The owners of the enterprises (“Prodimeks”, “Agro-Invest” and the “Russian Agricultural Bank”) hope that these measures will protect companies from further bankruptcy. The reason for this decision is the inability to maintain the previous level of profitability.
Companies cannot cope with the market prices for sugar, while its stocks in the country in recent years only grow. The total capacity of the closed production is more than 150 thousand tons of products, and during the agricultural season 2019/2020, three enterprises were able to produce about a million tons of sugar beets. Shut down of the companies may result in the massive loss of jobs.
How will this affect the further development of the industry? Plant owners are currently looking for interested investors, willing to acquire enterprises or provide financial investments.
Experts believe that the overproduction of sugar and the growth of its stocks in the country led to a decrease in wholesale prices for products to the maximum level. If in 2016 the wholesale price was more than 35 rubles per kilogram, then in 2019 it amounted to 20 rubles per kilogram. It is possible that this trend might lead to the closure of other sugar production.
Those companies that can increase production efficiency by reducing costs and optimizing logistics schemes will be able to survive. Otherwise, we can only hope for a voluntary reduction by sugar beet producers - this is the decision the Ministry of Agriculture made in November last year. It was proposed to reduce crops by 15% by setting additional quotas for the use of sugar beet seeds. However, the cultivated area for this agricultural crop last year was even more (1.6%) than a year earlier. Therefore, it can be expected that the further decision of the ministry will be supported by additional regulatory mechanisms.
The collapse of prices in the domestic market was predictable, considering the fact that the volume of production a few years ago began to exceed the volume of consumption in the domestic market. The world price situation was not the most favorable: the prices came down and it became impossible to sell the surplus.
Russian manufacturers were also let down by the partners from the CIS republics. The largest buyers of domestic sugar are Belarus and Uzbekistan, but the latter imposed 20% VAT on sugar imports, which affected the decrease in the volume of products sold abroad. Profitability in sugar production ultimately decreased to 3.3%. For farmers, such indicators are considered extremely low, despite the fact that the crop was very good for several years in a row.