Grain and Flour Market in Russia
10 July 201416 min reading
As one of the most important grain producers and exporters, Russia realizes approximately 50 million tons of wheat, 15 million tons of barley and 30 million tons of coarse grain every year. According to the data of U.S. Department of Agriculture Foreign Agricultural Service (USDA FAS); the country ranks 4th in the world wheat production with 52 million-ton production realized in 2013/14 season. In other words, 7,2% of the world wheat production was realized by Russia in 2013/14 season.
According to the estimations, there are around 7 thousand mills in Russia that is one of the major wheat producers of the world. The milling industry in the country is intensified on the wheat and rye flour production but mainly wheat flour is produced that is in parallel with the production amounts. According to the data of Russian Federal State Statistics Service Rosstat until 2012; the country realizes flour production between 9 and 10 million tons every year. Russia’s flour production amount realized in 2013 is announced as 9.8 million tons.
Russia is one of the world’s major wheat and barley exporters. Ranking 2nd in the world wheat export with its export amount realized in 2013/14 season, Russia realized alone 11,6% of the world wheat export that was 158,9 million tons. In barley, the country ranked third after Australia and Argentina in the world barley export with its 2,3 million-ton export realized in 2013/14 season.
Although Russia is one of the leading wheat producers and exporters in the world, the country falls a long way behind in agricultural production compared to its current area as very small part of the country land can be used for agricultural production.
GENERAL ECONOMIC OUTLOOK IN RUSSIA
Russian Federation is one of the major countries in the world that has manpower natural resources as the basis of a strong economy. Russia’s rich reserves of natural resources are a great chance for the country but they also bring some inconveniences in terms of the country economy. Petroleum prices that have been in rise for the last ten-year period and favorable terms of trade have been the driving force behind the strong growth of the country. However, overvalued exchange rate affects the growth adversely in the industries besides natural resources.
Wide area of the country creates an economic disadvantage as it causes large distances between labor, natural resources and business centers. Most of the rivers in the country flow north-south direction, not the east-west direction. Therefore, access to the sea is very difficult and this causes transportation costs in the country to be approximately 3 times higher than the average international costs. Consumer goods and services industries could grow significantly after 1990s. According to the official data; while the share of service industry in GDP was below 36% until 1990s, it has been between 55% and 60% since 1995.
Due to the central planning and rich sources Russia has, industrial sector in the country has evolved in the direction of heavy industry. Production of fuel, energy and metallurgy constitutes more than 35% of the total industrial production. When it is taken into consideration that the share of electricity and food production in the industrial production is approximately 25%, it is understood that the production of advanced technology and consumer goods has a little share in the Russian economy. The share of light industry including textile industry in the industrial production is at very low level.
The economy is dominated by the large-scale industrial businesses. The share of SMEs in GDP is only about 10-15%. The industry is intensified in Moscow, St. Petersburg, Yekaterinburg and Nizhny Novgorod. These big cities managed the transition process better than other cities and provided diversity in the production. Smaller cities like Tomsk and Novosibirsk are the industry centers formed by the Soviet regime. Siberia and the eastern-most regions of the country are not industrialized yet.
Expectations about the economic growth in the country are dependent on the course of international commodity prices. International commodity prices are expected to be high in 2014-2018 period. Due to the weak consumption and investment demand and also the average increase in the exports, economic growth slowed down in 2013. Real GDP growth rate was 1,3% in 2013. Real GDP growth rate is expected to be 2,1% in 2014 by even more slowing down. The issues with Ukraine are expected to affect more adversely the Russian economy which is already weak. There is the risk of withdrawal postponement of the investment decisions due to the uncertainty in the region and the financial problems.
AGRICULTURE IN RUSSIA
As the soil structure in the northern regions of Russia is not suitable for the production of grain and other similar products, agricultural production is realized mostly in southern regions and western Siberia. Livestock breeding is more prominent in the north of the country.
Although Russia is one of the leading wheat producers and exporters in the world, the country falls a long way behind in agricultural production compared to its current area as very small part of the country land can be used for agricultural production. Country’s geographical conditions which are not suitable for agriculture and the drought realizing every three years make only 32% of the country land useable for agriculture. 45% of the country land consists of timberland. Excessive usage of chemical materials, industrial pollution, excessive cultivation of the land and choosing the wrong product in some regions decreased the soil fertility.
The collectivization of agriculture that was forced during the Soviet period brought infertility in most of the agricultural businesses. Chronic lack of capital and dependence on the state aids are the problems encountered by today’s businesses. Although the right to private ownership of land is confirmed in the constitution, this right has not been granted by the existing regulations. Besides, the fact that land cannot be shown as collateral for loans eliminates the loan possibilities of the farmers. This situation constitutes the source of inefficiency in the businesses.
The cost of supporting the problematic farms in the country is very high. Even though most of the state aids are lifted by the Putin government, the farms in the country still benefit from many direct subsidies and tax reliefs. Those farms also benefit from favorable credits with low interest rates financed by the budget and do not pay them back.
