Russia's invasion of Ukraine has seemingly pointed many people in the direction of a food crisis. However, Russia has had a record year of wheat production that could provide stability to Egypt, Turkey, China, and parts of Africa. This was no accident as they have continued the relentless drive to become the largest player in the global wheat market.
The Russian wheat situation is somewhat different from Ukraine’s, which you may have read about in last week’s post. Despite the conflict, Russian wheat production and exports have shown remarkable signs of rebounding from the trade disruptions that accompanied the Ukraine invasion. Russia is still the number one wheat exporter in the world…and by a large margin. (Want to learn more about wheat? Click here to read an informative post.)
Russia & Wheat: We’re Number One
Various media reports place this year’s Russian wheat crop at 92 million metric tons, compared to a five-year average of around 78 million metric tons. This is despite lingering problems with drought in some production areas and spot shortages of high-priced inputs. (Global fertilizer supplies and prices remain a major concern.) The Russian trade ministry recently raised projected wheat exports for 2022-23 to 41.5 million metric tons. Russia remains the number-one wheat exporter to the world, selling more than $7.3 billion in 2021.
Other trade sources report similar numbers and point out that Russia exported 24.9 million tonnes of wheat, 3.2 million more than a year ago. Exports more than doubled to 3.8 million tons last month from January 2022, before the invasion. Russian wheat shipments were at or near record highs in November, December and January, increasing 24 percent over the same three months a year earlier, according to British-American financial market data firm Refinitiv.
Estimated crop yields of 3.2 tons per hectare in 2022-23, when compared to 1.8 tons per hectare as recently as 2012-13, powerfully reflect the commitment to continuing growth of both Russian wheat production and export capacity that have been underway and established for decades.
Russia has become the world’s leading wheat exporter not by accident…but by design.
The first year of the 21st century, Russia exported a modest 696,000 tons of wheat. In the late 1970s, they were struggling to import wheat. Ten years later, having made tremendous inroads into Asian, Middle East and African markets, Russia increased that total to 18.5 million tons.
By 2018, Russia more than doubled that total when it exported a jaw-dropping 41.4 million tons of wheat, which still stands as a record. Since then, the country has exported around 35 million tons per year.
Apart from the need to feed a population of 148 million, at least some of the drive to maintain and grow wheat exports today can be traced to Russia’s need for foreign exchange to help cover the costs of a potentially prolonged conflict. With energy demand from major customers in Europe reduced by a mild winter and astute European supply-management steps, reduced energy income must be offset somehow. Wheat exports offer an important alternative source.
Russian wheat & food security
But from the Russian perspective, optimism clearly may not be the operative word. Maintaining exports of the agricultural commodities the world needs must remain a top priority for Putin, if only for national economic interests. But as a further concern, Putin has to be sensitive to the absolutely critical role played by wheat in providing political stability across a large swath of the world on its southern border.
“When you look at the last two decades, Russia has shown such impressive growth. You look at the acreage changes; they’ve gone up 30% to 50% for many of the grain crops such as wheat and sunflower seed. Production has grown three times more than it was.
Wheat production nowadays is 150% above where it was 20 years ago. It’s been impressive to see how much this country was able to scale up production.”
– Stefan Vogel, Rabobank’s global sector strategist for grain & oilseeds
A staple around the world, wheat – and bread – provide basic nutrition for literally hundreds of millions of people, often in regions where the need for an affordable source of life-sustaining nutrition is most critical. Egypt is the number one importer of Russian wheat. Right now, they are in an economic crisis where one-third of their population lives below the poverty line.
Neighbor Turkey remains the largest per-capita consumer of bread in the entire world. Governments across the Middle East and Africa often provide generous consumer subsidies to assure it remains affordable and available. Elimination and reduction of these subsidies have been major factors cited in the “Arab Spring” uprisings of the early 2010s. To this day, a steady stream of wheat remains a top priority for these nations.
The larger issue of food security remains very much unresolved, despite the remarkable achievements of the past year in restoring the flow of wheat and other commodities from the Black Sea region. The global community will be watching closely for signs of what comes next.
