The authorities are reporting record grain yields from the current harvest. The Russian statistics office Rosstat reports that more than 140 million tons of grain have been collected against a forecast of 150 million tons by the Ministry of Agriculture. This could be an absolute record. At the same time, progress in the export of processed agricultural raw materials is much more modest. The export of flour from Russia is more than 120 times lower than the export of wheat.
And there are not many prospects to increase at least flour exports. The logistics of containerized sea exports from the Russian Federation is expensive and undeveloped, experts say, and the storage times for processed products are much shorter than for raw materials. Russia can only overcome the agricultural “commodity curse” by expanding domestic production, say analysts.
The grain harvest in Russia has reached 140.2 million tons, Rosstat reported on Thursday. The collection of sunflower seeds was again 3 million tons, sugar beet 13.408 million tons, potatoes 15 million tons. The collection of vegetables from closed ground amounted to 9.539 million tons.
The surplus over domestic demand is now to be exported. The head of the Ministry of Agriculture, Dmitry Patrushev, announced that his agency would increase the size of the quota for grain exports. Its size is expected to be 25 million tons, without being broken down into individual crops.
The independent newspaper from Russia reminds that the export quota is introduced annually in the second half of the agricultural season for the period from February 15 to June 30. Last agricultural year, the quota amounted to 11 million tons, including 8 million tons of wheat and 3 million tons of barley and corn. The measure is aimed at ensuring the food security of the Russian Federation, limiting the increase in domestic grain prices, which can lead to increased costs and consumer prices for flour, bread, meat and milk. In the current year, however, the Russian Federation is harvesting a record crop of grain and especially wheat.
In terms of agricultural development, Russia is still a deeply commodity-rich country that prefers to export its products abroad after preliminary processing. Thus, if at the end of 2021 about 38 million tons of grain were exported from the Russian Federation, the volume of flour exports is hundreds of times smaller.
Around 260,000 tons of wheat and rye flour were exported in 2021, an increase of 3.3% compared to the previous year. The resulting export turnover amounted to 86.8 million US dollars. Wheat flour accounted for 97% of this turnover. The country only produced around 8.2 million tons of flour in the same period, which only accounted for 2% of global production. Against the background of current production and exports of unprocessed grain, these are rather modest quantities. At the same time, the maximum volume of flour supplies was set in 2019, when the Russian Federation exported 314.6 thousand tons for $ 103 million. The potential to increase flour exports is relatively low. Experts from the Agroexport Center at the Ministry of Agriculture estimate that the country can export up to 430 thousand tons of wheat flour per year.
However, food processing volumes in the country are constantly increasing. The head of the Ministry of Agriculture of the Russian Federation, Dmitry Patrushev, noted at the beginning of October that flour deliveries have in fact almost quadrupled this year, without specifying the actual volume supplied. A similar trend is being followed in other segments of the agro-industrial complex (AGRAR). For example, Russia earned more than 36 billion US dollars in agricultural exports last year, reports “Agroexport”. Grains were exported in the volume of 11 billion dollars, oil products – for 7 billion dollars, fish and seafood – 5.2 billion dollars. Exports from the food and processing industry amounted to 4.7 billion US dollars.
Positive momentum is also observed in the individual product categories. For example, Russia exported confectionery worth 1.6 billion US dollars in 2021. The supply volume has increased by 56% within four years. Chocolate was exported for 872 million US dollars, flour confectionery – for 557 million US dollars, sugar-containing products – to 210 million, it was calculated in “Agroexport”. The volume of confectionery exports amounted to 824 thousand tons of products, which is an increase of 19% compared to the previous year, it was estimated in the Association of Confectionery Enterprises. In the current year, the country is expected to supply 1.7 billion US dollars in confectionery. At the beginning of October, the country exported confectionery in kind almost 390 thousand tons, in cash – over 946 million US dollars, the Russian Federal Customs Service reported.
High crop yields are becoming a kind of problem for Russia. The Russian Grain Union (RZS) has recognized that farmers lose up to 5-7% of the grain harvest annually due to a lack of capacity for post-harvest processing and storage. At the same time, grain losses begin to form in the field during harvest. At this stage, up to 2-3% of grain is lost, mainly due to the wear and tear of grain technology and the smaller number of arable areas per hectare compared to other countries. The Union reported that the total storage capacity of grain in the Russian Federation is 146.8 million tons. More than half of them – 82 million tons – are accounted for by agricultural producers. “The quality of storage is 47.4 million tons and 17.4 million tons, the rest 82 million tons is short-term storage, this is primarily grain,” the RZS explained. At the same time, grain losses of 15% could be achieved this year due to yield increases, the Union did not rule out.
Experts from the Independent Newspaper publishing house are certain that the Russian Federation’s chances of making a profit by supplying agricultural products with deeper processing are minimal. “The whole question is what they are willing to buy on the world market. The main buyers of Russian grain are Turkey, Egypt, Iran, Saudi Arabia, China, Bangladesh, Kazakhstan. Grain is bought primarily to feed the least well-off sections of the population, i.e. not the most solvent. The processing capacities of these countries have their own. If Russia reduces grain exports, the above-mentioned countries will not buy flour from Russia – they will buy grain from other countries/suppliers. And we have a surplus on the domestic market, so farmers will simply sow less next year,” emphasizes Artem Klyukin, an expert at Yva Partners. He emphasizes that it is the norm for the world market to be dominated by the supply of “raw materials”.
Moreover, according to Denis Ternovsky, senior researcher at the Center for Agricultural Development Policy, wheat exports cannot be completely replaced in world trade by exports of primary processing products. “Grain is a more convenient product for storage and transportation. And for example, the world market for flour is only about 7% in physical value and 11% in value of the global wheat market,” he reports.
“Unlike the supply of agricultural commodities, many types of processed products require special conditions and limited storage times, packaging methods, handling, transportation, etc. Given a number of problems that prevent sustainable profit from activities related to the supply of agricultural commodity products to countries located at a great distance from Russian ports, manufacturers and exporters are particularly uninterested in such operations,” explains Professor of the Russian University of Economics named after Academician Plekhanov Ibrahim Ramazanov.
Experts from ICAR point out that Russia can export up to 50-100 million tons of grain, and flour can theoretically export only 5 million tons per grain. “Many processed products have much less shelf life than the raw materials. And the logistics of containerized sea exports from Russia is very expensive and undeveloped. And it is much more expensive than most competitor countries – Ukraine, Turkey, the EU, China, the US, etc.,” they say.
Nevertheless, Russia does not only export raw materials. “The export of feed for pets and animal feed in general has grown intensively in recent years, the export of meat has increased many times over – and these are processed grain products,” Klukin points out. The expert believes that Russia must continue to expand agricultural production. “If the volume of agricultural production in Russia as a whole increases noticeably on the domestic market, prices will fall again, which will increase the return on investment in the processing industry for domestic food production,” says the analyst. To become a strong global player in the food industry, cheaper credit resources and access to advanced manufacturing and management technologies are needed, says Alexey Fedorov, analyst at TeleTrade.
Source: Independent newspaper (Russia)