Will the price of bread rise? Does our country face a shortage of flour?
Wheat prices are rising in Europe. In March, futures on the European market rose sharply by 100 euros, amounting to almost 400 euros per ton, and on the Chicago Mercantile Exchange - up to $13.65 per bushel (27.2 kg), exceeding all historical highs.
Experts cite difficulties with supplies from Ukraine and Russia, which account for up to 40% of world grain exports, as the reason for this growth.
According to the Food and Agriculture Organization of the United Nations (FAO, FAO), due to the blocking of ports, wheat exports from Ukraine remain insignificant. Russia, despite restrictions on cargo transportation and trade and financial transactions, continued deliveries to Egypt, the Islamic Republic of Iran and Turkey throughout April.
Kazakhstan will not increase export volumes
The official representative of the Grain Union of Kazakhstan, Yevgeny Karabanov, in an interview with Informburo.kz noted that Kazakhstan has traditional markets, and export opportunities are limited by geographical location.
"Kazakhstan produces less than 2% of the world's volume. We do not have a significant impact and cannot increase export volumes. Our about seven million tons of exports, together with flour in grain equivalent, will remain approximately the same next year if we do not collect a huge harvest, but there are no prerequisites for this yet," Yevgeny Karabanov noted.
In addition, an increase in exports is impossible under the sanctions regime (difficulties with transportation through Russia) and the narrow "necks" of alternative corridors through Azerbaijan and Georgia. Due to its geographical location, Kazakhstan supplies wheat mainly to the markets of Central Asian countries, Afghanistan, Iran, which account for 90% of Kazakh grain exports.
"It is impossible to give forecasts for the grain market in the current situation, as it is influenced by many factors. First of all, the harvest of the world's main wheat exporters, such as the European Union, Russia, the USA, Argentina, Australia," the official representative of the Grain Union emphasized.
In his opinion, wheat prices will no longer rise, as they have already reached their peak. But there are a lot of factors affecting the price of wheat: the dollar exchange rate, the geopolitical situation, and possible natural disasters that could affect the harvest.
“Most likely, prices may not rise, we have high prices today, but they will at least remain in the existing corridor, because everything has risen in price. The cost of production will increase by about 1.8–2 times. literally everything: seeds - by 1.7 times, fertilizers - almost twice, plant protection products - by 2-2.5 times, spare parts - by three times Plus, the influence of the global market with high prices leaves no chance for price reduction ", - added Evgeny Karabanov.
The expert clarified that today the cost of a ton of food wheat in Kazakhstan is 150,000 tenge.
"Our country is not in danger of starvation. At least we provide ourselves with basic food products. These are grain, meat, milk, butter, cereals, dairy products. The only problem is with sugar, but I think this is temporary," summed up Yevgeny Karabanov .
Why Uzbek flour is cheaper than Kazakh flour
President of the Union of Grain Processors of Kazakhstan Alikhan Talgatbek agrees with the official representative of the Grain Union of Kazakhstan that the price peak for wheat has been reached, and now there will hardly be another price increase.
According to him, during the year the cost of flour increased by 47% - from 150 to 220 tenge per kilogram. The last time the price of flour rose more than a month ago. The head of the Union of Grain Processors is convinced that social bread will not rise in price, since this issue is controlled by the state.
"Now there is a peak in grain prices. If it no longer grows in value, then flour and bread should not rise in price either. The expectation of a new harvest is already pressing, from July 20 the southern harvest of winter wheat will begin, and somewhere from September 20 they will start harvesting a new crop of spring wheat already. If the export of wheat does not grow, then we will always have enough of it in Kazakhstan with any harvest, good or bad. But there are always five to six million tons left for export. The main thing is to properly manage the export potential, so that it does not happen like last year, when we unloaded everything for export, we were left with minimal balances, and there was a sharp rise in prices," Alikhan Talgatbek explained.
He proposes to the government next year to introduce quotas on the export of wheat, so as not to sell more than a certain level outside the country.
"Let's harvest next year, calculate internal needs, and determine quotas in the amount of surplus so that they do not unload anymore. This will be a signal for all grain traders and for markets, how much Kazakhstan can export. At the same time, we need to leave the practice when farmers give 10% of the grain of the Food Corporation for 90 thousand tenge, in order to use them for social bread in the future," the head of the Union of Grain Processors noted.