Putting to become self-sufficient in food and to break the dependence on imports among the priority targets within the new national safety strategies, Russia firstly needs to decrease the external dependence in the products such as meat, milk and vegetables in order to be self-sufficient in food completely. According to the data of Ministry of Agriculture and independent institutions; the only agricultural production for which Russia is self-sufficient is grain. The country realizes 100% of its grain need.
GRAIN PRODUCTION AND CONSUMPTION
As one of the most important grain producers and exporters, Russia realizes approximately 50 million tons of wheat, 15 million tons of barley and 30 million tons of coarse grain every year. However, the country cannot assure stability in grain production due to both the drought emerging every few years and other problems experienced in the agricultural production. Besides, agricultural production amount is very low compared to the area of the country. The biggest reason of this is that very little of the country land can be used in agricultural production.
When the production data is reviewed by years; it is seen that Russia’s wheat production increased to 47,6 million tons in 2005/06 season and in 2008/09 season to 63,7 million tons which was the highest level of the last 10 years. Having an increase trend between 2003 and 2008, wheat production declined to 61,7 million tons in 2009/10 season, to 41,5 million tons in 2010/11 season and in 2012/13 season to 37,7 million tons which was the lowest level of the last 10 years. Increasing in 2013/14 season again and reaching to 52 million tons, Russia’s wheat production is projected to reach 53 million tons with 1 million tons of increase in 2014/15 season. According to the data of U.S. Department of Agriculture Foreign Agricultural Service (USDA FAS); the country ranks 4th in the world wheat production with 52 million-ton production realized in 2013/14 season. In other words, 7,2% of the world wheat production was realized by Russia in 2013/14 season. The country uses nearly 65% of its production for the domestic consumption. When Russia’s wheat consumption is reviewed by years; the consumption, which was 35,5 million tons in 2003/04 season, reached to 39,6 million tons as the highest level of the last 10 years in 2009/10 season. The lowest consumption amount of the last 10 years was realized in 2012/13 season. The consumption is projected to remain at 33,5 million tons level again in 2014/15 season.
Another grain product for which Russia is prominent in the production is barley. According to the data of USDA; as the largest barley producer of the world, Russia realizes barley production between 13 and 16 million tons in the last 3 seasons. When the barley production is reviewed by years; it is seen that the production, which was 18 million tons in 2003/04 season, reached to the highest level of the last 10 years in 2008/09 season with 23,1 million tons. Showing an unstable picture in general, country’s barley production declined to the lowest level of the last 10 years in 2010/11 season with 8,3 million tons. Realized as 15,3 million tons in 2013/14 season, Russia’s barley production is forecast to reach to 16 million tons in 2014/15 season. Consumption is almost in parallel with the production. Being 18,6 million tons in 2003/04 season, Russia’s barley consumption declined to 9,5 million tons in parallel with the production in 2010/11 season. However in the following seasons, country’s barley consumption was 1-2 million tons lower than the production. Announcing the barley consumption of Russia as 12,8 million tons in 2013/14 season, USDA projects that consumption will reach to 13,2 million tons level in 2014/15 season.
Two other products for which Russia is leader in the world production are oat and rye. On the data about the world rye and oat production, it is seen that European Union ranks first generally. However, this production amount which is on top reflects total production of all EU member countries. Thus when the production is reviewed on country basis, Russia is the world’s largest oat and rye producer.
When 2013/14 season data is reviewed; Russia realized alone 22,7% of the world oat production that was 23,5 million tons and 19,8% of the world rye production that was 16,6 million tons. Even though Russia’s oat and rye production shows some changes by years, it is generally at the same levels all the time. While oat production is between 4 and 5 million tons, rye production is between 2 and 4 million tons. The lowest production amount in the last 10 years in oat and rye was realized in 2010/11 season due to the drought. Similar declines were also experienced in wheat and barley production in 2010/11 season. The country uses almost its entire oat and rye production for its domestic consumption.
Russia has a significantly low share in rice and corn production compared to the world production in total. While the rice amount realized by the country is between 500 and 600 thousand, corn amount is much more higher compared to the rice. Being 2 million tons in 2003/04 season, Russia’s corn production reached to 6,6 million tons in 2008/09 season. Declining again in the next 2 seasons, production started to increase as of season 2011/12. Increasing significantly especially in the last 2 seasons, Russian corn production reached to 11,6 million tons in 2013/14.
Corn production is projected to reach 12,5 million tons in 2014/15 season. When the 10-year increase amount in all grain products is reviewed, it is seen that the highest increase rate was experienced in corn. However; when it is considered that world corn production exceeds 900 million tons, this amount seems very low.
FOREIGN TRADE IN RUSSIA
Russian economy has a structure that exports raw material and semi-finished products due to the rich natural resources and imports consumption goods. On the other hand, investments on the consumption good production increased due to the high customs duties but the investments have not reached to the desired level yet. Thus the foreign trade of the country has not got rid of the structure mainly dependent on the raw material export and consumption good import. Therefore, one third of the budget income consists of the customs duties obtained from export and imports.
As of 1990; while approximately 70% of the country export was made to other Soviet Republics, nearly 50% of the import was made from these countries. This situation strongly changed right after the dissolution of the Soviet Union.
