15 July 2020
Sunflower: export not process
How sunflower export restrictions influence on the market, if sunflower production can decline against this background and why presence of oil-extracting plant in the region is more reliable than start of external sales.
In agro-business there is a heated discussion around the measures to sunflower export restrictions. One experts suppose that such a solution is an attempt to take the margin away from farmers and deny them the opportunity to raise money, others insist that such measures will lead to reduction in cultivation of this agriculture. Many of them express the opinion that the government would better remove itself and leave the free market resolution of the issue. I offer to look at the situation in an integrated manner and estimate the whole model of agro-industrial complex promotion in the domestic and international markets, not in the separate area.
Role of government: passive or active participant?
Today we have to work in new realities of market volatility in the context of the pandemic and continuous «trade wars». Long-term strategy at the state level and protection of national interests are essential conditions for survival in the current world conjuncture. Each state must have an active position and support its own producers: both agrarians and processors. Russia is no exception here.
An illustrative example is a regulatory policy of Turkey, which is, by the way, our competitor on export oil markets in North Africa and Middle East. In Turkey there is a safeguard duty on crude sunflower oil – 36%, refined deodorized oil – 67,5%. At the same time there is a flexible scale – throughout the year it can vary from 7% to 26%. Turkey authorities always hold spread that stimulates imports of raw materials and makes supplies of finished products to the country ineffective, because there is a lack of its own raw materials. China, for its part, regulates the market not only with duties but also with a strong certification. The current situation with the largest Canadian rapeseed suppliers, to whom Chinese market has been closed, is a clear demonstration. If agricultures are spontaneously exported abroad, we will step back to about 10 years ago and face the problem of the lack of raw materials.
Does the duty demotivate to cultivate sunflower?
History of the industry development shows otherwise. 20% duty on sunflower export existed from 1999 to 2013. Then, there was a gradual reduction and by 2019 the rate amounted to 6,5% - the level where export of sunflower is profitable. Within that period the sector was developing in the following way: sunflower gross collection in 1999 was 4 mln tn, processing capacities were 3,9 mln tn – half of them remained from the USSR and required urgent updating. There was little export – only 31 thous tn shipped. In 2013, when the process of a gradual duty reduction started, the gross collection already reached 10 mln tn, processing capacities – 14 mln tn, export of oil in bulk and in bottle was 1,35 mln tn. In 2019 the capacities increased up to 20 mln tn in bulk and 0,5 mln tn in bottle. In total: the yield increased four times, processing capacities – five times, sunflower oil export – from zero to one of the leading positions at the world market.
In such a way, the period of safeguard duties not only supported agrarians to develop sunflower production but also created conditions that led to fourfold increase of the yield.
Whom to address: exporter-trader or processor with plant in the region?
It is not the policy of open export markets but a strong internal processing that generates interest of agrarians to oilseeds. Take a look how farmers’ demand for soybean in Chernozemie has changed: this agriculture began to be cultivated in the region after EFKO build a plant there. Today agricultural producers of central Russia bet exactly on soybean. When «Solnechnie producty» started to reconstruct Atkarsk oil-extracting plant, in Saratov region there were 200 thous tn sunflower. Plant breeding was more a lifestyle than business. Nobody earned money. Today in Saratov region there are 2 mln tn sunflower, it became the main agriculture on which farmers make margin.
The main reason for a tenfold growth is not an open for export market but building of two large processing plants in Atkarsk and Balakovo. And this is only a particular case. Let’s call things by their proper names: raw materials export restrictions are not profitable only for traders who work on external markets. The duty indeed crushes their seed trade business. However, I suggest to separate traders and plant breeders. According to the nature of their business models, they have to work upon the situational interest, they don’t build plants, neither deal with Pre-Harvest Financing Program to Farmers, nor develop agro-technologies. Farmer start to sow seeds only when a plant appears in the region. Turkey can buy them today but tomorrow won’t while the nearest plant is a guaranteed demand.
Processors and agricultural producers are parts of the united ecosystem. We are interconnected and mutually advantageous to each other in the long term. Together we built this sector from the ground up and together we have a chance to double it in the coming years. To displace Ukrainians from Indian and Chinese markets in sunflower oil. To start export of soybean oil and soybean meal and lead rapeseed to a new level. Soybean and rapeseed today are supported by the grant for agricultural producers per ton of raw materials given for processing. It is too expensive to support sunflower in such a way, that’s why the safeguard export duty is just the most effective tool to stimulate internal processing and as a result create conditions for further development of this agriculture in the country and bigger earnings of agricultural producers.