Russian grain production: too much of a good thing?

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Post-Communist Economies

ISSN: 1463-1377 (Print) 1465-3958 (Online) Journal homepage: http://www.tandfonline.com/loi/cpce20

Russian grain production: too much of a good thing? Stephen K. Wegren To cite this article: Stephen K. Wegren (2018): Russian grain production: too much of a good thing?, Post-Communist Economies, DOI: 10.1080/14631377.2018.1470856 To link to this article: https://doi.org/10.1080/14631377.2018.1470856

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Post-Communist Economies, 2018 https://doi.org/10.1080/14631377.2018.1470856

Russian grain production: too much of a good thing? Stephen K. Wegren  Political Science, Southern Methodist University, Dallas, TX, USA

ABSTRACT

Russian grain production has increased substantially in recent years, reaching a record harvest of 135 million tons post-cleaning during the 2017–2018 agricultural year. By 2025, the Ministry of Agriculture expects harvests to reach 150 million tons on a consistent basis. This research note analyses Russia’s ability to absorb harvests of this magnitude, examining domestic consumption, transportation, storage capacity and export capacity. Significant increases in domestic consumption are not expected. Efforts are underway to expand storage and export capacity, but in the short term the grain infrastructural system is not adequate to handle successively large harvests. The consequences of oversupply could be falling domestic prices and financial difficulties for grain producers and traders.

ARTICLE HISTORY

Received 9 April 2018 Accepted 18 April 2018 KEYWORDS

Russia; grain production; grain exports; transport; port capacity

Introduction In 2014, a team of Western analysts predicted that Russian grain exports would not surpass that of the United States, the leading grain exporting nation, for at least the rest of the decade (Visser, Spoor, & Mamonova, 2014). In fact, the 2014–2015 agricultural year was the first of four consecutive harvests in Russia that met or exceeded 100 million tons (2014, 2015, 2016, 2017).1 A fifth consecutive year is forecast for the 2018–2019 agricultural year, with spring estimates from the Ministry of Agriculture in the 110–115 million ton range. Successive large harvests have allowed the volume of grain exports to increase and surpass the US. In the 2014–2015 agricultural year, Russia set a post-Soviet record for the export of grain (more than 30 million tons) and wheat (about 22 million tons). In the 2015–2016 agricultural year, Russia surpassed the United States as the largest wheat exporter in the world. In the 2016– 2017 agricultural year, Russian wheat exports trailed only the leading exporter, the United States, by a few hundred tons due to a late season trade dispute with Turkey, a large importer of Russian wheat. In the 2017–2018 agricultural year Russia reclaimed top spot with a post-cleaning total of over 135 million tons (86 million tons of wheat), allowing wheat exports of almost 40 million tons and total grain exports of 52–53 million tons (Kulistikova, 2018). Russia’s re-emergence as a grain powerhouse recalls the pre-World War I days when Russian wheat fed Europe. Today, the Russian government is committed to becoming and remaining a grain powerhouse.

CONTACT  Stephen K. Wegren 

[email protected]

© 2018 Informa UK Limited, trading as Taylor & Francis Group

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The grain-growing sector has led the agricultural rebound in Russia. Assuming continued good weather, the prospects are favourable for Russia to continue its impressive growth in grain output. Minister of Agriculture, Alexander Tkachev, indicated that Russia should produce ‘not less than 115 million tons of grain annually’ by 2020, and maintained that Russia should ‘easily’ be able to export up to 50 million tons (Agrofakt, 2016). Subsequently, Minister Tkachev upped the ante to production of 140–150 million tons of grain by 2030. In March 2018, at a forum on development of the agricultural sector held in Krasnodar Krai and attended by President Putin, the director of the department on plant growing in the Ministry of Agriculture indicated that the strategy to reach 150 million ton output by 2030 is to increase total cultivated land to 90 million hectares (up from 80 million hectares in 2017), including 50 million hectares for grain production, and to achieve a yield of three tons per hectare (Kvedomosti.ru, 2018c). If the 150 million ton level is reached, and assuming that past patterns continue whereby Russian wheat production consists of about 64% of the total grain harvest, Russia will still trail China (over 125 million tons of wheat annually), which is the number one wheat producer in the world, but could surpass India (90 million tons of wheat) to become the second largest wheat producer in the world. Theoretically, a production level of 150 million tons would yield more than 70 million tons that potentially could be exported, or about a 35% increase over Russia’s record export level during the 2017–2018 agricultural year. Wheat will remain Russia’s main grain export and generates the most revenue (Maksimova, 2017). Moreover, Minister Tkachev expressed the hope that by 2020 the total value of Russian food exports will exceed the value of its imports for the first time since 1955 (Kvedomosti.ru, 2018b). Thus, if all goes according to plan, heading into the 2020s Russia will be the largest wheat exporter in the world, the number two producer of wheat, and will be a net exporter of food. That status boosts Russia’s prestige, supports Putin’s nationalist administration and justifies the course of food policy that has been pursued since 2004. Further, higher grain production gives Russian policymakers options to use food as an instrument of foreign policy, as the United States has done repeatedly during its history. The purpose of this article is to examine the prospects for reaching 150 million ton production, and the short- to medium-term problems that may arise on the way. The article addresses three main questions. (1) What are the prospects for increasing grain production to 150 million tons? (2) What will Russia do with that much grain? (3) What are constraints on grain exports? The article suggests that too much grain production may not be beneficial for Russian producers, at least in the short term.

