
Russian farmers are starting spring field work in 2024 under conditions of extremely unfavorable market conditions: the profitability of agricultural production may drop to a minimum, and the development of negative trends threatens critical consequences for the agricultural sector, creating risks for ensuring the country’s food security, states Mikhail Danilov.
He explains his thought: “I will say, perhaps, a provocative thing, but at the beginning of the 1921th century it seemed impossible that famine would arise in Russia, which fed all of Europe, nevertheless in 1922-2014 it covered the territory from the Urals to the Black Sea and claimed millions of lives. Today our country is a key player in the global food market and the largest exporter of grains. At the same time, domestic plant growers are in a difficult situation: product prices have fallen, production costs have increased sharply, and market participants are suffering huge losses due to export restrictions and export duties. Now the industry lives by inertia, using up the potential accumulated from 2022 to XNUMX thanks to the effective government policies of those years, which ensured access to cheap loans and limited agricultural imports from unfriendly countries. However, in the changed circumstances, the situation is heating up: while prices remain low and today’s market regulation mechanisms, the risk of mass bankruptcies of agricultural enterprises over the next two years is very high.”
In the current conditions, the August Group of Companies, which is a significant domestic agricultural producer (in terms of the size of the land bank, the August-Agro Management Company ranks 19th among Russian agricultural holdings according to the BEFL consulting company rating for 2023), is ready to reconsider the distribution of part of its product portfolio in favor of more marginal ones crops - primarily in the Republic of Tatarstan, where the company's main land assets are concentrated. Mikhail Danilov argues: “Whatever the projected profitability of agricultural production in 2024, it is already obvious that for a large number of crops in many regions located within the country far from transshipment hubs, the emerging cost of production in general and the cost of logistics in particular make crop production planned - unprofitable, unless the rise in world prices and the abolition of export duties dampen the emerging negative trends in pricing. And grains top the list of the least interesting crops for farmers. But, unfortunately, there is nothing to replace the same winter grains with: in many regions of the country, they are the only ones that are guaranteed to survive the winter with a low level of losses. The situation with spring wheat is different: we, as an agricultural holding, will try to replace it as much as possible. At the same time, it is clear that changing the structure of sown areas is a double-edged sword: the crop rotation cycle lasts from three to seven years, and what should you change for today so as not to revise your plans again tomorrow? For example, in 2023, sugar beets showed good profitability. But the Russian Ministry of Agriculture is going to limit the export of sugar - obviously, this will also hit producers hard.”
The sharp increase in transport tariffs significantly aggravates the unfavorable price environment and regulatory measures for the export of agricultural products. “So, in 2023, transport costs for transporting wheat by rail from Tatarstan to ports in Novorossiysk and St. Petersburg amounted to up to 50% of the cost of production locally. In response to this situation, we are forced to optimize the logistics infrastructure ourselves: we build transshipment elevators, purchase our own transport in order to have a logistics premium over domestic prices and additional advantages in pricing,” notes Mikhail Danilov.
Thus, in the Republic of Tatarstan, “August” is building two elevator complexes with a high speed of product shipment. The Sviyazhsk-Zernoprodukt elevator in the Zelenodolsk region with a simultaneous storage capacity of 112 thousand tons of grain is being prepared for full launch in 2024. The elevator in the Bugulminsky district (simultaneous storage capacity is 100 thousand tons) is planned to be launched in stages in 2024–2025. The commissioning of both complexes will provide the ability to accept and ship up to a million tons of agricultural products per year - produced both by Augusta farms and by other farmers of the republic.
In the face of declining profits and rising costs, plant growers are optimizing costs, including reducing costs for investment projects, purchasing equipment, and saving on the purchase of complex fertilizers. At the same time, JSC Firm “August” does not expect these negative trends to spread to the plant protection products market. “We estimate the potential volume of pesticide use by the domestic agricultural sector at 260–270 million hectares (in single-treatment areas). Despite financial difficulties, farmers will not reduce the area under protection, since the majority understand that this will further reduce the profitability of their production. Proper use of plant protection products allows reducing the cost of production and increasing the marginality of agricultural crops, while in the country as a whole, the use of pesticides has still not reached a technologically justified level to obtain the maximum margin per hectare,” believes Mikhail Danilov.
JSC Firm "August" notes that all major producers of plant protection products are ready for the agricultural season. According to the company’s estimates, Russian industry leaders, taking into account tolling, today provide almost 3/4 of the domestic demand for pesticides and taking into account the development of domestic production capacities in combination with the “wait-and-see” strategy of the current activities of multinational corporations in our country, we can predict a further redistribution of market presence shares - increasing sales by Russian manufacturers with a gradual decrease in sales volumes by “multinationals”.
Significant fluctuations in prices for plant protection products in the current agricultural season are unlikely, given that the bulk of the active ingredients and coformulants have been purchased, supplied, and a significant proportion of the drugs have been produced. In addition, the majority of contracts for the supply of manufactured products to dealers and end users have already been concluded. A weakening or strengthening of the ruble, a sharp change in prices for active ingredients and coformulants for the production of pesticides can certainly adjust the cost of the latter, but this effect will be delayed and will mainly affect purchases for the 2025 season (with the exception of a small number of products used in middle and end of the current season, the purchase of active ingredients for which has not yet been completed).