Russia has a potential to boost grain exports

Possessing the world's largest reserves of fertile lands (accounting for 55% of the world's fertile lands, of which 25% are arable lands, according to the World Bank's estimates), Russia may turn into a key player in providing the global food security. Over the last 25 years since the collapse of the Soviet Union, the former importer has turned into a world's largest grain exporter.

In his speech at the World Economic Forum's Annual Meeting in Davos Russia's Prime Minister Dmitry Medvedev outlined the prospects of boosting food exports and stated that Russia would feed the rest of the world. In the next 10–15 years we want to increase grain production to 120–125 million tons a year, having exports to stabilize around 30–40 million tons, said the Agriculture Minister. As soon as 2019, Russia's wheat exports is expected to overtop the exports fr om the United States of America, based on the estimates of leading U.S. agricultural economists.

Does Russia indeed have an export potential to sell grain? And if it does, then how this task can be achieved? Russia's potential to boost food production is above all based on its vast idle croplands. The question is whether the vast lands withdrawn fr om agriculture during the transition period can be used again? For more than a 20-year period the acreage of arable lands in Russia have contracted by 16,3 million hectares or by 12.4% compared to 1990 (see Table 1). Total acres of cropland have contracted by 41,3 million hectares, with by almost 20 million hectares of grain croplands. However, while the share of crop acreage in the total acreage of arable lands has contracted to 66.1% from 89.2%, the share of grain croplands in the total crop acreage has increased to 58.2% from 53.6%.

Almost all of the constituent territories of the Russian Federation saw their grain crop acreage contracting, most of which are exposed to severe climate and economic conditions, with low bioclimatic potential, high cost of cultivation per ton of products, low crop yield.

Only three constituent territories of the Southern Federal District, namely the Krasnodar and Stavropol Territories and the Kabardino-Balkarian Republic, saw their grain crop acreage increase compared to 1990. The rest of the regions saw their grain acreage contracting or completely winding up: the latter is more typical of the regions situated in the Northwestern Federal District. The contraction of grain crop acreage takes place in the regions wh ere the crop yield is less than 20 hundreds kilograms per hectare, and production per ton of grain costs more than Rb 3429. Furthermore, the grain crop acreage tends to contract driven by higher cost and lower return on sales.

Therefore, grain crop acreage contracted mostly in the regions wh ere grain production was and is economically unsound. However, the situation may change if global grain prices go up (the grain export price is currently $286 per ton). The authors made some efforts to assess the potential of increasing grain exports, factoring in not only the acreages available, but also the cost of grain production in the constituent territories of the Russian Federation, costs of transportation to export terminals, and global prices of grain.

In doing so, the following algorithm was employed:

1. The potential of grain crop acreage expansion was calculated as difference between the values seen in 1990 and 2010 for each constituent territory of the Russian Federation.
2. The regression dependence between the values of grain crop acreage and the average return on sales during the past three years was calculated using the data of annual reports of agricultural enterprises.
3. While calculating possible levels of return on sales for enterprises situated in a specific constituent territory of the Russian Federation, the port grain prices and the region price differed by railway carriage costs.
4. The volume of grain production was calculated based on the constant annual average crop yield in 2008–2010, while the export volume was calculated using the grain crops marketability, provided that all extra produced grain go for export.
5. Extra acreage costs remained unchanged, i.e. the same as existing production costs.

Experimental calculations were performed for 11 options of grain export price in ports within a range of $200 to $400 per ton. Acreage growth was calculated for each value of export price for each constituent territory of the Russian Federation, if grain production profitability, given carriage costs, was higher than 40%. The growth was made equivalent to zero if the profitability of a given region appeared to be lower than 40%. The volume of possible extra exports of grain was determined based on the acreage growth.

Following is a regional example: given that in 2010 the crop acreage in the Belgorod Region was by 338,000 hectares less than that in 1990, and supposing that the entire acreage will be put under crop again, then the crop acreage would expand to 1586,000 hectares. Grain crops are 49.2% for the time being, which means that the grain crop acreage may reach a maximum of 166,000 hectares (338,000 hectares*0,492). The estimated expansion of grain crop acreage will depend on the grain price and many other factors, but it cannot overtop the estimated maximum acreage.
The crop acreage in the Leningrad Region contracted to 251,000 from 437,000 hectares, i.e. by 186,000 hectares, but if the entire acreage is put under crop again, then the grain crop acreage might expand only by 23,000 hectares, because the biggest share of grain crops in this region is only 12.6%.

The calculation results across the country are presented in Fig. 2. They show that with a price of, say, $380, more lands under crop may produce an extra volume of grain exports of 5,7 million tons annually within a year, 17,5 million tons a year annually within 5 years, 21,5 million tons annually within 10 years, i.e. volumes comparable with the export volumes in recent years. Hence, the volume of grain exports may reach more than 40 million tons by 2025.

However, this option of boosting production and exports of grain is cost demanding (wasted lands are as much fertile as lands under cultivation), and with the same grain prices in the global market, Russia could hardly see its role in the said market change substantially. The option can be widely employed if global grain prices go up high.

Additionally, the issue of quite a low capacity of the existing terminal port elevators has to be tackled, which currently measures 28 million tons (Novorossyisk – 13 million tons a year; Tuapse and Taman – 2,5 million tons each; Azovsk, Yeisk, Taganrog, Rostov-on-Don –6 million tons collectively; Saint Petersburg and Kaliningrad – 1 million tons each; Vladivostok, Nakhodka, etc. far eastern ports – 2 million tons).

Hence Russia has a potential to increase its grain exports by virtue of reactivating its previously wasted lands. In our opinion, however, Russia has ample opportunities to produce grain by virtue of enhancing the crop yield and applying advanced technologies on the lands under crop. A possible growth is expected to take place on the assumption that the crop acreage and the live stock at are maintained at the level attained in the period under review. Naturally, production growth can be achieved as long as there is demand for more products in both the domestic market and the global market, and Russian producers are competitive.

R. Yanbykh, researcher, IAER RANEPA.