Can production reach 150 million tons? The idea of Russia being a major grain producer, let alone the number one wheat exporter in the world, conflicts with our collective memories of the Soviet Union as a grain importer. As Soviet consumers’ diet shifted and average annual meat consumption in the Russian Republic (RSFSR) increased from 50 kilograms in 1970 to over 73 kilograms in 1988 (Goskomstat RSFSR, 1989, p. 95), the agricultural sector was unable to produce enough grain for human consumption and animal feed, and thus the Soviet government turned to the international grain market.2 The USSR needed to produce 200 million tons or more of grain to avoid the need to import (Medvedev, 1987, pp. 210–212). However, during 1974–1990, the 200 million ton threshold was reached only five times. The last two times, in 1989 and

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1990, still resulted in grain imports exceeding 32 million tons each year. Furthermore, while it is true that average annual grain production rose in each successive five-year plan period, Soviet statistics did not compare grain output to the growth in the urban population or to the growth in consumption by livestock farms (Medvedev, 1987, p. 213). Current reality is, however, that the era of dependence on the West for grain is long gone. Based upon recent production trends, it is highly likely that the 150 million ton target can be reached, probably before the target date, and therein lies the problem. The prospect that 140–150 million ton harvests will become the new normal for Russian harvests is quite realistic. The drive for food security along with big power aspirations have outpaced Russia’s ability to handle large harvests. As explored below, critical elements in infrastructure – storage, transport and export capacity – are currently insufficient. Although efforts are underway to expand each of those capacities, higher production has preceded those improvements and is likely to continue to do so. In the short term, therefore, grain prices are likely to be depressed due to oversupply, thereby putting financial pressure on producers. A combination of factors explains how Russia achieved its impressive increase in grain production in recent years. • Increase in cultivated land. Total cultivated land area used to grow grain increased from 43.3 million hectares in 2006 to 47.1 million hectares in 2016, with much of the increase coming in recent years. In 2017, more than 620,000 hectares were brought into production, and in 2018 an additional 200,000 hectares will be sown (Ganenko, 2018b). During 2006– 2016, the Central federal district experienced an increase of 1.6 million hectares of cultivated land; Voronezh oblast increased its cultivated land by almost 265,000 hectares. Prime grain-growing regions such as Krasnodar Krai and Stavropol’ Krai increased cultivated land by over 400,000 hectares. Cultivated land for grain in Rostov oblast increased over 700,000 hectares. The increase in cultivated land has not been driven by the international price environment for wheat. From a low of about $120 per metric ton in 2005, the global price of wheat shot to over $400 per metric ton in 2008, collapsed to about $150 per ton by October 2009, rose again to about $320 by August 2012, and was in long-term decline to $122 at the end of 2016. By March 2018, the price of wheat had rebounded to $240 per ton. The point is that rising international wheat prices did not spur an attempt to cash in by increasing cultivated land. Moreover, despite the unfavourable price trend in recent years, the area of cultivated land for grain crops is not expected to decline (Kvedomosti.ru, 2018e). • Application of mineral fertiliser and increase in yield. Although the use of mineral fertiliser has long-term harmful effects on soil due to leaching of nutrients (Sachs, 2015), it also helps to increase yield in the short term. After 2000, as large farms recovered and became more financially stable, demand for mineral fertiliser increased. Higher demand fuelled a rebound in the fertiliser industry, and slowly farms began to use more per hectare. In 2006, 27 kilograms per hectare of mineral fertiliser were applied for all crops and 31 kilograms were used per hectare for grain crops (Rosstat, 2007, p. 455). In 2016, the application of mineral fertiliser for all crops totalled 49 kilograms per hectare and 51 kilograms per hectare for grains (Rosstat, 2017a, p. 364). Overall, the volume of fertiliser applied increased by one-third during 2013– 2017, correlating with higher yields per hectare (Dyatlovskaya, 2018a). Although yields fluctuate year to year depending on weather, the yield for winter wheat improved from an average of 28.8 centners per hectare in 2006 to 37.6 centners per hectare in 2016. For spring

