The excitement about the price of wheat does not subside. Who needs the State Grain Fund and why?!Markets Review
The other day, the Director General of the Food and Agriculture Organization of the United Nations (FAO) said that as a result of the military conflict in Ukraine, world food prices could increase by 8-22% in the near future. FAO predicts that in the 2022-23 agricultural year in Ukraine, 20-30% of the areas of spring grain crops will not remain unsown, and the same amount of areas sown with winter grain will remain unharvested. The FAO Director-General also said that the current conflict could lead to a sudden and sharp drop in wheat exports from both Russia and Ukraine. It is not yet clear if other exporters will be able to fill this gap. He believes that Canada’s wheat stocks are already running low, and as governments have tried to do, exports from the US, Argentina and other countries are likely to be limited. According to the FAO Director-General, at least half of the countries that receive more than 30% of their grain from both countries involved in the conflict will face a food problem. These are mainly countries of Asia, Africa and the Middle East, many of which already have a low income level and by all criteria can be classified as developing countries. According to the FAO, the total number of undernourished people in the world could rise by at least eight million this year and next. In this regard, the organization asks the major countries that supply agricultural products and food not to establish or remove restrictions on exports.
In the middle of last week, there were changes in the trend of wheat quotations on European and American stock exchanges. The number of contracts for wheat began to decline. During this period, the price of wheat in London fell by 1.5%, in Paris by 6% and in Chicago by 5.2%. However, the period of falling prices on grain exchanges was short-lived. After a one-day decline, wheat prices rose in London by 0.5%, in Paris by 1.2% and in Chicago by 0.8%.
Over the past year, prices for imported wheat have increased by 38.8% in Azerbaijan, and by 57% over the past two years. According to the State Customs Committee (State Customs Committee), in January-February 2022, 150.6 thousand tons of wheat worth $51.9 million were imported into the country. This is 6.7 times more than in January-February 2021 in physical weight and 9.2 times in value terms. It should also be noted that the SCC database contains the same confusing numbers as the statistics provided by the SSC (State Committee on Statistics). In January-February 2021, that is, in two months, the SSC indicated that the volume of wheat imports amounted to 22,290.00 tons, and its statistical value was 5,650.13 thousand US dollars. In January of the same year, that is, for one month, the amount of imported wheat is indicated at a level exceeding the figure for the next two months by 913.54 tons (23,203.54 tons), and the statistical value is more than $250.46 thousand ($5900.59). thousand). Is it possible that 23,203.54 tons of wheat were imported into the country in January alone, and 22,290.00 tons in January-February?! It should be noted that the SSC has repeatedly tried to hide the lag in agriculture by manipulating the indicators of production and imports.
Our calculations showed that for the first 2 months of 2022, the import cost of 1 ton of wheat imported into the country amounted to $ 344.98. This is 38.8% higher than the value of wheat imports in January-February 2021 and 57% higher than the value of imports in January-February 2020. As a result of rising prices for wheat imported into the country, prices for wheat flour rose. The increase in prices for gross grain products also had a very serious impact on the prices for food wheat in the domestic market. Our studies have shown that prices for food wheat in the regions have increased by more than 50% over the past 3 months.
On January 12 of this year, Ilham Aliyev said in an interview to local TV channels: “Grain and wheat in the world have risen in price sharply. The main supplier for us is the Russian side, because we buy the cheapest wheat in Russia. Both prices and export duties there have risen and continue to rise. Naturally, we could not artificially keep the price of bread at the same level.” It should be noted that back in 2000, the law “On Grain” was adopted, and in accordance with Art. 8 of this law, the State Grain Fund was created. In paragraph 1 of Article 8 of the law states that in order to meet the needs of consumers for grain products under emergency circumstances, form a state reserve of grain, fulfill international obligations and prevent, if necessary, sharp changes in prices in the grain market, the State Grain Fund is being created in the Republic of Azerbaijan. As we can see, the purpose of creating the State Grain Fund in Azerbaijan was to prevent sharp price fluctuations in the domestic grain market. In accordance with the Article 10 of this law provides for commodity intervention in the grain market in order to ensure a balance in prices. Paragraph 4 of Article 9 of the law states: “State customers are responsible for the formation of the envisaged volume and assortment of the State Grain Fund and annually in January submit a report to the relevant executive authority on the formation and use of the fund, as well as on providing it with financial, credit and material resources. and publish the report in the media. The “Rules for the storage and use of the State Grain Fund”, approved by the Cabinet of Ministers in 2009, also provide that in order to prevent a sharp increase in wheat prices in the domestic market, by decision of the Cabinet of Ministers of the Republic of Azerbaijan, grain from the fund can be sold at prices below market prices. It should be noted that by the Decree of the President dated October 7, 2021, on the basis of the Agency of State Material Resources of the Ministry of Emergency Situations of the Republic of Azerbaijan, a public legal entity “Agency of State Reserves of the Republic of Azerbaijan” was created and the State Grain Fund was transferred to the disposal of this agency.
