Russia’s target by 2035 is to increase its grains exports to 64 Mt. In the first quarter of 2020, the Ministry should provide a detailed action plan of the agriculture development. The authorities take the matter seriously, since the agro sphere has become strategically important for Russia. This sector has taken a similar importance as the weapon or energy sectors.
In August 2019, the Russian government published a document on the long-term development of the agricultural sector until 2035. The strategy provides 3 scenarios for the global agricultural market future: optimistic, basic and pessimistic. Thus, all the calculations for the development of the Russian grain complex are also divided into three different types. It should be mentioned that the basic scenario is shaped as moderately optimistic. Indeed, it integrates the positive trend of growing agricultural consumption in the world over the past 10 years. This trend means that consumption will be ahead of production in developing countries. In addition, the authors of the document hope that the conditions of world trade will not deteriorate.
In any scenario, the authorities predict the increase in grain production, as well as the constant growth in domestic consumption which is not called into question. In an optimistic situation, by 2035, grain exports will become 1.5 times bigger compared to the current level. In an unfavorable scenario, given the increase in domestic consumption, the share of exports would fall by 28%. In any case, production must grow, and in order to achieve its goals, the government sets many tasks for the industry: increase yields and grain quality, improve transportation and export quality. Let’s take a closer look at the government plan.
So, the glass is half full rather than empty. The population and demand will grow; Russia wins more than loses from global warming; the country’s agricultural industry is still under development, there is room for improvement…
First of all, grain production should increase due to more competent use of land. The huge surface of Russia does not mean that all areas are suitable for agriculture. Thus, the development will be due to the intensification of farming, and not to the extensive system. Warmer winter temperatures allow favoring winter crops over spring ones. Nevertheless, weather forecasters expect a constant decrease in rainfall, which, combined with the ongoing outflow of population from the countryside, will inhibit development. That is why it is necessary to use highly productive varieties, to introduce new resource-saving technologies and modern agricultural equipment, and also to increase the use of mineral fertilizers and plant protection products. This would, to some extent, offset adverse climatic conditions and lack of trained manpower.
The next point, considered as important by the government, is to strengthen control throughout the entire chain from producers to storage then to shipments. The state already strictly monitors the quality of grain with the Rosselkhoznadzor, the Russian veterinary watchdog, centralizing all processes. The other way to supervise the sector is the monopolization of grain exports. The government assigned VTB, the Russian financial group, to the role of country’s main trader (we wrote about this here).
The development of Russian selection and technologies, the processing industry, the improvement of the phytosanitary condition and storage capacities, as well as bringing domestic norms to global standards, are also part of the sector’s strategy points. In addition, the authorities would like to develop the possibility of trading through the Moscow Commodity Exchange, but so far this project is in suspended state.
The weakness of the Russian agriculture remains undeveloped logistics, especially railway and river transport. It is logical to see transportation prices in Russia to be more expensive than in other countries in view of great distances, but due to the monopolization of the sector and the lack of competition, tariffs are also artificially boosted. The government expects to raise traffic penalties and taxes on road transport, as well as to continue the policy of subsidizing railway and river transport.
In conditions of geopolitical tensions, Russia is looking for new markets, sending new test batches of wheat and other agriculture products to different countries, and is also strengthening its position in existing ones, such as countries in North Africa, Turkey and the Middle East. In addition, Russia, aware of its infrastructure problems, seeks to develop not only the ports of the Black Sea, but also the Far East, the Caspian and the Baltic ports. Thus, the competition between the main world producers will be even tougher.