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wheat, the yield increased from 14.3 centners per hectare in 2006 to 15.7 centners per hectare in 2016. • Provision of subsidised credit for the planting season. An important financial stimulus to higher production was government-subsidised credit during the planting season. The availability of subsidised credit allows grain producing farms to obtain the inputs they need for successful sowing (seed, fuel, fertiliser). Subsidised credit increases the incentive to expand cultivated land.3 • The utilisation of high-yield seed. Russia is highly dependent upon imported seed – 83% of seed for soy, 42% for corn, 50% for sunflower and 93% for sugar beet (Bikchurina, 2017, p. 41). Imported seed also costs as much as two times more than domestic seed. Russia’s domestic grain producers, however, receive state subsidies for the purchase of imported seed, and thus their use has increased. Further, a concerted effort is underway to develop domestic high-yield seed that will permit a reduction in imported seed. Domestic seed producers are compensated 20% of their expenses to create or modernise seed development centres. It takes on average between 7 and 10 years to develop a hybrid strain of seed, and experts estimate that Russia could be self-sufficient in corn seed by 2022–2025 (Bikchurina, 2017, p. 45). There were also secondary factors at play that provided psychological reassurance and lowered the perception of risk, both of which contributed to higher production. One factor was state intervention in the grain market, which has two complementary features. The first involves state purchases of surplus grain. Purchased grain is stored to be used later or distributed for current state needs. The purpose of state purchases is to provide a channel for the sale of grain when supply is high. The second feature is a price floor system that provides a defined sales price for producers even when the market is saturated and prices may be falling. Through these two aspects of state intervention, the government strives to reassure grain producers so that they do not take land out of production, or worse, go out of business. State purchases normally range between three and five million tons, but with a 135 million ton harvest in 2017 the government could not afford to buy larger quantities, and there was a shortage of additional storage capacity. Going forward, several factors shape the prospect of reaching the 150 million ton target. First, and by no means a trivial factor, is good weather. Good weather means favourable conditions during spring and winter planting, and then again during harvest season. Beyond weather, which ultimately is uncontrollable, the Ministry of Agriculture has identified several directions that it will pursue in coming years to increase grain production. • Bringing unused land into production. Estimates vary as to how much unused land Russia has, ranging from 10 million hectares to over 50 million hectares. What is not in dispute is that Russia’s leaders intend to bring unused land into production.4 Unused or abandoned land is often of poor quality. Nonetheless, efforts are underway to bring unused land into production, in order that it could be used for grain production. In October 2015, for example, Minister of Agriculture Alexander Tkachev called for bringing 10 million hectares of unused land into production in the next few years, to be cultivated by 5000 new tractors and combines (Ministerstvo sel’skogo khoziaistva Rossiiskoi Federatsii, 2015). In October 2017, the head of the committee on agrarian policy in the State Duma, Vladimir Kashin, went so far as to claim that if an additional 41 million hectares of arable land could be brought into production, it could yield another 100 million tons of grain and create one million new jobs (Rybakov, 2017). To incentivise converting unused land into production, in March 2018 the

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Ministry of Agriculture announced that, following instructions from the government, it was working on a bill that would increase land taxes for unused land to up to 10% of the cadaster valuation (Kvedomosti.ru, 2018d). • Land reclamation. Related to bringing unused land into production is the effort to improve land. A country as geographically diverse as Russia faces a range of problems related to land use: 20% of agricultural land has salty soils, 18% is subject to water erosion, 12% is marshland and 8% is subject to wind erosion (Karabut, 2017). To address these and other problems, a federal programme on land improvement was adopted for 2014–2020, during which a total of R150 billion is to be allocated. All told, the programme will improve more than three million hectares by draining, irrigating and repairing irrigation systems. In addition, 233 dams will be made operational. In 2017 and 2018, more than R11 billion each year was allocated to land reclamation from federal, regional and private funding. • Increase the application of mineral fertiliser. Although usage of mineral fertiliser has increased in recent years, an estimated 40% of farms do not use fertiliser at all (Dyatlovskaya, 2018a). State subsidies are offered to increase this percentage. • Increase the use of high-technology equipment to increase output and yield, reduce production costs and reduce losses. The head of the department for the development and management of information resources in the agroindustrial complex, Igor Kozubenko, claims that the use of high-technology equipment can reduce production costs by as much as 23% (Vnedreniye IT, 2018). At present, Russian farms are far behind the West in the use of high-technology equipment and digital technology in agriculture; only an estimated 10% of arable land is operated with high-technology equipment in grain production. But a commitment to increase the use of digital technology and artificial intelligence is evident. The Ministry of Agriculture announced its intent to subsidise the purchase of computer programmes and computer technology used by farms (Kvedomosti.ru, 2018h). In addition, demand from farms is growing rapidly for drones and robots to detect where irrigation or fertiliser is needed. The ministry estimates that one robot can cover 100–150,000 hectares of land during a growing season (Kvedomosti.ru, 2018h). In the coming years the agricultural sector is expected to bring into use more drones than any other sector in the Russian economy. Pilot-less tractors and combines have been developed and are being used in select regions. Milk farms using robotic processes are in operation in some regions. Most large-scale greenhouses already use robotics and employ very few people. The main obstacle to more high-tech is cost. But the trajectory is clear: Russian agriculture will increase the use of high-technology equipment. Kozubenko also called for the recruitment of 90,000 IT specialists to work in the agricultural sector.

