IKAR in Mass and Industry Media

Russian oilseeds: modeling export duty influence

IKAR

The 2005/06 season has been featured with a number of impressing figures for the domestic oilseed vertical commodity segment. The record high oilseed harvest was collected (6.4 mmt), record high oilseed oil has been processed, record high sunseed oil export was reached (580 tmt currently, 600 tmt expected at the end of season). In general Russian sunseed complex has demonstrated further aggressive integration into the world vegetable oil markets: taking in mind high sunseed export Russia to deliver abroad about 1/3 of its sunseed output (oil plus seeds in sunseed equivalent).

In 2006 the sowing areas under sunflower are again record high: 6.1 mha. It is despite numerous complaints and panic on the part of producers regarding too low sunseed prices. Somehow sunseed growing continues to be an attractive crop rotation option in vast European Russia cropland areas. However one should not fall into the euphoria: most of producers really suffered a lot last autumn, when they sold most of sunseeds at very low USD155-170 per ton. The 2006 harvest may result even in lower prices.

So expected high 2006 output may lead to resuming last year's hot discussion about future destiny of the oilseed export duty. To remind, 20% duty was established in 2000 season for all as the result of strong lobbying of emerging domestic crushing industry. Since that time Russian crushing and further processing industry has dramatically strengthened both in terms of capacity and quality of plants: many state-of-art plants have been erected during last 5 years. The demands to lower export duty to at least 15% are escalating.

To "add a little science" into extremely emotional discussion between producers and processors IKAR has carried out the modeling of the influence of the export duty on domestic sunseed sector performance.

Possible situation modeling was based on the assumption that export duty influences the physical break-downs between export and domestic crushing as well as domestic price equilibrium. We deployed incomplete equilibrium model and used IKAR price series, domestic statistics and customs data.

Conditional assumption: industry equilibrium is reached when "income" of producers and processors is equal.

Conducted modeling shows that in current circumstances disparity between relative "income" value of crushers and sunflower producers make up about RUR1.5 billion per year. Within the condition of export tariff rate for oilseeds lowering down to 15% this disparity will be reduced toRUR0.5 billion, while relative parity to be achieved within the condition of decreasing export tariff rate to about 14% (see also Picture 1).

Ceteris paribus, within the assumption of decreasing export duty to 15% sunflower prices and total yield grow by 4.6% and 3.0% accordingly.

Another issue is future destiny of other oilseeds (rapeseed, soybean, mustard, etc.) export tariff. The solution must be complex and favorable for all domestic vertical value chain participants. We should not miss growing opportunities on the world market.

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Pic. 1

07.08.06

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