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EXPERTS BELIEVE GOVT-PROPOSED WHEAT PURCHASE PRICES FOR INTERVENTION FUND ARE TOO HIGH

04 августа 2005 года

Interfax News Agency, July 31, 2005. Russian grain market experts believe that the government-proposed prices on wheat purchases for the state intervention fund are overpriced.

Agriculture Minister Alexei Gordeyev said in Kazan on July 30 that the price on class-3 food-grade wheat would be no less than 3,000 rubles per tonne. Intervention purchases are expected to begin in the third week of August.

Prices on class-3 wheat there could level off at 2,650-2,750 rubles per tonne and all the other regions traditionally orient themselves to this level, Korbut said. "And if the export of food-grade wheat picks up in the near future, then a price rise can be expected," he said.

Korbut said he believes that the maximum purchase prices on class-3 wheat on the upcoming grain intervention should not be more than 2,800 rubles per tonne. "More would be nice of course, but that is pretty much impossible because exports would become unprofitable and would stop," he said. "And the lack of exports could lead to colossal pressure on the market and a lowering of prices. Besides that, it is necessary to take into account the interests of livestock breeding for which a sharp increase in feed prices would be extremely dangerous."

Korbut said the government, based on its financial resources, could purchase no more than 1.5-2 million tonnes of grain during the intervention. "At the same time, in the fall, exports will take away the same amount of grain within a month or a month and a half," he said.

"The price of 3,000 rubles per tonne is not adequate for the situation taking shape on the market and is significantly higher than the current market indicator," said Dmitry Rylko, general director of the Institute for Agrarian Market Studies (IKAR). He said that, "in the framework of the contemporary model, intervention purchase prices should naturally be higher than the market prices, but not much higher."

The state grain purchases at the price proposed by the Agriculture Ministry could temporarily "bring the price situation on the market to a higher orbit than now, but it's not clear what would occur once the interventions ended," Rylko said.

The government can only purchase a maximum of 2 million tonnes, he said. "That's not that much taking into account the large harvest that is expected, but it's difficult to say what would then happen with the remaining grain," he said.

Rylko said that, without taking into account the grain intervention, IKAR had forecast a rather high level of grain exports from Russia for this agricultural year – about 10 million tonnes, including up to 9 million tonnes of wheat. Exports in July, according to estimates, amounted to 800,000 tonnes. Grain was exported as far as Indonesia, he said. "The whole market is currently ready to export. In the event that high intervention prices are announced, a new temporary center of price attraction will appear on the market for exports that would have unclear consequences for now," he said.

Rylko said the current system for holding interventions is wholly ineffective. "They're organized in such a way that someone's interests are always infringed upon," he said. "To support farmers, it is necessary to set high procurement prices, but on the other hand, high domestic prices can lead to a stop in exports and Russia being pressed off the world grain market," Rylko said.

In the period from July to September, 40% of the country's harvest will be sold, he said. At the end of September, it will already be possible to set any price since it won't have hardly any effect at all on the farming economy," Rylko said.

Rylko said "the strategic way out of the current situation would be to hold advance payment operations with grain and set minimum guaranteed prices, but this proposal has already been ignored for several years."

At a meeting with government members on August 1, President Vladimir Putin pointed out the need to take timely measures aimed at stabilizing grain prices. He said the decision to hold interventions "was already disputable and if the decision is made with delays, then people will be demanding a reason" for this decision.

The Agriculture Ministry has forecast the gross grain harvest in 2005 at 76-78 million tonnes. In 2004, Russia harvested 78 million tonnes of grain.

Source: Interfax News Agency  |  #grain   |  Comments: 3   Views: 57


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