What to do with 150 million tons of grain? Based on the recent trajectory of Russian grain production, increasing production to 150 million tons is achievable. The question is, what to do with 150 million tons? Total grain supply is divided into four main uses: domestic consumption (human, animal and seed), loss and storage. A fourth use, export, is discussed in a separate section below. We discuss the uses below. The general argument is that increased supply may cause problems, at least in the short to medium term. Domestic consumption cannot rise quickly enough to absorb higher surpluses. Losses have been steady and may decline. The crucial variables are storage and export capacity.

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• Domestic consumption. Total domestic consumption has ranged from 68.3 million tons in 2011 to 79 million tons in the 2016–2017 agricultural year. Domestic consumption is divided into three categories: human consumption, animal consumption and seed. First, we consider human consumption. For 25 years Russia experienced population decline, which in turn affected the consumption of grain and grain products. The population decline reversed in the early 2010s and the population grew modestly thereafter. A shift in consumption patterns since 2004, however, has meant that people are eating less bread and fewer grain products.5 During 2006–2016, the per capita consumption of bread and grain products fell from 107.3 kilograms per annum to 98.7 kilograms (Rosstat, 2008, p. 35, 2017b, p. 8).6 More telling, however, is the decline by place of residence. In 2016, urban per capita consumption of bread and bread products fell to 92 kilograms (Rosstat, 2017b, p. 5). The urban population is about three-quarters of Russia’s total population. Furthermore, consumption patterns are highly correlated with changes in real income – a decline in real income leads consumers to cheaper products such as bread, and a rise in income results in the consumption of less starch and carbohydrates and more protein – an phenomenon referred to as Bennett’s law (Timmer, Falcon, & Pearson, 1983, p. 56). As long as Russia’s economy avoids any catastrophic decline, the general trend toward lower bread consumption should continue. The point is that higher grain production is unlikely to be compensated by more human consumption. We should not expect a big jump in human consumption driven by population or income growth that would absorb higher domestic supply. The second category is animal consumption. This averaged just over 10 million tons of feed grain during 2010–2015 before rising slightly to 11.1 million tons in 2016. The largest ‘consumers’ of feed grain are beef and milk cattle. A 1200 lb (544.3 kilograms) cow eats an average of 27 lb (12.25 kilograms) of feed a day. The number of beef cattle and dairy cows has declined in number from 19.9 million in 2010 to 18.6 million in 2017. The downward trend is expected to continue for the foreseeable future. The number of pigs has increased from 17.2 million in 2010 to 23.3 million in 2017, but the outbreak of African swine flu in southern regions has slowed the increase. The number of poultry has also increased from 449 million in 2010 to 556.6 million in 2017, but Asian bird flu has led to the destruction of hundreds of poultry during the past two years. Moreover, poultry eat only about one-quarter pound of feed per day (0.11 kilograms), or just over three-quarters of a kilogram per week, far below the consumption level of cattle. Thus, even with more pigs and poultry we should not expect a big jump in animal consumption that would absorb a significantly greater domestic supply of corn and other feed grains. A third type of domestic consumption is grain used for future seed. Use for seed has remained relatively constant at 10–11 million tons for the last decade. We should not expect a big jump in demand for seed grain. • Losses. In recent years, total grain losses have averaged around 10–11 million tons annually from lack of storage or poor storage practices, wastage in the field due to a lack of harvest machinery, spoilage during transportation, or a weather event that hindered the harvest (rain, cold, drought).7 This percentage is lower than during the Soviet period when an estimated 20–30% of the harvest would never make it to market. Given ongoing efforts to increase grain storage capacity (see below), one may reasonably expect losses to decline, although it is hard to say by how much because some loss is attributable to behaviour rather than infrastructure. The hope is that higher prices will incentivise farms to take care when

