For some time now, the market has been talking about strengthening of state control of exports in Russia. Operators expect an even greater presence of the government in agribusiness.
EVEN MORE STATE CONTROL IN AGRICULTURE BUSINESS IN RUSSIA
At the 25th International grain round “Grain market – yesterday, today, tomorrow” in Gelendzhik, one of the main events in the agriculture market in Russia, all conversations turned around the upcoming increase in control of the agricultural market by the government. So, the stories about the omnipresent eyes and ears monitoring every step and move of agricultural operators could turn out to be true.
In contrast to the gas and crude oil sphere or military hardware, agribusiness has registered a strong development over the past decade and even more without any serious intervention and support from the state. Here, however, it is necessary to clarify that the word “interfere” is not quite accurate. The state plays its role when it imposes duties on grain exports, or when the issues of food embargo have been resolved. And on the other hand, the state allocates aids, helps to solve logistical problems, and also appropriates resources for the development of uncultivated agricultural land. But until now, the state has not been a player in the market.
Now, with the arrival of the new minister of Agriculture (we wrote about him here), and with the goal to increase wheat exports to more than 11 billion$ by 2024, more and more government organizations are starting to be interested and want a part of the pie. Previously, the government’s program was mainly a way to prevent bread prices from rising before the elections. Now a few more goals have been added: to fulfill the production and export target, to take everything under control (otherwise, the target will not be fulfilled), to earn money, as well as to give the opportunity to earn money to interested parties.
The scheme is already well developed in Russia: previously, the government acted in the same way in the defense industry and in the crude oil or media sphere.
THE WATCHER IN THE RYE
For the observation and control you need first of all to appoint the main actors. The protagonist is rumored to be VTB Capital. VTB is a Russian financial group that includes more than 20 companies that operate in key sectors of the financial market. VTB is among the 500 largest companies in the world according to Financial Times. The main shareholder of VTB Bank is the government of the Russian Federation, from here its choice as controller of the agro sphere.
At the same time, VTB will not have a monopoly, although the group currently holds a large number of transactions in important trade and exporting companies in southern Russia. Nonetheless VTB will play a major role overseeing and influencing on the market.
Thus, according to the publication of the magazine Agroinvestor, VTB will have the possibility to control about 35% of the rail transportation of grain, of which 36% will be exported. In addition to this situation, the VTB Capital will oversee about 70% of the capacities for the shipment of grain on the Black Sea Basin and more than 30% of the transshipment of all Russian grain.
Given that VTB has the opportunity to independently finance different market transactions; it remains only to acquire its own grain production firm in Russia in order to become fully autonomous in the market.
As a conclusion, the agro market could see changes already this autumn. Let’s hope that the new important player will wisely use his power and will not harm the existing big and small operators in the market.
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