Ruble Transfer: Russia Is Changing the Order of Payments for Strategic Raw Materials

NEW – July 10, 2022

Export duties on grain, sunflower oil and ground oil-cake will now be in rubles. The base price for wheat is 15,000 rubles per ton, barley and corn — 13,875. The RIA Novosti material covers why this is necessary and how it will affect the domestic market and prices.

Soared in price

In six months, wheat has risen in price by more than 60% against the background of the situation around Russia and Ukraine, which provide almost a third of world exports. The share of Russian manufacturers accounted for 16%, Ukrainian — 10%.

Since February, Moscow has restricted the supply of grain (wheat, rye, barley and corn) outside the Eurasian Economic Union until June 30 — to protect the domestic market in the face of unprecedented external restrictions.

Additional measures are being taken now. Export duties on grain, sunflower oil and ground oil-cake will be calculated in rubles.

The base price for wheat is 15,000 rubles per ton (instead of $200), barley, corn and meal — 13,875 (instead of 185), sunflower oil — 82,500. The formula uses the arithmetic average dollar exchange rate set by the Bank of Russia for five working days preceding the settlement date.

Also, the government decree extends the validity period of the duties imposed a year ago on the export of sunflower oil, ground oil-cake and sunflower seeds until August 31, 2023.

This will “support the export of agricultural products, reducing the impact of currency fluctuations on the amount of export duties,” the official Telegram channel of the department says. In addition, “it will ensure a stable price situation in the domestic market”.

Price stabilisation

Analysts confirm the arguments of the authorities. In addition, such a step fits into the general policy of de-dollarisation.

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“Too strong volatility of the exchange rate and high quotations of raw materials have put the market in a state of uncertainty. Price targeting is easier to calculate. At the same time, we see that they are guided by 75 rubles per dollar, a comfortable indicator for filling the budget,” Stepan Sumin, asset manager of Cresco Capital, points out.

Most export contracts are concluded in foreign currency, but payments have become problematic due to sanctions. Now the domestic market will receive stable prices, and producers will be able to calculate income and expenses more clearly.

A reasonable compromise

At the same time, Natalya Milchakova, a leading analyst at Freedom Finance, explains, it’s not so much about the currency of export payments as about the adjustment of the formula itself. In fact, it was not the duties that were “recalculated”, but the rubles — based on the average exchange rate over the past five days.

Previously, exporters were forced to sell more grain to the domestic market, thereby reducing prices. Now the situation is different: world quotes are very high.

“It turns out that duties demotivate exporters who receive less revenue. And this, in turn, can lead to a reduction in production, especially since global inflation directly or indirectly increases costs. Farmers have already demanded the abolition of duties, but then the government intervened, finding a reasonable compromise — recalculation according to a new formula, based on the world price converted into rubles,” the analyst explains.

Customers will not be affected

Thus, the price balance will remain with expensive raw materials and a strongly strengthened ruble. But for buyers of Russian grain, little will change: neither the transaction price nor the shipment period are directly determined by the formula.

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However, there are other factors that have already lowered world prices for agricultural products in June. According to TradingEconomics, from the May peaks, wheat quotations fell by more than 35% by July 1 and reached the February level.

“Forecasts for an increase in supplies due to the pace of wheat harvesting in the United States ahead of schedule are affected. In addition, expectations of a good harvest in Russia are affected, as well as decisions to provide corridors for grain export from Ukraine,” notes Mikhail Bespalov, an analyst at KSP Capital.

The right decision

Market players positively assessed the decision of the authorities to pay attention to the costs of exporters.

“This is strategically true and absolutely logical — after the calculations for energy resources were converted into rubles. Such measures will strengthen Russia’s position in the food and financial markets. As for prices or demand, I don’t think it will have any special impact, because the equivalent is absolutely equivalent. Russia is a leader in the global food market, and everyone will have to reckon with our conditions one way or another,” says Kristina Romanovskaya, owner and CEO of Lazarevskoye Agricultural Complex, one of the largest agricultural enterprises in the Tula region.

Duties, however, were not limited. As Dmitry Sergeyev, director of the “United Grain Company”, said during a meeting with Russian President Vladimir Putin, payments for grain are also transferred to the national currency. Several contracts have already been signed with Turkey. The last one was signed in March. The total amount of the transaction is three billion rubles.

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RIA Novosti

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