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storing grain instead of just placing it unprotected in barns, exposed to birds, rats, snakes and other vermin, but in general behaviour is difficult to change (Maksimova, 2017, p. 24). While a reduction in losses is generally a positive development, reduced loss also adds to total supply. • Storage. On the way to what was then a record harvest in 2016 (120 million tons), an unexpected problem appeared: Russia did not have enough storage capacity in its grain elevators. During the 2016–2017 agricultural year, total supply was close to 135 million tons.8 Storage capacity in 2016 was estimated at 115 million tons (down from the 2013 capacity of 118 million tons), but elevator capacity was only 38 million tons, and in 2016 just 40% of elevators were in satisfactory condition (Agronews.by, 2016). In Tatarstan, for example, more than 75% of grain elevators were constructed in the 1950s and 1960s and need modernisation. The remainder of storage capacity was in barns, and they were in even worse condition than the elevators. Neither quality nor quantity of grain stored in barns can be guaranteed to be useable (Agronews.by, 2016). The agricultural press acknowledges complaints from Russia’s largest grain customers about the quality of grain, often having to do with mould and rot.9 Further, the quality of grain appears to be declining as harvests grow larger, most likely due to storage problems (Ganenko & Malyutina, 2017). A third storage option, private farmers, are often reluctant to build their own elevators because they will not see any net profit for 15–20 years as they pay off their loan. The 2017 record harvest revealed further weakness. Not only was storage insufficient, the state intervention system came under stress due to a second consecutive large harvest. In fall 2017, Minister Tkachev termed the intervention and storage system that had been used since 2001 as ‘ineffective’ and ‘disadvantageous’ in conditions of high supply and storage shortages. The government could not afford to buy enough grain to affect market prices in any significant way, and the intervention system was already at storage capacity. Nonetheless, various subsidies were (and continue to be) offered to promote production, including subsidies for fuel, transportation, storage, high-yield seed, equipment, as well as other aspects of production (Wegren, Nikulin, & Trotsuk, 2018). The stark reality is twofold: (1) the policy to increase grain output conflicts with the ability to store and transport large surpluses of grain; and (2) Russia’s agricultural infrastructure is not equipped to deal with successive large harvests. Thus, at present, grain production is outstripping storage capacity, a situation that could extend several years if harvests stay high. During the 2017–2018 agricultural year, the government introduced several policies to alleviate the storage shortage. First, the government offered subsidies for transport by rail of about three million tons from grain surplus regions to ports for export. Siberian regions were targeted but not exclusively. The goal was to alleviate the domestic surplus and lessen downward pressure on domestic prices, and also to compensate for rising transportation costs (Skorlygina, 2018). Second, to facilitate grain exports, in late March 2018 Minister Tkachev suggested that the export tariff on grain, which had been temporarily set to zero in September 2017 and was due to increase after 1 July 2018, should either be kept at zero or eliminated altogether (Kvedomosti.ru, 2018f ). In early April 2018, Deputy Prime Minister Arkady Dvorkovich indicated that the export tariff would not increase after 1 July. In mid-April 2018, Tkachev suggested that the export tariff be kept at zero for two more years (Kvedomosti.ru, 2018i). Third, in March 2018 the government offered R10 billion in subsidised credit for mills to buy more wheat for processing. Further, the government hopes that export of flour will increase from the present level of 200,000

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tons to one million tons by 2024 (Kvedomosti.ru, 2018g). Toward this end, the Ministry of Agriculture is considering various investment projects to improve the quality of Russian flour and make it internationally competitive. Real solutions, however, lie beyond policy patches. The president of the Grain Union, Arkady Zlochevskiy, has called for additional government support and investments to develop adequate infrastructure and storage to handle consistently large harvests. Relief may be coming, but it will not be immediate. During 2016–2026, an additional 130 million tons of storage capacity are planned to enter service at a price of R270 billion (TASS, 2016). The cost will be shared between state and private sector resources. For now, however, storage deficiencies are likely to continue. In the short term, because there is a storage deficit, grain producers will pay a premium to have their grain stored, which means additional financial pressure on producers and a shift in market power to owners of storage facilities.