Together with the crisis in 1998, Ruble depreciated significantly; while import declined, there was a serious increase in the export. The reason behind the increase in the export was that the competitiveness of the Russian goods in the world markets depending on the devaluation and the world prices of Russia’s major export items (petroleum, gas and metals) increased. The increase in the exports in 1999-2000 was 40%. Import had a decrease over 20% in 1999-2000. The major reason of the decrease in the import was that the real prices dropped after the Ruble crisis and local producers increased their market shares as a result of their increasing competition power.
Before the global crisis, increase trend was observed in the imports due to the domestic demand that started to increase thanks to the increase in the value of Ruble again and the petroleum export incomes as of 2000. Import volume increased 31% in 2008. Due to the global financial crisis, domestic demand declined and thus the import volume of the country shrank significantly in 2009. Together with the start the process of overcoming the crisis in 2010, Russia’s exports increased 31% and imports increased 37%. In 2013, country’s export to the world increased only 0,3%. In the same period, imports from the world increased 0,5%.
The products that get the highest share from Russia’s export are the raw materials such as majorly petroleum and gas. The product groups that have the most important share in the country’s imports are machinery and equipment, consumer goods, medicines, meat, sugar and semi-finished metal products. Machinery and equipment industry constitutes approximately 40% of the country import and agricultural and food industry products constitute 20% of the imports. Other product groups holding an important place in the imports are chemicals and pharmaceuticals.
According to 2013 data; top five countries in the export of the Russian Federation are Netherlands (13.3 percent), Italy (7.5 percent), Germany (7 percent), China (6.8 percent) and Turkey (4.8 percent). Top five countries in the import of the country are China (16.7 per cent), Germany (11.9 per cent), U.S. (5.3 percent), Ukraine (5 percent) and Italy (4.6 percent).
PLACE OF GRAIN IN FOREIGN TRADE
Russia is one of the world’s major wheat and barley exporters. Ranking 2nd in the world wheat export with its export amount realized in 2013/14 season, Russia realized alone 11,6% of the world wheat export that was 158,9 million tons.
According to USDA data; Russia’s wheat export, which was 3,1 million tons in 2003/04 season, increased to 10,7 million tons in 2006/07 season. Continuing to increase in the next 3 seasons, export amount increased to 18,5 million tons in 2009/10 season.
However, country’s wheat export remained at 3,9 million tons in 2010/11 season due to the decline in the production amount because of the drought and the introduction of the export ban. In 2011/12 season as the next one, export reached to 21,6 million tons as the highest level of the last 10 years. Declining to 11,2 million tons in 2012/13 season, country’s wheat export reached to 18,5 million tons again in 2013/14 season. USDA projects that the increase will continue in 2014/15 season and Russia’s wheat export will reach to 19,5 million tons level.
Russia is also an important barley exporter besides wheat. Ranking third after Australia and Argentina in the world barley export with its 2,3 million-ton export realized in 2013/14 season, Russia exports barley between 2 and 4 million tons every year. mAccording to the USDA data; Russia’s barley export, which was 2,3 million tons in 2003/04 season, reached to the highest level of the last 10 years with 3,6 million tons in 2011/12 season. The lowest barley export of the last 10 years is 267 thousand tons.
This export amount was realized in 2010/11 season due to the drought and export ban just like in wheat. As it is understood from the USDA data, unstability in the wheat and barley production reflects directly on the exports. The country is stated exporting 2,3 million tons of barley in 2012/13 and 2013/14 seasons. The projection for 2014/15 season is 3,5 million tons.
Export is very limited in the products except for wheat and barley. Export has increased only in corn due to the increase in the production for the last two seasons. Remaining below 1 million tons generally before 2011/12 season, corn export reached to 3,8 million tons in 2013/14 season. Corn export is expected to be at 3,5 million tons level in 2014/15 season. Imports are at very low levels for all the grain products.
MILLING AND GRAIN PROCESSING INDUSTRY
According to the estimations, there are around 7 thousand mills in Russia that is one of the major wheat producers of the world. According to the data of Russian Federal State Statistics Service Rosstat until 2012; the country realizes flour production between 9 and 10 million tons every year. As one of the leading mills of the country, Altai Flour Mills’ General Manager Vitali Kopytov announces the flour production amount realized by Russia in 2013 as 9.854,8 million tons. In the interview we made, Kopytov explains the Russian market and its future potential as following: “Russian output of wheat flour was 9854,8 MT and Altai output of flour was 1474 MT in 2013. Consumption of bread is rather stable since 2003 – about 120 kg per capita in Russia and 170 kg per capita in the Altai region.
Russia has huge food resources, which allow satisfying domestic demand in flour, and exporting the finished products to foreign countries. It strengthens Russia's position as the guarantor of food security in the world. New technologies in milling industry, laboratory researches, packaging, storage and transportation actively come into our lives. This will contribute to progressive development of the milling industry, improve quality of the final product, and increase customers’ satisfaction. As elsewhere in the world, flour-milling industry in Russia will focus on the overall market, go on a way of improving quality of products, diversification of production taking into account the needs and health of final consumers, adopt the best practices of foreign countries.
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