The authorities are discussing the introduction of long-term contracts for fertilizers for farmers with a price formula based on quotations from the Russian stock exchange. This option was discussed at the last meeting in the Ministry of Industry and Trade, convened due to complaints from farmers about sharply increased prices for fertilizers for the autumn sowing season. Now farmers can buy fertilizers either at export parity or on the SPIMEX exchange, but they are not satisfied with both options because of the sharply increased prices. The Ministry of Agriculture is in favor of freezing fertilizer prices or introducing state subsidies, but the Ministry of Industry and Trade and the Federal Antimonopoly Service insist on maintaining market pricing.
As it became known to Kommersant, on June 9, the Ministry of Industry and Trade held a meeting on the growth of prices for mineral fertilizers, which was attended by representatives of the Ministry of Agriculture, the Federal Antimonopoly Service, as well as representatives of regions and fertilizer producers. The main reason was that in early June, the authorities of the Stavropol and Krasnodar Territories appealed to the Ministry of Agriculture with a complaint about the increase in fertilizer prices and the inability to conclude direct contracts with suppliers for the autumn sowing campaign.
There, pricing is arranged according to the principle of export parity, while for agrarians this year the authorities introduced various restrictions on export profitability (increased duties, a damper, etc.). Farmers have begun to actively purchase fertilizers on the SPIMEX exchange, which has been trading since 2017, but until recently the volumes were insignificant. However, in January-May, sales of fertilizers on the exchange exceeded 200 thousand tons, which is twice the sales for the entire last year. In the first week of June, another 50 thousand tons were sold on the exchange. During this time, in Russia as a whole, according to the Ministry of Agriculture, farmers purchased 2.8 million tons of mineral fertilizers (an increase of 17%).
Due to the growth in demand, exchange prices have also increased significantly, and their current level does not suit farmers. In addition, Andrei Neduzhko, general director of the Steppe agricultural holding, explained to Kommersant that if large companies have a well-established process of working with the stock exchange, then small farms that have not used this mechanism before have difficulties. “Now the farmer is forced to spend time on the registration procedure on the exchange, to attract brokers, pay a commission, etc. At the same time, even the exchange mechanism does not guarantee the purchase of the required amount of fertilizers, and even more so does not save from the growth of costs,” he says.
At the meeting, Eurochem expressed its readiness to supply products under such direct contracts to farmers in the Stavropol Territory. The Russian Association of Fertilizer Producers, Kommersant, confirmed that the companies included in the association agree to consider the necessity and expediency of long-term contracting with formula pricing.
How farmers reported difficulties in preparing for sowing
But the farmers themselves would like more ambitious measures. According to Mr. Neduzhko, the issue can be resolved with the help of state regulation of prices for fertilizers during the period of their introduction and quotas for the export of mineral fertilizers, or by subsidizing purchases of fertilizers. He notes that otherwise farmers will be forced to reduce the amount of applied fertilizers, which may negatively affect soil fertility and entail a decrease in the volume of the harvested crop by 20-30%.
The Ministry of Agriculture confirmed to Kommersant that they had sent proposals to the Ministry of Industry and Trade, including on limiting the growth of prices for fertilizers within the inflation rate of the current year. They also noted that there is now a discussion of long-term market measures aimed at curbing the growth of prices for mineral fertilizers.
According to Kommersant’s information, the FAS and the Ministry of Industry and Trade opposed the idea of state regulation of fertilizer prices at the meeting. The ministry told Kommersant that they insist on maintaining market pricing in the industry.