We also note that the State Material Resources Agency of the Ministry of Emergency Situations placed an announcement in the media that for the State Grain Fund, the purchase price of a ton of high-quality food wheat produced in the country from the beginning of June 2021 is 400 manats, and from August 22, 2021 – 500 manats. However, data on how much food wheat the Fund received from local producers have not been published so far in the media. Although, as noted above, in accordance with paragraph 4, Article 9 of the Law “On Grain” in January of each year, the mass media should publish a report of the relevant executive authority on the formation and use of the fund, as well as on the provision of its financial, credit and material resources.
By decision of the Cabinet of Ministers, in 2015, the stocks of wheat of the State Grain Fund (GZF) were increased by another 250 thousand tons and amounted to 750 thousand tons. It is for this reason that since then the volume of wheat imported from abroad has increased. Since then, the State Grain Fund has begun to create stocks of wheat not so much through domestic production, but through wheat imported from abroad. The GZF substantiates this by saying that allegedly the wheat produced by Azerbaijani farmers is unsuitable for grinding into flour.
On the other hand, the Ministry of Agriculture claims that local grain, especially wheat, is of good quality. This generates questions. Only 400-500 million dollars are withdrawn from the country annually for grain imports. Such funds expand production and stimulate the business of foreign farmers. 943 million manat has been allocated from the state budget for agriculture. A certain part of this amount of financial resources is directed to the development of grain farming. How is it that with serious state support for the industry, up to 1.4-1.7 million tons of food wheat are imported into the country every year? This is more than the amount of wheat we eat. According to the SSC, per capita consumption of cereals (excluding rice) and legumes in Azerbaijan is 265 kilograms. This figure in Belarus is 76, in Kazakhstan – 96, in Moldova – 141 kilograms. It turns out that Azerbaijanis consume grains (except rice) and legumes, 2.7 times more than Kazakhs, and 3.4 times more than Belarusians. Not convincing! Imagine, Azerbaijan produces 186 kilograms of wheat per capita and imports 150 kilograms. There are 330 kilograms of wheat per person. Head of State Ilham Aliyev said in an interview with local TV channels: “We consume about 3.3-3.4 million tons of wheat. Only 2 million of them are produced in Azerbaijan. We import the rest.” It seems that the population of the country eats exclusively wheat. If more than 1.3 million tons of wheat were imported into the country, and production exceeded 1.8 million tons, and there are 750 thousand tons of wheat in the GZF, then why did the price of wheat in the country increase by 50%?
In all countries, food wheat, flour, bread are considered strategic products of great social importance. Since the population of Azerbaijan consumes more bread, the Azerbaijani government had to prevent the rise in prices for wheat, flour and bread in the domestic market. In paragraph 1 of the Article 8 of the Law “On Grain” states that in order to prevent sharp price changes in the domestic grain market, a state grain fund is being created in the Republic of Azerbaijan. Also, contrary to the Article 4.1 of the “Rules for the storage and use of the State Grain Fund”, which provides for the use of reserve wheat “in order to prevent sharp fluctuations in prices for grain products in the domestic market”, the price increase was not prevented. Questions arise – why and for whom was the State Grain Fund created? But, not only questions arise, doubts also creep in.
I must note with regret that Ilham Aliyev in a well-known interview said that “… if I say today that we can provide ourselves with 100% food wheat, then in the current conditions it will probably be a mistake.”
In fact, the Azerbaijani government should stimulate domestic production. Therefore, the State Grain Fund should form wheat reserves at the expense of local farmers’ products. Otherwise, there would be no need to create this fund. Indeed, the supply of wheat on the world market has always exceeded demand. By harvesting wheat produced by local farmers, the GTF would make it easier for farmers to sell and increase their interest in production. There is no need to exaggerate the numbers associated with wheat production. The only thing that cannot be hidden is poverty and wealth. If as much wheat was produced as officials said, this product would be on the market. The price of wheat would not have jumped that much.
Vahid Magerramov