But is it enough?
Capitalizing on the value of its wheat may not be a simple process, however. Much of the global community remains committed to imposing a high cost on Russia for its Ukraine actions. Shipping costs, primarily insurance, remain unsettled in the region, due to the lingering threat of further escalation in the conflict.
The continuation of the Black Sea Grain Initiative that opened the door for resumed exports also must be renewed this spring.
While the benefits to Russia of maintaining the agreement may seem obvious, observers nonetheless caution that the enormous pressures facing Russian leaders could prompt still more logic-defying actions.
Maybe just as important, the much of rest of the wheat-producing world seems intent on fighting to supply the world’s rising demand for wheat. Australia, for example, has enjoyed back-to-back record wheat crops, and in December reported a 50 percent increase in monthly wheat exports.
Significantly, Australian trade officials note that many of the country’s current export customers are the Middle East and African nations so dependent historically on Black Sea shipments.
And then there’s weather, finance, politics….
Reports of a renewed offensive by Russian troops have circulated widely, with evidence of an increase in Russian troops to about 500,000 and more equipment along the eastern Ukraine border and occupied territories. Heated rhetoric from the Kremlin has only added to the tension, and President Joe Biden’s recent daring visit to Kyiv has prompted yet another round of dire threats and warnings of an escalated conflict.
China’s top diplomat paid Putin a visit in February which sent nervous energy throughout the western world. National leaders worry that support from China and more aggressive action by Russia could expand the conflict still further, prompting more and more retaliatory response from the West.
The unspoken fear is the emergence of voices seeking to “weaponize food” – that is, to punish Russia by limiting or attempting to cut off Russian agricultural exports.
Leaders so far have recognized the enormous damage to food security everywhere in such a misguided effort. But if Russian aggression expands, the risk of overreaction is always a worry.
In such an environment, the risks associated with moving grains, oilseeds, fertilizers, and other commodities through the Black Sea corridor also might drive shipping and insurance costs even higher – and at some point, to unacceptable and uneconomic levels.
Russian political upheaval
The conflict has been expensive for Russia, in every way possible. The Hill reported the cost of the first nine months of the conflict alone at $82 billiion, including equipment losses of $21 billion. At that level, the conflict is eating up as much as a quarter of Russia’s 2021 earnings.
Human costs have also been high. The protracted battle has created an enormous need for more Russian troops. Six months into the conflict, Russian officials increased the size of their armed forces by 137,000, to 1,150,000. U.S officials cited by the BBC estimate that between 169,000 and 190,000 Russian troops are involved in the conflict. This spring it is estimated that at least 500,000 civilians will be called into action.
Speculation over possible changes in Russian leadership has become a global parlor game. But ample credible evidence exists of frustration with the current situation, and reports of paranoia and competing leadership cabals can’t be dismissed. Should change occur, the question might well become whether a new regime would seek to unwind the conflict, or escalate it in search of a final victory, no matter the international consequences.
In the meantime, many Russian citizens are fleeing the country. One media report in September claimed that as many as 700,000 citizens fled to western Europe and more easily accessible neighboring former Soviet satellite countries in a single two-week period.
Wikipedia claims that “following the 2022 Russian invasion of Ukraine, more than 300,000 Russian citizens and residents are estimated to have left Russia by mid-March 2022, at least 500,000 by the end of August 2022, and an additional 400,000 by early October, for a total of approximately 900,000.”
The Moscow Times in May 2022 reported that 3.8 million Russians left the country in the first three months of the year alone. Whatever the actual figure of emigres, the exodus of Russian citizens during the conflict has been enormous.
The Bottom Line
Despite remarkable progress in dealing with the massive disruption to global markets created by Russia’s invasion of Ukraine, we’re far from out of the woods. The region remains a critical element of a global food system capable of satisfying an inexorable demand for the food grains, feed grains and oilseeds, and the fertilizers and other products on which those commodities rely. The importance and power of food from this vital region should be a paramount concern in overall global food security.