Russian Ministry of Agriculture will implement import quotas for pesticides

According to the RBC news agency the Ministry of Agriculture proposed to introduce quotas on imports of pesticides to Russia. At the end of April, the Ministry sent a letter to the Ministry of Industry and Trade with the corresponding position for consideration at the meeting of the subcommission on customs-tariff and non-tariff regulation, protective measures in foreign trade of the Commission on Economic Development and Integration.

The question of introducing quotas on the import of plant protection products into Russia was raised last week at a meeting of representatives of the All-Russian public organization "Business Russia" with President Vladimir Putin. One of the meeting participants asked the president to limit the import of pesticides by a quota to support domestic companies. Putin promised that "the issue will not hang in the air": "I am always for such proposals and for their implementation, but of course we must work it out in the relevant agencies, especially in the Ministry of Agriculture," said the President then.

According to the document, the Ministry of Agriculture has already formed a position on the import of pesticides: a quota of 15 thousand tons for the period from October 1, 2023 to April 30, 2024. It is proposed to set separate indicators for the main groups of pesticides, the most demanded of which - herbicides (chemical weed killers), fungicides (disease killers), insecticides (insecticides (chemical pest killers).

Access to the quota will be given "mainly to entrepreneurs doing business on a permanent basis," who have been working for a long time with proven foreign manufacturers and are not engaged in imports of counterfeit, the letter of the Ministry of Agriculture says. The size of the proposed quota is based on the volume of production and consumption of imported pesticides in Russia over the past three years, the letter says.

In 2022, consumption of pesticides in Russia amounted to about 230 thousand tons. Most of them - 118.8 thousand tons - were provided by domestic producers, says the letter of the Ministry of Agriculture. Pesticides imported from abroad accounted for about a third - 71.2 thousand tons, or 30.9% of the total volume. Another 40,000 tons of pesticides were produced by foreign manufacturers at the facilities of domestic companies under the tolling scheme.

The Ministry of Agriculture justified the need to introduce import quotas for pesticides in its letter with several arguments. First of all, the introduction of quantitative restrictions on imports will ensure loading of domestic plants and will stimulate the creation of new pesticide production facilities in the country, as well as localization of production of active substances and increase of exports to other countries. The measure, according to the ministry, will increase the capacity utilization of domestic producers from 46% in 2022 to 77% in 2025, and ensure a stable utilization rate of 90% until 2026. Plants of domestic producers (which are located, in particular, in Moscow, Volgograd, Tula, Ryazan, Lipetsk, Leningrad, Tver regions and other regions) "can fully meet all the needs of the domestic market for all types of pesticides", the document emphasizes. And in case of unplanned changes in the market or emergence of urgent tasks related to growth of pesticide use, domestic suppliers should be counted on.

Secondly, the quota "will significantly increase tax revenues to budgets of all levels", the agrarian ministry expects. Russian manufacturers of pesticides are major taxpayers: in 2022 they provided the receipt to the budgets of different levels about 45 billion rubles.

Thirdly, the Ministry of Agriculture expects that the introduction of quotas will ensure a general reduction of security threats to Russia, reduce dependence on foreign supplies and protect all crops growing in the country.

Based on the letter, the Ministry of Agriculture predicts the growth of pesticide consumption in the country up to 240 thousand tons in 2023 and up to 270 thousand tons by 2025. In this case, the introduction of quotas "will not cause a shortage of goods on the market due to the capabilities of domestic producers", as well as the transfer of production by foreign companies in Russia on a tolling basis. The introduction of quotas will not make plant protection products more expensive for farmers because the competition in this market is high, the letter of the Ministry of Agriculture says.

Let's analyze the received information in order.

The Russian domestic market in the last year has been affected by multi-vector influences that dramatically change the market landscape, namely:

a.    A sharp drop in the price of active ingredients in China

b.    Farmers' difficulty selling their crops, particularly wheat and pulses, due to logistical problems associated with the special military operation in Ukraine and the sanctions that followed, with purchasing prices falling below 2022 production costs

c.    Sabotage by a significant portion of agricultural producers, mostly small and medium-sized businesses, of the state's Saturn pesticide traceability system

d.    A late spring, accompanied by low temperatures across the country, delaying major field work by a month or more.

e.    As a result of all of the above, pesticide demand and sales volumes from the beginning of the year to June 1 declined by at least 40% on average.

f.    Massive cancellation of earlier signed and paid contracts by large consumers due to drastic decrease of selling prices

g.    Deterioration of financial situation of the distribution network due to the abrupt transition of multinational companies from credit to 100% distribution system

h.    Panic among major suppliers and producers of pesticides and repeated reductions in selling prices of their products

i.    Trade in pesticides with negative margin and turn to credit-base buiseness

j.    Russian producers began to suffer huge losses from the sale of their products at reduced prices and faced, like the whole market with incompatible with the conduct of financial activities cash gaps, forced to keep production capacity loaded at an average of 30% with the sales of 15% of the project capacity.

k.    The pesticide market in Russia faces the threat of collapse in 2024.

And here we could choose two ways.

• Liberalization of the market, increasing competition, stimulating the development of relations with Chinese and Indian partners to saturate the market with quality and affordable pesticides

• The final shutdown of the market and the transition to a mobilization economy, which Russian producers have been talking about for so long.

The decision-makers seem to choose the second option, unfortunately for the thinking person. Let's see what may happens and who benefits from it.

a.    Quoting of imports up to 15 000 tonnes per annum means a compulsory reduction by a minimum of 4-5 times of the share of affordable imports in favour of more expensive Russian production

b.    Competition to obtain quotas will create corruption opportunities for structures that register worthy importers according to nontransparent criteria

c.    The investment attraction of the Russian market of pesticides will disappear definitively, as foreign companies from China and India who have invested a lot of money in registration will actually lose the chance of importing formulations into Russia

d.    Average weighted price of pesticides will rise to the planned values (2 times) and will grow to the values acceptable to keep the cost of agricultural products

e.    Illegal market will have a chance to take a niche left by legal importers up to 30% of Russian market - which is about 700 000 000 USD !!!

f.    Importers oriented on the import of finished formulas will have to choose between re-registration and local production which will require additional time and financing in the situation of lack of transparency and formed market of formulas in Russia

g.    Possibly, if the quota import of formulations and the absence of an imputed market of formulations in Russia will provoke the appearance of small formulation productions in Russia.

h.    The absence of influential players from China and India in the Russian market with 100% dependence on supply of active ingredients does not increase the level of protection of the local pesticide market, but makes it even more dependent and vulnerable

This situation of non-market development of the industry under strange and far-fetched pretexts of developing local pesticide production and removing dependence on foreign raw materials without developing the chemical industry in Russia leads to sad thoughts about the absence of any adequate market development in favor of its redistribution to the existing monopolies and the possible subsequent nationalization of both production facilities and the market as a whole in case the situation fails. And if the strategy of supporting financial incapacity through non-market mechanisms is maintained, it is not possible to hope for the best.