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‘There is no real replacement for Russian grain on the world market’

16 May 20225 min reading

“Despite the humanitarian nature of grain supplies and its formal exclusion from the sanctions perimeter, we certainly felt their impact due to the extended interpretation. This is especially evident in financial services – insurance and payments. Russian exporters are doing everything possible to fulfill their contractual obligations and supply countries in need of our grain. We understand that there is simply no real replacement for Russian grain on the world market, despite the loud statements of some countries. We do not plan to stop exporting, despite today's difficulties.”

Eduard Zernin
Chairman of the Russian Union of Grain Exporters
RUSGRAIN UNION


Russia and Ukraine are significant producers and exporters of several commodities including wheat, corn and sunflower oil. Production or marketing developments in these countries have the potential to impact global grain markets. Russia produces 11% of the world's wheat and Ukraine produces 3%. Two countries make up a larger proportion of global exports. Russia accounts for 19% of the global wheat export market and Ukraine 9%. However, the war between two agricultural giants has disrupted agricultural exports from the region and created uncertainties about Black Sea supplies, further driving up commodity prices and increasing market volatility.

As the conflict continues, Russia’s future exports are in doubt because of sanctions and uncertainties about whether its farmers will have access to seeds and other inputs. Agricultural products haven’t been directly targeted by sanctions on Russia so far. Yet, it is claimed that sanctions against Russia and the withdrawal of western commodity trading companies could reduce Russia's wheat exports. Russia produces close to 80 million metric tons of wheat a year and exports close to 30 million tons. 

What are Russia’s wheat export prospects in the 2022-23 season? How will the war affect Russian wheat export in the new season? How have the sanctions affected wheat exports so far? We asked these questions to Eduard Zernin, Chairman of the Russian Union of Grain Exporters.

 Russia is one of the world's grain market leaders. What do you expect this year and in the near future?

 Russia develops agriculture both extensively, by returning abandoned arable land to crop rotation, and intensively, by increasing fertilizer application rates and developing seed breeding. Global climate changes favor us. The current situation with sanctions is unlikely to turn the tide. The agricultural sector in recent years, existing in the import substitution paradigm, has built a solid foundation for sustainable development. We are self-sufficient in grain and other crops and export them to other countries in need. According to the Agroexport subsidiary of the Russian Ministry of Agriculture, Russian agri exports reached $37.1 billion in 2021, which is 21% more than in 2020. We have supplied over 71 million tons of food and agricultural products to over 160 importing countries. It is a remarkable fact that Turkey became the 2021 champion in food imports, increasing purchases by 38% to $4.3 billion.

CHANGE FROM THE SUPPLY OF GRAIN TO VALUE-ADDED PRODUCTS

Speaking about Russian agri exports, one must understand that its priorities have changed from the supply of grain and other commodities to value-added products. This explains the growth in export earnings, despite the current restrictions on the export of soft commodities through quotas and export taxes. Of course, we will remain on the world grain market, but our export volumes are unlikely to grow significantly, despite excellent forecasts for the 2022 harvest, which the Ministry of Agriculture estimates at 123 million tons. The state will continue quotas for agri commodities exports, creating an excess of grain in the domestic market and stimulating its local processing. There are no prerequisites for lifting restrictions on the export of grain or other agro commodities, no matter how much we would like to.


How did sanctions affect Russian grain exports?

Despite the humanitarian nature of grain supplies and their formal exclusion from the sanctions perimeter, we certainly felt their impact due to the extended interpretation. This is especially evident in financial services – insurance and payments. We have to change on the go the patterns of interaction with our consumers that have been developed over the years. Russian exporters are doing everything possible to fulfill their contractual obligations and supply countries in need of our grain. We keep abreast of problems and solve them through the joint efforts of the market community. We understand that there is simply no real replacement for Russian grain on the world market, despite the loud statements of some countries. We do not plan to stop exporting, despite today's difficulties.

World prices for Russian wheat are going down. Is it connected with geopolitical risks?

Many of our traditional consumers have taken a break to rethink the situation and reconfigure the procurement mechanisms in the global market. We consider this as rational behavior and are ready for a constructive dialogue for the benefit of our customers.

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