Rilko - Russian agricultural‐food exports and food security: how two tasks are combined"

1. Russian agricultural-‐food exports and food security: how two tasks are combined Samarqand, November 2, 2016 Dmitri Rylko General director IKAR LLC

2. Russian agriculture: changing paradigm of sector development Two-‐fold devaluaLon caused by falling crude oil and gas prices Counter – sancLons ShiNing and modifying government support *** “Net result”: boosLng short and medium term compeLLveness of domesLc ag on domesLc and internaLonal marketplace

3. “Russian cross”: crude oil and ruble price indexes

4. Russian government Keeping nominally same support level to agriculture (against the background of general absolute budget shrinkage in rubles and two-‐fold devaluaLon… ShiNing subsidy support to industries – “import killers” (highest short/medium/long term import subsLtuLon potenLal): greenhouses, commercial vegetables, horLculture, dairy, beef caVle… Launching new subsidy tools, such as •  direct subsidy to ag machinery manufacturers, •  “project ﬁnancing”, •  parLal ﬁxed investment compensaLon

5. Russian agricultural growth rates, % (2004 = 100) +5,5% +8% +3% 90,0 100,0 110,0 120,0 130,0 140,0 150,0 160,0 170,0 Agriculture Crop Livestock CAGR 2005-‐2015 Agriculture: 3,3% Crop: 3,6% Livestock: 2,6%

6. +2,0% +5,5% 95 105 115 125 135 145 155 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016* Food industry Agriculture Russian ag and food processing growth rates, % (2004 = 100) CAGR 2005-‐2015 Food industry: 2,9% Agriculture: 3,3%

7. Russian foreign ag trade, $ bln -‐50 -‐40 -‐30 -‐20 -‐10 0 10 20 30 Other countries Import EU Import CIS Import Other Countries Export EU Export CIS Export $24,4 mln $43,2 mln $20,8 mln IKAR FORECAST $17,0 mln Russia is quite aggressively moving to “zero” agricultural trade balance

8. Structure of ag export from Russia, $ mln 56% 62% 60% 60% 17% 15% 17% 16% 0 2 000 4 000 6 000 8 000 10 000 12 000 14 000 16 000 18 000 20 000 2013 2014 2015 2016* Other categories Live animals, meat, dairy Beverages and spirits Tobacco Fish and seafood Cereals and oilseeds, oils and fats, ﬂour, meal and cake, ready-‐to-‐eat products

9. Import structure by macro origins to Russia, $ bln 3,7 4,4 3,6 3,5 18,8 14,4 6,5 5,8 20,8 21,3 16,5 15,2 2013 2014 2015 2016* EurEcUnion Under sancVons Others

10. Structure of ag import to Russia, $ mln 22% 21% 22% 22% 26% 23% 19% 19% 14% 15% 17% 18% 3% 5% 6% 6% 8% 8% 7% 7% 0 5 000 10 000 15 000 20 000 25 000 30 000 35 000 40 000 45 000 2013 2014 2015 2016* Fruits and vegetables Meat and dairy Tea, coﬀee, cocoa, other grocery Oilseeds Spirits and beverages Tobacco Other products

11. Some sectoral insights

12. Growing export orientaFon of Russian oilseed market 0 5 000 10 000 15 000 2012/13 2013/14 2014/15 2015/16 2016/17* TMT Sunﬂower market DomesVc market Export (seed and oil) 0 500 1 000 1 500 2012/13 2013/14 2014/15 2015/16 2016/17* TMT Rapeseed market DomesVc market Export (seed and oil) 0 50 100 150 200 250 300 2012/13 2013/14 2014/15 2015/16 2016/17* TMT Saﬄower market DomesVc market Export (seed only) 30% 43% 61% 80% 78% 94% 0 100 200 300 400 500 600 700 2012/13 2013/14 2014/15 2015/16 2016/17* Flaxseed market DomesVc market Export (seed only) 91% 92%

13. Meat import subsFtuFon, TMT 30% 27% 27% 24% 17% 12% 10% -‐4 000 -‐2 000 0 2 000 4 000 6 000 8 000 10 000 2010 2011 2012 2013 2014 2015 2016* ProducVon Import Import share, %

14. Cheese import subsFtuFon, TMT 47% 48% 45% 49% 37% 23% 25% -‐500 -‐300 -‐100 100 300 500 700 2010 2011 2012 2013 2014 2015 2016* ProducVon Import (excl. Belarus) Belarus Import share, %

15. Cheese import subsFtuFon, TMT 47% 48% 45% 49% 37% 23% 25% -‐600 -‐400 -‐200 0 200 400 600 800 2010 2011 2012 2013 2014 2015 2016* Cheese producVon Cheese products Import (excl. Belarus) Belarus Import share, %

16. Veg import subsFtuFon, TMT 34% 33% 35% 37% 36% 26% 16% -‐400 -‐200 0 200 400 600 2010 2011 2012 2013 2014 2015 2016* Cucumbers ProducVon Import (excl. Turkey) Turkey Import share, % 82% 81% 83% 82% 81% 78% 61% -‐1 000 -‐800 -‐600 -‐400 -‐200 0 200 400 2010 2011 2012 2013 2014 2015 2016* Tomatoes ProducVon Import (excl. Turkey) Turkey Import share, %

17. Retail market: esFmated share of domesFc and imported products, $ mln 0,0 50,0 100,0 150,0 200,0 250,0 300,0 350,0 400,0 DomesVc products Imported products

18. “Netback” as applied to agricultural markets: lessons to be learned The netback is calculated by taking all of the revenues from the crude oil, less all costs associated with ge`ng the oil to a market. Netback as applied to agriculture: On import-‐oriented market the local price is world price PLUS (domesLc tariff and NTM barriers) transportaLon cost On self-‐sufficient/export oriented market the local price is world price MINUS (imporLng country tariff and NTM barriers) and transportaLon cost

19. 35% 27% 19% 13% 14% 13% 10% 5% 4% 1,2 1,4 1,6 1,8 2,0 2,2 2,4 2,6 2,8 3,0 Share of import Imported broiler to Russia price DomesVc Price Netback concept as applied to the Russian poultry meat market

20. Some pre-‐final subjecLve notes “Food security” and/or “food independence” Self sufficiency of “first level” BeVer (for agriculture, and the government!) to keep some industries reasonably net imporLng, rather than boost full self-‐sufficiency, if there is no obvious (potenLal) “natural” export compeLLveness… …We need a good and strong scien3fic theory and apparatus to check and measure it…

21. Москва: две концепции продажи орехов/сухофруктов

22. Import of raisins to Russia by origins and customs value per kilo (2015) 56 1798 7074 2386 100 480 334 8265 1641 4,55 3,06 1,93 1,88 1,73 1,70 1,35 1,14 0,71 0 1000 2000 3000 4000 5000 6000 7000 8000 9000 0,00 0,50 1,00 1,50 2,00 2,50 3,00 3,50 4,00 4,50 5,00 RSA TURKEY IRAN CHILE CHINA INDIA UZBEKISTAN AFGANISTAN KAZAKHSTAN Import, Tons Average price, $/kg

23. Thank you! Рахмат! d.rylko@ikar.ru Skype: Dimash457

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