20 September 2017

Regional Review: Tapping into the CIS' vast agricultural potential

In a series of articles, World Grain examines the Commonwealth of Independent States (CIS), led by Russia, Ukraine and Kazakhstan, is becoming a bigger player in global grain production and exports.

The future prospects of the grain sectors in the former Soviet countries depend on their ability to develop new production areas while opening new markets for extra production. New markets depend on infrastructure, which means the readiness of agribusiness to invest will be vital, as some of the greatest potential for producing more grain is in some of the most remote regions.

“It all depends on their investments in areas that are currently underutilized,” Swithun Still, director and senior trader at Solaris Commodities SA in Switzerland, told World Grain. “There are ways of growing wheat in large chunks of Siberia that don’t really get used for farming at the moment. It is relatively barren steppe and it is difficult but not impossible, like they have in Canada. There is potential.

“The idea has been floated for a long time to expand the grain export capacity of Russian wheat and other grains as well, but notably Russian wheat into Asia by expanding the port capabilities and infrastructure in Vladivostok and other ports in the Far East, but mostly Vladivostok. That is where the center of attention has been.”

Soyuz Summa, which owns two of the three silos in Novorossiysk, has made investments in Vladivostok and around 2011 it talked about Russian wheat being pumped into Asia out of Vladivostok, he said.

“But now, unless there are serious subsidies given to exporters to incentivize them to freight grain all the way across Siberia by rail, it will never work because the rail freight in Russia is just far, far too expensive,” he said. “It cannot compete with ocean freight. It is always going to be more competitive to ship grain in Panamaxes into Asia from the Black Sea than across land.

“It just doesn’t work. On paper, yes, and in theory, yes, but practice shows that unless railway rates are subsidized it just doesn’t work.”

He said there also has been some talk about Russia finally signing some phytosanitary agreements with China but those are quite limited in their scope because they can only be for certain border areas that are next door to China.

“It doesn’t open the door like the Ukrainians have done to sending corn or wheat into China by Panamaxes,” he said. “But that could come.”

In an article on the growth of Russia’s farm exports published earlier this year, the Financial Times newspaper looked at the potential.

“The most exciting opportunity lies in Asia, where Russia has a band of fertile land along its border with China,” the newspaper noted. “There, the soil and climate — on a similar latitude to the big grain-growing areas of the U.S. — is good for soybean cultivation. However, it will be a slow change. With food exports to China still in their infancy, developing that sector could take years, or even decades. Even without it, however, Russia’s agriculture boom shows that, despite sanctions and the poor state of east-west relations, there are pockets of value and opportunity to be found in the Russian market.”

Source: http://www.world-grain.com