April 2 2004, 11:24 Vedomosti

Russia: grain interventions in 2004 to be made in advance payments

Russian agriculture ministry has announced it is going to carry out grain purchase interventions in 2004 for the sum of 7 billion roubles (28.5 roubles = $1). Unlike previous times, the purchases will be made by way of advance payments: the farms will be paid in spring for the grain they will have to supply to the state storages in summer and autumn. The analysts, however, express doubts as for practicability of this initiative.

The Head of the Federal Agency for Agriculture Anatoly Mikhalyov said to newspaper Vedomosti that the advance purchases of new crop grain would be started as early as in May, not going into details of the mechanism of such purchases.

The questioned by Vedomosti participants of Russian grain market could hardly believe that the government, having barely finished grain sales, would start its purchases in May. "I know no one who would take a risk to buy grain from farms in advance", General Director of Razgulyay grain company Aleksey Ivanov has said. He believes that Mikhalyov's statement could be treated only as a signal to the agricultural producers: "Don't cut the sown areas. The state will take care of you".

President of Russian Grain Union Arkady Zlochevsky thinks the government in May will be able only to announce the conditions of the future 2004 grain purchase intervention. The intervention itself might not be needed, as the world prices for grain are already fairly high.

According to the General Director of the Institute for Agrarian Market Studies Dmitry Rylko, the start of grain purchases in May would contravene to the very idea of intervention purchases - to buy grain only at the point, when grain prices are on a drop side. The analyst thinks the best solution instead would be application the grain market model, currently used in Hungary and Slovakia: state subsidising of grain storage in elevators, subsidising of interest rates of the banks, taking grain from the farmers on mortgage, and the minimal purchasing prices, guaranteed by state. Rylko believes this mechanism would allow removing from the market twice or three times more excessive grain at the same cost than the measure, proposed by government, with the grain being mortgaged with banks and not bought for the state money into the state-operated fund.