Targeting “Putin” to increase Russia’s export portfolio
According to Webangah News quoted by Mehr’s reporter, Hossein Shirzad, an analyst of agricultural development issues, wrote in a special note for Mehr; President Putin’s speech at the Federal Assembly on February 29, 2024 outlined the goals for 2030, which is to increase the export of agricultural products by 1.5 times (up to 55 billion dollars) and ensure the growth of domestic production by 25% compared to the level of 2021. .
Export development and product portfolio change
According to estimates, if the average annual price level and the current structure of the export product portfolio remain unchanged, as well as in case of transition to less efficient technological solutions, it is possible to achieve These goals are difficult. Only changing the structure of exports in favor of higher value products and implementing the national program of measures to reduce the final costs of agriculture will do. Products from the field to the destination port can create an export potential of 65 to 70 billion dollars. Reaching this figure is an ambitious but achievable goal.
Russia’s potential can be opened by changing the structure of export of agricultural products and reducing end-to-end production costs. The drivers of production growth include the expansion of cultivated areas, increased crop yields and optimization of crop rotation, while export growth in monetary terms mainly depends on the level of processing of raw materials in Russia.
Wheat production and export
Arable land can increase between 5 to 6 million hectares in the medium term and reach 85 to 86 million hectares, leading to an increase of more than 5 billion dollars in exports. It will not be equivalent to wheat. Agricultural technology and genetics can realistically increase Russia’s average yield by 20%, i.e. up to 3.8 million tons per hectare, which will lead to export growth of 25-30 million tons or 6-7 billion dollars.
Russia will capture a third of the global wheat market, but further growth will be limited by domestic capabilities and market capacity. This goal is quite achievable because Russia has a sufficient advantage in the price of wheat.
vegetable oils
Achieving export growth of 25 to 30 billion dollars in the medium term requires a change in crop rotation in favor of higher margin products, taking into account demand (capacity and dynamics export market) and supply (objective capabilities of Russian producers).
Sunflower: With this, Russia can increase the export of sunflower oil by 1.6 times and reach 6 million tons, which is increase Russia by 3 billion dollars.
Russia’s share of imports to friendly countries will be more than 75%, further growth will be limited by market capacity. The cost of sunflower in Russia is competitive, and production growth requires increasing yields through genetics and land improvement, as well as the development of oil extraction and logistics infrastructure in the ports of the Azov and Black Sea basins. .
rapeseed: It is unlikely to export rapeseed oil to exceed 2-3 billion dollars (growth of 0.6-0.8 million tons), as the limited capacity of the target market is China, where Russia will reach a market share of 60-70%. If the geopolitical situation improves, further export growth may be led by the European Union.
Soy: Soybean oil exports could increase by about 2 million tons or $2.5 billion, while Russia’s share of imports It will be about 30% to the friendly regions of India, the Middle East and North Africa, compared to the competition of Latin America. Russia currently has about 15-20% of Brazil’s soybean production costs due to higher yields in Brazil as a result of advanced agricultural and genetic technologies, including transgenic crops. is behind Reducing the cost of soybeans is very important not only for the development of oil and meal exports, but also for making the feed cheaper for animal protein production.
Further development of the export of sunflower oil, canola and soy 5 to 6 billion dollars to the additional supply will do The change in crop rotation in favor of oilseeds will help ensure growth in export volume and average export value per ton, as well as growth in average EBITDA per hectare for agricultural producers. Successful competition in the global market of oilseeds requires optimal production costs, which can only be achieved through the introduction of transgenic products.
Animal proteins and broilers
By increasing the supply of broilers, 2 billion dollars can be added to Russian exports. The export of broilers (including meat and by-products) is about 0.4 million tons per year. In order to increase exports to one million tons, domestic production must increase by at least 1 to 1.5 million tons. In addition to achieving the necessary economies of scale, the growth of domestic production helps to avoid the unpleasant dilemma of choosing between domestic consumption and retail prices on the one hand and maintaining market share in the main export destinations on the other hand.
Decreasing the cost of feed (mainly corn and soy) through the use of transgenic products, access Unlimited access to the world’s best genetics and vaccines, turning Russia into a duty-free supplier to friendly target areas, and reducing the cost of multimodal logistics (with or without removing the $100-150/ton sanctions premium over time) are key factors in increasing Russia’s competitiveness in production Broiler chickens. All these measures should make it possible to conduct a profitable export business while reducing the final price for the buyer to the level or lower than the main competitors (Brazil and USA). On the other hand, the export of animal protein from Russia can become more competitive by reducing feed costs.
Industrial broiler production offers clear economies of scale by using the best technologies and big data to improve production processes, standardize products, create export logistics and business operations. . In this sector, the creation of national heroes will have a visible effect.
Continued growth of agricultural and industrial complexes is possible mainly through exports, but no change in the current product portfolio, limited access to modern technologies and fewer measures to support Private investment will lead to less exports until 2025-2026.
Measures necessary to reach the 2030 goals
Further export growth in monetary terms requires a structural shift towards higher value products, primarily animal proteins, soy-based feeds and highly processed and refined products. is Of course, to enable this transition, the following challenges must be overcome for Russia:
- Change the export structure in favor of products with higher added value, especially animal feed and animal proteins. This requires a change in the country’s crop rotation structure in favor of edible crops.
- Decreasing the unit cost of priority export products, primarily protein, to a level equal to or lower than the main competitors, by continuously optimizing the production unit cost (economy of scale), with Using the best technologies (genetics including transgenic products for feed and export supplies, vaccines, crop protection agents, machinery and equipment, land improvement, cultivation technologies) , development Logistics infrastructure and preventing monopolies, financial support for agricultural producers, minimizing internal administrative barriers and maintaining a price advantage for domestic agricultural producers in terms of fertilizers, energy and other inputs and consumables.
- Introduction of regulatory tools to maintain the margin of the industry in the space of excess structural production capacity for the domestic market, which requires new approaches in regulating and managing the interaction between the Ministry of Agriculture, industrial associations and agricultural companies.
- Removing administrative obstacles to access the target markets determined by the regulatory authorities of the importing countries (quota, tariff, unjustified health restrictions, etc.). It seems that this is the most difficult task among the above tasks.
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The main driver of export growth
Foreign policy and the state of the trade balance are related to the political orientation of each country. Reducing the final cost of production “from the farm to the destination port” will be the main driver of export growth. Russian agricultural and industrial complexes must create regulation and then learn to exist in an environment with a structural surplus of production capacity.
Systematic and coordinated industry regulatory effort in all areas will be the key success factor. All these tasks can be expressed in one phrase, increasing the attractiveness of investment in the agricultural and industrial complex. Solving the problem in this framework will naturally lead to solving other problems such as increasing labor productivity and reducing production costs, developing production and export of agricultural products, increasing wages and attractiveness of the industry as an employer, reducing food inflation, etc.
Other problems that today seem difficult and sometimes even contradictory, is the use of the best agricultural and genetic technologies without international cooperation.
Creating a world-class genetics player in the Russian agro-industrial complex using its own resources will require decades, significant investment and scientific expertise that is sufficiently not available The solution may be to buy a foreign company or cooperate with suppliers of friendly countries in genetics, agricultural machinery, etc.
Global experience shows that to be successful in international trade, it is necessary to create large national companies that can aggregate a large volume of products and in production, logistics and marketing of products. to save; Until now, the leaders of the agricultural and industrial complex of Russia are several times smaller than the world leaders of grain.
