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The surplus of grain caused by the high harvest in 2022, the shortage of seeds, difficulties with logistics, as well as the lack of agricultural equipment and qualified personnel are the main challenges for farmers in 2023. This opinion is contained in the report of Yakov and Partners, the former Russian division of McKinsey & Co (the report is at the disposal of Agroinvestor). Analysts drew conclusions based on a survey of managers and specialists of Russian agro-industrial companies. They noted that these risks could "negate" all last year's successes of farmers. The study involved 96 companies with a land bank from 20 thousand hectares to 120 thousand hectares.

The first risk, which was noted by 12% of respondents, is logistics and difficulties with the sale of products. This problem has affected exporters the most. According to the Federal Customs Service, only by November 2022 did the rate of grain exports catch up with the values of 2021. Traditionally, in the first half of the agricultural season, most of the products (up to 70%) are exported, however, in the first half of the 2022/23 agricultural year, grain shipments are estimated at 50-56% of the export potential, including due to difficulties with chartering ships and partners’ concerns about secondary sanctions, analysts say.

According to Rosstat, as of January 1, 2023, Russian agricultural organizations had 35.4 million tons of grains and legumes in stocks (+ 43.6% compared to the same period last year). In addition, according to the results of the third quarter of 2022 (+30% compared to the same period last year), almost 18 million tons of grain were in procurement and processing organizations. From 37% to 80% of the study participants noted the presence of excess products.

Experts are even more concerned about the fact that almost 46% of respondents do not know what to do with the leftovers. “According to our forecasts, the final stocks of grain in the 2022/23 season may reach 26 million tons, of which about 17 million tons are wheat. Thus, at current prices, the risk zone usually associated with long-term storage of grain includes reserves worth about 260 billion rubles. In order for this figure not to grow even more, Russia will need to export every month the volume of grain close to the record (more than 4 million tons),” the Yakov and Partners report says.

The next problem is the quality of the seed fund. It follows from the respondents' answers that Western sanctions and supply restrictions may lead to a shortage of imported seeds. The most critical, according to them, is the situation with high-quality seeds from soybean, sunflower and sugar beet producers. Also during the survey, the heads of the companies noted that “so far they have not seen, for example, highly productive wheat and barley of Russian varieties”, it is possible to find acceptable alternatives not for all crops.

Analysts at Yakov & Partners believe that farms should reconsider their crop rotation strategy. “Removing the acute dependence on imported seed materials within one or two seasons seems unlikely. It would be wise to establish seed supply channels through alternative suppliers. Nevertheless, a number of farms noted that they do not see any difficulties with the seed fund, since they still have the necessary stocks for the coming season,” the report says.

The third risk most respondents associate with the availability and quality of tractors, combines, other self-propelled equipment and spare parts. Analysts believe that the shortage of agricultural machinery will grow. According to the report, now 70% of respondents point to the lack of serviceable equipment as the main risk for the implementation of plans for the new agricultural year. 34% of respondents lack tractors, 25% - harvesters, 11% - trailers. “Definitely, there will be a shortage of tractors of large classes, which were traditionally purchased from foreign manufacturers and are now under sanctions pressure. The fleet of tractors of smaller classes can still be replenished through contracts with friendly countries, ”says Yakov and Partners analysts.

The fourth risk is personnel. The shortage of qualified machine operators was noted by 7% of respondents. Without the interest of the government, the problem cannot be solved, farmers are sure. In their opinion, state support in attracting “promising” youth to agricultural specialties can be useful. The study involved farmers from 96 companies with a land bank of 20 thousand hectares to 120 thousand hectares.

Alexander Nezhenets, General Director of the Progress agricultural firm (Krasnodar Territory), told Agroinvestor that he agrees with the concerns expressed in the Yakov and Partners study. “Overproduction is a bomb for prices and sales opportunities this year. Logistics concerns are also relevant. We are experiencing difficulties with the purchase of spare parts, we have to order a lot from Russian factories due to long delivery times from abroad,” he said. There are also problems with the availability of transport, in particular, railway, for the transportation of goods, said Nezhenets. According to him, this is one of the most difficult issues. “Most of the problems will be relevant as long as the NWO is in progress. We can't fix a lot. There is no substitute for the connections that we had, ”concluded Nezhenets.

The general director of the Tambov Farms company, Igor Polyakov, also agreed with the arguments of Yakov and Partners. He told Agroinvestor that the main problem for his enterprise is the shortage of agricultural machinery. “The market is also overstocked. We do not see the activity of buyers. In autumn, product sales prices fell quite strongly and fixed at a low level for us,” Polyakov said. In his opinion, now the government needs to at least sharply reduce the rate of duty on the import of imported equipment. “Logistics is now difficult, the cost of imported goods has increased by 30-60%. It makes sense to abandon the collection of duties altogether, anyway, a large amount of equipment is not imported to Russia now, ”he believes.

Meanwhile, the Ministry of Agriculture estimated that the forecast volumes of grain exports from Russia will effectively remove excess products from the domestic market. The ministry said in a statement that grain exports for the first half of this year will amount to about 30 million tons, or about 5 million tons per month. Since the beginning of the season, 29 million tons have been exported, which is almost a record figure. As for the long-term storage of grain, as noted by the department, in recent years many projects have been implemented in Russia for the construction of modern elevator complexes, where grain is stored in an underworked form and almost does not lose quality. “Thus, the risks of partial crop loss are insignificant - the entire volume of harvested grain will be sent for processing, fodder purposes or export,” the Ministry of Agriculture is sure.

Although ending stocks of grain are expected to be at a record level and negatively affect prices and incomes of crop growers, at the same time, this is a certain safety cushion for the likely problems of the next agricultural year, Dmitry Rylko, director general of the Institute for Agricultural Market Studies, told Agroinvestor earlier.

According to the Ministry of Agriculture, the agro-industrial complex has become one of the most dynamically developing sectors of the Russian economy in 2022, demonstrating an increase in production by more than 10%. At the same time, in crop production, the indicator increased by almost 16%, due to the record harvest of grain and a number of other agricultural crops. The share of profitable agricultural companies has also grown: in 2021 they were 86%, and in the past - already more than 90%. The ministry added that in order to ensure the balance of supply in the market and maximum profitability of crop production, it is planned to reduce the area of wheat sowing this year. The target for its harvest is 80-85 million tons. According to the Ministry of Agriculture, this will help maintain the stability of the domestic market and realize the record harvest of last year.