Russia Flexes its Agricultural Muscles

“We’ll show you,” Russia seems to be saying to Europe and the U.S.

When trade tensions were high in 2014, sanctions and countersanctions between Russia, the U.S. and Europe were rampant (much like they are with China and the U.S. currently). At that time, Russia was importing much of its food, but that situation has changed.

“Over the past five years, Russia has reached self-sufficiency in pork and poultry,” said a recent report from the Global Agricultural Information Network (GAIN). “Overall, by 2018, Russia had met or exceeded six of the eight production targets set in its Food Security Doctrine of 2010. The successful development of the agricultural sector, together with several other factors – ruble devaluation, import substitution policies (including Russian food counter sanctions), domestic support and favorable weather – have affected Russia’s agricultural goods trade balance. Imports slumped to the lowest level in 20 years in 2017.”

In 1999, the share of agricultural goods in Russia’s total imports exceeded 28.5%, says the Russian Agricultural Bank.

“U.S. food and agricultural exports to Russia were growing, reaching a peak of $1.9 billion in 2008. Since 2014, Russian overall food and agricultural imports have been steadily declining and reached a low of 12.7% in 2017,” the Bank reports. “At the same time, Russia’s exports of agricultural and food products have been insignificant for decades, but have increased sharply on a percentage basis in recent years, from an average of 2% at most between 1995 and 2010 to 6% in 2016 and 5.8% in 2017.”

Competitive Pricing, Quality, and Need
According to Maxim Rubchenko, chief editor of the PRCB Group and “economic observer,” a simple explanation for what caused the boom is that “Russia offered a combination of competitive pricing and high quality which the world's top grain importers found attractive.”

As Rubchenko pointed out in an article on Sputniknews.com, "Nearly all market analysts admit that one of the main reasons for the boom of Russia's agricultural industry has been the sanctions war unleased by the West in 2014. Following the imposition of European and U.S. sanctions, Russia announced retaliatory measures, limiting the import of Western food products.

Of course, one can’t forget that Russia placed countersanctions, while it took significant measures to increase domestic agricultural production. It has been successful: Agriculture is now the fourth top foreign currency earner for the economy after oil and gas, metals, and chemicals, according to the Russian government.

Agriculture Growing in Importance
“Russian agriculture has been one of the fastest growing segments of the economy in recent years with gross output up 2.4 percent in 2017, as the Russian economy emerged from a two-year recession,” says the GAIN report.

“In 2017, Russia was the world’s largest exporter of wheat; the second-largest producer of sunflower seeds; the third-largest producer of potatoes and milk, and the fifth-largest producer of eggs and chicken meat,” the report says. “Russia’s transition from import dependence in the 1990s toward self-sufficiency traces back to 2005, when agricultural support policies were launched on a meaningful scale. From 2014, these were supplemented by protectionist counter sanctions, with continued use of sanitary and phytosanitary measures (SPS) as technical barriers to trade (TBT).”

In short, Russia has transformed its agriculture sector from modest levels of production in the 2000s to become a significant contributor to the economy and growing global player. It successfully competes with the U.S. in the global wheat market and regionally in poultry markets, says the GAIN report.

Production Changes
According to preliminary Rosstat (Russian government statistics) data, in 2017, expansion in Russia’s animal sector was driven primarily by further advances in the production of poultry, pork, and eggs, which increased by 6.9%, 4.8%, and 3.1%, respectively.

Modern production practices are more common than in the past. In 2017, the number of swine in all enterprises and farms increased by 5.3% to 23.2 million head, of which 19.8 million head were in agricultural enterprises (7.9% more than on the same date a year ago), GAIN reports.

Russia has more than 200,000 farm holdings and small agricultural businesses, which account for up to 50% of Russia’s agricultural production, reports the Russian Agricultural Bank.

New figures from the Ministry of Agriculture show that Russia's wheat exports have jumped nearly 50% compared to last year, allowing the country to retain its title as the world's top wheat exporter.

Reclaimed Farmland
The PRCB Group’s Rubchenko reports that agriculture minister Alexander Tkachev noted at a department meeting recently that Russia "regularly faces a situation you will not find in other countries: namely, the existence of abandoned farmland."

According to the minister, it's "absolutely realistic to recover at least ten million hectares,” Rubchenko reported

“To this end, the ministry has prepared new draft laws aimed at simplifying procedures for the recovery of these lands, increasing taxes on unused farmland,” Rubchenko says. “The government has also increased financing for the agricultural industry, from 242 billion rubles (about $3.85 billion) last year to 272 billion ($4.32 billion) today. Additional funds are expected to be provided for rural development, preferential short-term credit, and the modernization of machinery and equipment.”

When Trade is Disrupted
When governments can’t figure out how to work together, people suffer. As this article shows, trade barriers have unintended consequences. Governments find ways to survive and ultimately thrive, as Russia has. Self-sufficiency is important, but so is trade.

The basic principle of trade agreements is reciprocity, says Charles Hankla in a MarketWatch article earlier this year. It’s foundation is that “each country will agree to liberalize its trade to the extent that other countries liberalize theirs,” Hankla says. “The approach uses international negotiations to overcome protectionist political pressures and recognizes that trade is a global phenomenon that generates national interdependence.”