Grain exports The fourth use of domestic production is to export surplus grain. During the 2017–2018 agricultural year, wheat was Russia’s primary export, accounting for 78% of grain exports, followed by corn (11%), barley (9%) and smaller amounts of soy, rye and rice (Ganenko, 2018a, p. 22). The export of grain involves multiple steps. Following harvest and cleaning, grain has to be transported to ports for loading onto ships. Grain is transported by truck and rail. During the 2016–2017 agricultural year, 19.5 million tons of grain were transported by rail. The record harvest in 2017–2018 created additional demand of about 11 million tons to be transported by rail. The increased burden on rail transport resulted in a shortage of rail cars following the 2017 harvest (Skorlygina, 2017). That problem will get worse before it gets better. In 2018, 722 rail wagons used to move grain will be removed from service due to old age. In 2019, another 4100 wagons will be removed, and in 2020, a further 6600 wagons will be taken out of service (Skorlygina, 2018). Annual replacement of that number of wagons taken out of service is not possible, so grain traders have asked the government to loosen requirements on the use of older grain wagons. Additional use of trucks is possible for ports located near the Black Sea or in the northwest in the Baltic Basin, but is not practical for transport to Far Eastern ports. The next question concerns export capacity. The government does not publish data on export capacity for grain, but port capacity is estimated at 45–50 million tons of grain (Devitt, 2017; Ganenko, 2018a). Significant resources have been invested to increase grain export capacity in recent years. A federal programme called ‘The Development of Transportation Systems in Russia 2010–2020’ has fuelled investment, which averaged R70 billion in port infrastructure during 2015–2017, but is expected to drop to R60 billion in 2018 (Investitsionnaya aktivnost’ v portovoy otrasli Rossii, 2018). Further, a subprogramme, ‘Sea Transport’, has been allocated R637 billion, with R227 billion (35%) coming from the federal budget and the rest from private investment (Investitsionnaya aktivnost’ v portovoy otrasli Rossii, 2018). Previously, efforts to modernise and expand port infrastructure increased grain export capacity from 21 million tons in 2011 to 28 million tons in 2013 (FAS, 2013). Thus, export capacity is not a constraint on lower volume of grain exports, but higher grain production increases the possibility of exports being restricted by capacity. During the 2017–2018 agricultural year, for example, grain exports were lower in what are normally peak export months (August–September) and higher in usual non-peak months

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(December–February) in an effort to match demand to capacity. A race has ensued to increase export capacity to keep up with higher production. Port capacity is being expanded in several places: Novorosskisk, which is the second busiest port on the Black Sea, increased its export capacity from 4.9 million tons in 2012 to 13.5 million tons in 2016 thanks to the construction of a new terminal, a new grain terminal and a new berth with a depth of 15 meters. The port of Taman on the Black Sea increased its capacity more than threefold during 2012–1016. The port of the Sea of Azov increased its capacity by nearly 70% during 2012–2016. The port of Zarubino, located in Primorskiy Krai in the Far East, is building a new grain terminal with a capacity of 6–10 million tons with the help of Chinese investment. Going forward, Russian export capacity is expected to increase by 30 million tons by 2022 (Devitt, 2017). If that happens, exports will be able to absorb higher domestic production. But between now and 2022 there is a real possibility that grain exports could be constrained by port capacity.

Conclusion This article has argued that Russia’s real grain problem is not the volume of production or the level of export but rather how to handle large surpluses. At present, Russia’s government is pursuing contradictory policy goals. Unlike the United States that adopted policies to take land out of production and limit output, the Russian government is pushing to bring more land into production and has shown little willingness to curtail grain production. Higher grain production is driven by the political goals of food security and self-sufficiency. One could argue that Russia has a good problem – i.e. it is better to have too much grain than too little. In principle, this argument is correct. Yet, upon closer examination, having too much grain presents a series of problems that threaten domestic grain producers. They are: (1) a government intervention policy that is no longer effective; (2) inadequate grain storage capacity to handle sustained large harvests; (3) insufficient infrastructure and transport to export facilities; and (4) insufficient export capacity to handle higher levels of grain production. The combination of rising domestic production, essentially flat population growth, falling numbers of beef and milk cows, consumer diets that are moving away from grains and bread, and constrained export capacity can only add to one outcome: oversupply. Oversupply is harmful because the state intervention system cannot purchase enough grain to impact the market. The result is falling domestic prices that financially endanger grain producers. At the beginning of March 2018, for example, agricultural enterprises, mills and other processors held more than 38 million tons of grain in storage, an 18% increase over the same period in 2017. The largest surpluses were held in the Central, Volga and Siberian federal districts. Large surpluses put downward pressure on domestic grain prices, costing producers an estimated R50 billion in lost revenue (Ganenko, 2018c). Lower domestic prices and revenue undercut incentives for private investment in transportation infrastructure. Falling international prices reduce the incentive for private sector agents to invest in export capacity. Oversupply that is unable to be absorbed by consumption, storage or export leads to depressed prices that not only reduce profits, but in some cases could result in bankruptcies among grain producers and traders. Meanwhile, grain elevators make record profits, leading to allegations of price gouging. Too much grain is not always a positive development.

