Russia on course to become world's largest wheat exporter for first time

Combine harvesters work on a wheat field of the Solgonskoye farming company near the village of Talniki, southwest from Siberian city of Krasnoyarsk.

Combine harvesters work on a wheat field of the Solgonskoye farming company near the village of Talniki, southwest from Siberian city of Krasnoyarsk.

Due to a large harvest, the country's export potential amounts to 30 million tons of wheat in the 2016/2017 agricultural year, which is an absolute record for the last few years. However, export growth is constrained by low prices on the world market and export duties imposed in 2014 for fear of price growth in the country.

In mid-August 2016, the U.S. Department of Agriculture (USDA), whose analytical service is considered to be one of the world's most respected, announced a sensation: In the 2016/17 agricultural year, "Russia is forecast to be the world’s largest exporter for the first time ever."

According to the department, the country has achieved this outstanding result due to ideal conditions such as optimal weather for loading, effective management of the movement of grain through ports, and steady supplies throughout the year.

A record forecast

According to the USDA forecast, Russia will be able to sell 30 million tons of wheat on the world market, ahead of all the 28 EU countries combined. This year’s crop failure in France and Italy (the former of which is the EU’s largest exporter) opens up new markets for Russia.

"Russia has freight and logistical advantages to growth markets in North Africa, Sub-Saharan Africa and the Middle East and can easily grow its market share in these regions to replace a portion of the curtailed EU exports," the report said.

According to USDA data, Russia will collect a total of 72 million tons of wheat this year. Russia's Agriculture Ministry predicts 73 million tons of wheat, as it also takes into account the crop harvested in Crimea.

"Russia is breaking its own historical record for export of all grains for the second year in a row," Arkady Zlochevsky, president of the Russian Grain Union, told RBTH.

According to Russia's Agriculture Ministry, Russia exported a record 34 million tons of grain in the last agricultural year, including 25 million tons of wheat. "This year, Russia will be able to sell 37 to 40 million tons of grain," said Zlochevsky.

Russia is not the only country that collected a record harvest this year. Australia, Canada, Kazakhstan, Ukraine and the United States have also become agrarian leaders, the USDA report indicated. "The record wheat production has caused a drop in prices on the international market," Zlochevsky said.

The catch? Low prices

However, wheat exporters cannot get record profits due to low prices. According to the National Union of Grain Producers, the price of Class 4 wheat (the main export item) fell by 33 percent to $138 per ton from June 1 to Aug. 26, 2016.

"Since consumption growth is not catching up with the pace of production, there is a risk that we will not be able to sell the entire volume assigned for export," Zlochevsky warned.

In addition to low prices, wheat exports are hindered by protective duties introduced by Russia in 2014. "Because of the devaluation of the ruble, export has become very attractive," said Natalya Shagaida of the Center for Agricultural and Food Policy at the Russian Presidential Academy of National Economy and Public Administration. "To prevent an increase in export and a hike in grain and bread prices in the domestic market, the government introduced export duties on wheat."

The restrictive measures in the face of declining ruble have put producers in a difficult situation, limiting their income, said Shagaida: "Farmers have been forced to spend more and more money on fuel, protective equipment, components for imported machinery as all this is linked to the national currency's exchange rate."

In addition, because of the duties, exporters switched to short-term contracts of less than two to three months, and stopped forming reserves, which is also reflected in the price of wheat, Zlochevsky added.

Fearing a slowdown in sales, on Aug. 1, 2016, Russia's Ministry of Agriculture asked the government to abolish the export duty on wheat. However, the government is yet to respond to the Agriculture Ministry's request.

"The ruble has now stabilized, which reduces the risk of growth in grain prices," said Shagaida. "In this connection, the abolition of the duty is an expected step."

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