PAVA Reports on the Progress of State Intervention Grain Purchases

Ministry of Agriculture extended the terms of intervention purchases, increased the number of lots offered for trading within one mini-session from 27,000 to 81,000 tonnes, and also prolonged terms of grain deliveries.

26/12/08 This year, Russia harvested a bumper crop of cereal grains which made the government undertake certain extra measures to prevent a slump in prices. The solution to the problem was found in introducing state interventions.

The growers were offered an optimal way out of the grain oversupplies situation. The government aims to support farmers and purchases grain at well above market prices. “The state procurement price is RUR6 per 1 kilogram. Considering the current cost of flour, grain processors are unable to buy grain at such a price as it might destroy profitability of the business. Therefore, there is a difference of RUR1 between the market price and the price offered by the government”, comments Angela Kiseleva, PAVA Commercial Director. “Apart from the attractive price, collaboration with the government is a 100% guarantee of payment for the total volume of sold grain”.

However, most of the producers hesitate to take advantage of this opportunity. According to the expert estimates, the Altay Territory is one of the most passive regions in terms of selling grain into the state intervention stocks.

Enterprises of the PAVA company, one of major Russian grain processors, have been accredited for storage of state intervention grain fund. PAVA specialists have conducted field meetings at the company’s accredited elevators during which the farmers were briefed on the principles of the state programme.

These meetings helped make it clear that there is a serious obstacle for the farmers selling grain to the government, which is related to the procedure of compiling the required set of documents. Therefore, PAVA made a decision to grant free aid in documentary preparation. Moreover, the issue of simplifying the flow of documents is now being considered on the federal level.

Part of the grain producers refrain from sales expecting a sharp rise in demand and consequently in prices. Nevertheless, as independent experts forecast, it is unlikely that grain prices will soar because of the apparent overproduction. The reverse trend might be more probable. The continuous scaling down of prices already prompted the decision to double the amount of the state intervention fund.

“Judging by the steps the government undertakes, we can see that the federal authorities are interested in supporting the farmers. There is public awareness that a record crop has been produced, and the grain cannot be allowed to perish or be sold at a totally disadvantageous price for growers. Consequently, the Ministry of Agriculture extended the terms of intervention purchases, increased the number of lots offered for trading within one mini-session from 27,000 to 81,000 tonnes, and also prolonged terms of grain deliveries under the contract from 20 to 30 days”, said PAVA Commercial Director.

So far, three farms in the Altay Territory - ‘Kadnikovskoe’, ‘Niva’ and ‘Churilov’ - have sold their grain crop into the intervention stocks. As both parties say, it was a positive experience of collaboration. However, according to Ms Kiseleva, the Altay Territory enterprises are still very slow in selling the crop.