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Notes 1.  An agricultural year is 1 July of one year to 30 June of the next year. During these four years, Russia was one of only four countries in the world with grain harvests of at least 100 million tons in each year. Brazil often reaches the 100 million ton level but fell short in 2016. 2.  Soviet imports were comprised mostly, but not exclusively, of corn for animal feed. 3.  The area of cultivated land has increased even as the crop insurance programme has experienced many problems. The purpose of the insurance programme is to protect against catastrophic loss. The insurance programme is largely supported by state subsidies to pay the majority of premiums. Even with state subsidies, during 2011–2015, the number of farm enterprises that entered into insurance agreements fell; the number of hectares that were insured declined by over 40%, fewer regions participated in the insurance programme and the number of companies that offer crop insurance contracted (Baymisheva & Kurmaeva, 2018). In 2017, a record drop in crop insurance occurred. The number of insurance contracts with state subsidies fell by 67%, and the area of insured land decreased by 68% (Dyatlovskaya, 2018b). Some of the decline was due to confidence of good weather, but some was also due to problems in the insurance system which had developed a reputation for not paying claims. As crop insurance became less popular, insurance in animal husbandry has showed upward trends. 4.  Some unused land is being distributed to individuals as small plots in the Far Eastern hectare programme that spread to other regions. This type of land distribution has little relevance to grain production because allocations are one hectare per person, too small for grain production. Moreover, in the Far East less than 29% of land recipients use their allocation for agricultural production (Kvedomosti.ru, 2018a). In February 2018 the State Duma began to consider changing the Far Eastern hectare law to allow allotment of up to 10 hectares if the land is used for agricultural production. 5.  Total population increased from 146.2 million in 2015 to 146.8 in 2017. 6.  A longer view reveals a drop in bread consumption from 115 kilograms per capita in 2001. 7.  During the early months of 2018 references to harvest losses of 40% began to appear in the specialised press but it is not clear where this number came from or how it is substantiated. I have seen no evidence to back up this claim. 8.  Beginning reserves of 13.2 million tons, import of one million tons and domestic production of 120 million tons. Going into the 2017–2018 agricultural year, reserves increased to almost 20 million tons, including four million tons in the state intervention fund. 9.  Egypt is the largest purchaser of Russian grain, followed by Turkey, Saudi Arabia, Bangladesh and Iran to round out the top five. During the 2017–2018 agricultural year, each of these nations bought more than one million tons of Russian grain.

Disclosure statement No potential conflict of interest was reported by the author.

ORCID Stephen K. Wegren 

 http://orcid.org/0000-0003-2846-2306

References Agrofakt. (2016). Tkachev: Rossiia mozhet eksportirovat’ do 50 mln tonn zerna v god. 18 July. Retrieved July 18, 2016, from www.agronews.ru Agronews.by. (2016). Treshchat po shvam: Rekordnumu urozhaiyu zerna v Rossii ne khatit zakromov. 15 August. Retrieved March 31, 2018, from http://grainboard.ru/news/treshchat-po-shvamrekordnomu-urogayu-zerna-360767

