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Russian farmers face financial crunch

“Farmers are having to unload their production at low prices to repay loans.”

Russian agriculture needs more than $34 billion from a government rescue package by the end of 2008 to refinance loans and ride out the global financial crisis, the head of the country’s grain industry lobby says.

Russian Grain Union president Arkady Zlochevsky said the country’s biggest harvest in 15 years had contributed to falling prices, increasing the strain on farmers already struggling to repay debts incurred to buy equipment and improve crop yields.

“The total value of the funding needed to refinance credits in the entire agricultural sector is about 900 billion rubles ($34.4 billion),” Zlochevsky told a news briefing.

Russia has unveiled a series of packages to free up over $210 billion for the country’s banking and industrial sectors and help the economy survive the global liquidity crunch.

Agriculture Minister Alexei Gordeyev said last month some of these funds should be spent on agriculture. He said a revival in the sector was being jeopardized as banks revised loan rates and demanded additional collateral.

Zlochevsky said the high grain crop, expected this year to exceed 100 million tonnes, combined with falling prices had created an additional headache for Russian farmers.

“Farmers are having to unload their production at low prices to repay loans,” he said.

Zlochevsky said Russia could this year harvest up to 107 million tonnes of grain, but losses could occur as a result of adverse weather in Siberia, where wheat harvesting continues, and the country’s south, where maize is still being gathered.

Export limits

Domestic grain prices have fallen in line with world prices, lowering the competitiveness of Russian grain on foreign markets and restricting exports, Zlochevsky said.

“With capacity to export 23 million to 25 million tonnes, we may export only some 21.5 million tonnes,” he said.

Russia cannot use ports in Ukraine with capacity to ship out 20 million tonnes of grain, he said, as its ex-Soviet neighbour needs the capacity to handle its own big crop. Low grain prices are also making shipments via Baltic Sea states unprofitable.

Zlochevsky said farmers would feed some grain to domestic animals, but this would still leave Russia with a 30-million-tonne surplus.

The situation could be remedied by government intervention purchases, which could take as much as seven million tonnes of grain from the market, he said.

The government has set aside nearly $1.3 billion for the purchase of five million to six million tonnes of grain, but so far has spent just $65 million to buy 405,000 tonnes.

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