Russia and CIS Bright Future in the Agriculture Commodities Market

As in the case of Africa, though on a lesser scale, Russia and other countries of the Commonwealth of Independent States (CIS) also suffer from a considerable yield gap compared to other countries in spite of a surplus of agricultural land. Many of the reasons for low productivity are also similar – poor infrastructure and lack of access to quality inputs.The main difference is that Russia and the CIS countries can and have produced large export surpluses, particularly of wheat. On more than one occasion the US Department of Agriculture has identified the significant potential of CIS countries to increase their wheat exports to levels of 50-60 mmt. This would introduce a major new source of supply into the world market and could potentially be very destabilizing. However, the market could accommodate this extra production if Russia were both to take share from other exporters, such as the US where wheat production has been on a downward trend, and take the lion’s share of the demand growth in Africa, the Middle East and Asia.

There are many encouraging signs:

• Port capacity, a major constraint, is being expanded.

• The level of FDI in agriculture is increasing with western companies investing across all sectors: seeds, machinery and food processing.

Organization of local industry is being improved with the establishment of large agro-holdings and government support in the form of subsidies and the creation of state-owned grain companies.

Together, these factors bode well for CIS export prospects, and could contribute to a continuing shift in global trade patterns. A major risk, however, is intervention by the government to ban or otherwise control exports in years when production is reduced, as this undermines Russia’s credibility as a reliable supplier.