POST-COMMUNIST ECONOMIES 

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Baymisheva, T. A., & Kurmaeva, I. S. (2018). Osnovyye tendentsii razvitiya rynka agrostrakhovaniya v Rossii. Ekonomika sel’skokhozyaystvennykh i pererabatyvayushchikh predpriyatiy, 1, 45–47. Bikchurina, E. (2017). Ukhod ot semennoy zavisimosti. Agroinvestor, 1, 40–46. Devitt, P. (2017). Extra port capacity to boost Russia’s grain exports in 5 years. 28 November. Retrieved April 4, 2018, from https://www.agriculture.com/markets/newswire/extra-port-capacity-to-boostrussias-grain-exports-in-5-years-minister Dyatlovskaya, E. (2018a). Minsel’kkhkoz khochet podderzhat’ vneseniye udobreniy. February. Retrieved February 2, 2018, from http://www.agroinvestor.ru/technologies/news/29321-minselkhoz-khochetpodderzhat-vnesenie-udobreniy/ Dyatlovskaya, E. (2018b). V 2017 godu ploshchad’ zastrakhovannykh zemel’ snizilas’ na 68%. February. Retrieved February 5, 2018, from http://www.agroinvestor.ru/regions/news/29333-v-2017-goduploshchad-zastrakhovannykh-zemel-snizilas-na-68/ FAS. (2013). Russian grain port capacity and transportation update. 16 August. GAIN Report RS1352. Retrieved April 4, 2018, from www.gain.fas.usda.gov Ganenko, I. (2018a). Eksport zerna na ekvatore sezona. Agroinvestor, 1, 18–23. Ganenko, I. (2018b). Za tri goda v oborot vvedeno bolee 1.6 mln gektarov pashni. February. Retrieved February 1, 2018, from http://www.agroinvestor.ru/regions/news/29313-za-tri-goda-v-oborotvvedeno-bolee-1-6-mln-gektarov-pashni/ Ganenko, I. (2018c). Ubytki agrariev iz-za padeniya tsen na zerno otsenivayutsya v 50 mlrd rubley. March. Retrieved March 22, 2018, from http://www.agroinvestor.ru/markets/news/29530-ubytkiagrariev-iz-za-padeniya-tsen-na-zerno-50-mlrd-rubley/ Ganenko, I., & Malyutina, L. (2017). Kachestvo zerna ogranichivaet eksport. Agroinvestor, 1, 42–47. Goskomstat RSFSR. (1989). Narodnoye khozyaystvo RSFSR v 1988 g. Moscow: Goskomstat. Investitsionnaya aktivnost’ v portovoy otrasli Rossii. (2018). 27 March. Retrieved April 4, 2018, from www.morvesti.ru/analytics/detail.php?ID=61791 Karabut, T. (2017). Na melioratsiyu nuzhno dobavit’. Agroinvestor, 6, 42–47. Kulistikova, T. (2018). Eksport zerna mizhet dostich’ 53 mln ton. March. Retrieved March 22, 2018, from http://www.agroinvestor.ru/regions/news/29533-eksport-zerna-mozhet-dostich-53-mln-tonn/ Kvedomosti.ru. (2018a). Vlasti nazvali osnovnyye vidy ispol’zovaniya ‘Dal’nevostochnykh gektarov’. 14 February. Retrieved February 14, 2018, from http://kvedomosti.ru/news/vlasti-nazvali-osnovnyevidy-ispolzovaniya-dalnevostochnyx-gektarov.html Kvedomosti.ru. (2018b). Tkachev: Rossiya mozhet uvelichit’ ob’em eksporta prodovol’stviya do $50 mlrd k 2024 godu. 3 March. Retrieved March 3, 2018, from http://kvedomosti.ru/news/tkachev-rossiyamozhet-uvelichit-obem-eksporta-prodovolstviya-do-50-mlrd-k-2024-godu.html Kvedomosti.ru. (2018c). Minsel’khoz prognoziruet rost ob’emov proizvodstva zerna v RF do 150 mln ton k 2030 godu. 13 March. Retrieved March 13, 2018, from http://kvedomosti.ru/news/minselxozprognoziruet-rost-obemov-proizvodstva-zerna-v-rf-do-150-mln-tonn-k-2030-godu.html Kvedomosti.ru. (2018d). Nalog na neispol’zuemyye po naznacheniyu sel’skokhozyaystvennyye uchastki mogut uvelichit’. 22 March. Retrieved March 22, 2018, from http://kvedomosti.ru/news/nalog-naneispolzuemye-po-naznacheniyu-selskoxozyajstvennye-uchastki-mogut-uvelichit.html Kvedomosti.ru. (2018e). Rossiya ne budet sokrashchat’ posevy zernobobovykh, nesmotrya na situatsiyu na mirovom rynke. 22 March. Retrieved March 22, 2018, from http://kvedomosti.ru/news/rossiyane-budet-sokrashhat-posevy-zernobobovyx-nesmotrya-na-situaciyu-na-mirovom-rynke.html Kvedomosti.ru. (2018f ). Tkachev: Nulevaya poshlina na eksport pshenitsy iz Rossii mozhet byt’ prodlena ili otmenena. 29 March. Retrieved March 29, 2018, from http://kvedomosti.ru/news/tkachevnulevaya-poshlina-na-eksport-pshenicy-iz-rossii-mozhet-byt-prodlena-ili-otmenena.html Kvedomosti.ru. (2018g). Eksport muki mozhet vyrasti v 5 raz v 2024 dodu. 2 April. Retrieved April 2, 2018, from http://kvedomosti.ru/news/eksport-muki-mozhet-vyrasti-v-5-raz-v-2024-godu.html Kvedomosti.ru. (2018h). Na polya po vsey strane zapustyat sotni robotov-issledovateley. 5 April. Retrieved April 5, 2018, from http://kvedomosti.ru/news/na-polya-po-vsej-strane-zapustyat-sotnirobotov-issledovatelej.html Kvedomosti.ru. (2018i). Minsel’khoz predlagaet prodlit’ nulevuyu eksportnuyu poshlinu na dva goda. 12 April. Retrieved April 12, 2018, from http://kvedomosti.ru/news/minselxoz-predlagaet-prodlitnulevuyu-eksportnuyu-poshlinu-na-dva-goda.html

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 S. K. WEGREN

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