Throughout the second half of the 19th Century up until 1914, Russia generally accounted for a quarter to a third of the wheat available for trade on the world market.
Fast forward a few generations to 1984-85 and the Soviet Union was slipping into an ever-tighter tailspin. To avoid famine, it was reduced to importing a record of over 55 million tons of wheat, much of it from the US with the approval of President Reagan, who ended President Carter’s boycott of wheat exports to Russia.
Skip ahead another generation to 2017 and this year Russia is projected to export 30 million tons of wheat, making it the world leading exporter. The Unites States is projected to be the third largest exporter at about 25.5 million tons. The 28 nations of the European Union, counted as a single exporter for these purposes, comes in ahead of the US and behind Russia, at about 27 million tons. (All estimates are courtesy of the US Department of Agriculture).
One of the several noteworthy aspects of the Russian accomplishment is that it comes after several recent years, (the nadir of the global economic crisis and the collapse in oil prices of 2008) where the Russian government imposed punitive taxes on Russian exporters to keep domestic prices in Russia low.
This season’s supply is obviously large enough to ensure that domestic prices will not spike from shortage. It is also large enough to satisfy the imperative to export as much as practicable to generate foreign hard currency. Russia after all remains under sanction from the US and several of its allies.
And that is another noteworthy aspect of Russia’s accomplishment. Sanctions helped spur the Russian agricultural industry to race ahead in overdrive.
According to the Russian Ministry of Agriculture, food imports during the past three years dropped almost in half, from $43 billion to $25 billion, whereas overall Russian agricultural production has increased by 11 percent. “Achievements of the agricultural sector in recent years allowed us to edge even closer to full self-sufficiency when it comes to food. …For the first time in many years, Russian food items started to dominate on the shelves,” ministry spokespeople said.
The sanctions created the necessity that was the mother of invention. In many cases upscale Russian restaurants and supermarket chains became direct investors in farms and livestock businesses in order to secure the amount and quality of foods they wanted.
The agricultural sector in Russia moved ahead in billion-dollar strides.
The sanctions still hurt though, particularly at the high end for top quality imports and at the low end for simple things like coffee and fruit.
But the weakness of the ruble is certainly helping the volume of Russian wheat exports. While Russian exporters would prefer higher prices, the fact is that the Russian crop is large enough to weigh down prices for everyone around the globe.
Russia’s transformation to dominant global player in such a short time is a remarkable feat. In fact, Russia’ Ministry of Agriculture states that Russia, for the first time, will earn more from food exports than from arms sales. Not that selling food is without strategic ramifications.
About 80% of Russia’s exported wheat feeds pivotal countries in the Middle East. Egypt, Turkey and Iran are its leading import markets. In fact, the US export office for the wheat industry in Cairo closed its office earlier this year. Russia naturally is Syria’s biggest supplier of wheat. It is Libya’s second biggest supplier, behind the European Union. Following the first ever visit by a Saudi King to Russia in October, Saudi Arabia announced a larger investment in the Russian wheat industry and larger imports of Russian wheat.
And in 2017, for the first time ever, China began importing Russian wheat.
Russia’s wheat business is far from a zero-sum game with respect to the US. Russia, the world’s biggest country, is Big Agriculture. Archer Daniels Midland, Cargill, Caterpillar and John Deere, among others, all are very active in the Russian market. The newest round of sanctions that Congress passed in August do not directly target agriculture and should have minimal effect on the involvement of US companies in Russian agricultural.