Farmers are proving the main beneficiaries of a slump in port charges for transferring crops onto ships, which has followed the expansion by state-owned VTB bank into grain trading.
VTB’s growth in the sector through, deals such as August’s purchase of control of grain trader Mirgroup and the acquisition of a stake in rail-wagon owner Rustranscom, has precipitated a slump in throughput charges.
At Russia’s key Black Sea port of Novorossiisk, where VTB owns stakes in two export terminals, a price war kicked off by the bank’s operations four months ago has seen so-called fobbing costs ore than halve, 25-27 a tonne to $10-12 a tonne, Global Grain Geneva heard.
There was some talk at the conferences of charges as low as $6 a tonne, although this was rebuffed by Swithun Still, director at Swiss-based Solaris Commodities, and an experienced Black Sea grain trader.
Merchants’ windfall from the slump in charges, equivalent to almost $500m a year, was being shared with farmers, supporting higher grain prices.
‘Has been very profitable’
“In the long-term, it was good news for the farmer,” Mr Still, director at Swiss-based Solaris Commodities told the conference, noting that some growers he had met at the event were “grinning from ear to ear.
The change “has been very profitable for them,” he said, in comments supported by another leading Russian grain figure that Agrimoney spoke to.
“An increment of this saving has been given to farmers,” the source said, talking of heightened rivalry between merchants for Russian grain.
However, the source also raised concerns of where this process could lead, if traders were forced from the market, potentially reduced farmers’ choice of merchant, and so diminishing their market power.
“The question is what the next phases of this will be. It is not cynical to say” that reduced market competition “is where it might end up.”
Another Black Sea trader also expressed worries to Agrimoney that Russian farmers could suffer longer-term if VTB, as a state-run business, used its muscle to force out rivals.
“You can see where it might be heading.”
Transhipment, which is hurt both by higher grain buying costs and the lower throughput charges, was seen as particularly at risk.
‘Matter of supply and demand’
Mr Still added that the current port charge shake-up was “to be expected at some point” given that there is “enough silo capacity, but a slightly slow export pace”.
It was “simply a matter of supply and demand that the high fobbing cost should fall,” he said, noting that charges had historically been higher than in neighbouring Ukraine.
He noted that plans remained in place for port investments in Russia, including a second facility at Taman, and at Big port near St Petersburg, as well as at Novorossiisk itself.