According to the expert, this will solve three problems: provide the market with flour for social bread, allow Kazakh wheat to be shipped for export at a higher cost, and eliminate the need to allocate subsidies to reduce the cost of social bread.
“If grain is sold more expensive for export, then we will be able to work normally for flour export,” Alikhan Talgatbek believes.
He stressed that today millers export flour with a profitability of 2%, and grain traders earn 8%, being just intermediaries.
“This is because Uzbekistan is providing state support for flour production. When Uzbek millers buy our grain, the output from Uzbekistan is cheaper than Kazakh flour. They take our markets, producing flour from our own grain and supplying it to other countries of Central Asia. And if we increase the cost of our wheat, our flour will go to the Afghan and Uzbek markets, we will be competitive," the president of the union said.
Taxes and railway tariffs are two factors that make the export of Kazakh flour unprofitable.
In Uzbekistan, import VAT on flour is 20%, and on wheat - 0%. In addition, there is a special tariff for transit through the territory of 650 kilometers from Saryagash (the border of Kazakhstan and Uzbekistan) to the border of Uzbekistan and Afghanistan.
“We can supply flour to Afghanistan only through the territory of Uzbekistan. Traveling 650 kilometers by rail, we pay about $55 per ton of flour. For comparison, when we cross three thousand kilometers throughout Kazakhstan, we pay $25 per ton. And An Uzbek flour miller pays half as much for these 650 kilometers - $ 25. Therefore, he imports grain, makes flour from it and sells it at an internal tariff within Uzbekistan, and their cost of flour is lower, "explained Alikhan Talgatbek.
In addition, they have subsidized electricity and lower wages, he added.
"All factors indicate that in Kazakhstan it is necessary to process grain and sell it as finished products, at least at the level of the first processing stage - flour.
We now have 80% of the mills idle, at the best time 50% of the capacities are working. We can double refining volumes without investment simply if favorable economic conditions are created. Moreover, I would like to emphasize that by increasing the volume of grain processing, we are simultaneously solving the problem of providing the domestic market with fodder, because 200 kilograms of bran is produced from each ton of grain. Livestock breeders complain that there is not enough feed, bran is expensive. Because in recent years, we have sharply reduced the volume of grain processing, and the number of cattle has increased," the expert emphasized.
According to him, negotiations are underway with Saudi Arabia on the development of further flour processing. In the future, the expansion of the production of pasta, biscuits, croissants and other flour products.
“But we, flour millers and grain processors, cannot invest because we have a low margin, only 2%. There is no money left for business development. We were excluded from all subsidy programs, it says everywhere: “Except for the flour milling industry.” industry. Accordingly, people don’t want to do it anymore. They want to sell their mill, but they can’t, there are no buyers, because the business is unprofitable,” summed up the head of the union of grain processors.
Views for the 2022 harvest
Meanwhile, FAO analysts note that due to rising prices, the United States increased wheat production in 2022. The FAO forecast for the volume of wheat production in the world in 2022 is 782 million tons, which is 1.1% more than in 2021.
Compared to last month, the forecast has been lowered (earlier it was expected 784 million tons), which is associated with a drought in the United States. This led to a deterioration in the prospects for the winter wheat crop and a decrease in expectations for the volume of production of this crop as a whole. But thanks to the increase in planted area as a result of rising prices, the total harvest in the United States is still estimated at 50 million tons, which is almost 11% higher than last year.
In Canada, which will soon start planting spring wheat, production is expected to recover strongly after a poor 2021 crop hit by drought.
Wheat production in Ukraine is still expected to be below average: due to the conflict, acreage could be reduced by at least 20%. In addition, yields are expected to decline in 2022, as the conflict led to a delay in agricultural work before the start of the harvest.
The prospects for the harvest in the Russian Federation remain generally favorable: weather conditions also give hope for an increase in yields and, accordingly, an increase in production volumes in 2022.
In the European Union, the forecast for wheat production this month was raised to 139.5 million tons: the latest official data indicate a slight increase in wheat planted area compared to previous forecasts.
In Asia, a modest increase in production is forecast in India and Pakistan in 2022, while wheat production is expected to be close to average in the Middle East, supported by generally favorable weather.