CIS Regional Review: Huge crops and even greater potential
August 01, 2008
by World Grain Staff
Anyone who worries that the world doesn’t have the capacity to feed its growing population might be encouraged by a look at the Commonwealth of Independent States (CIS), the loose group of countries which made up the former Soviet Union. With vast tracts of land unused and much of agriculture operating at well below its potential, the possibilities for producing greatly increased crops of grains and oilseeds are there. But there are many problems to solve before that can be done.
The CIS consists of 11 former Soviet Republics: Armenia, Azerbaijan, Belarus, Georgia, Kazakhstan, Kyrgyzstan, Moldova, Russia, Tajikistan, Ukraine and Uzbekistan. Turkmenistan discontinued permanent membership as of Aug. 26, 2005, and is now an associate member. Three members — Russia, Ukraine and Kazakhstan — are major, or potentially major, players in the world’s grain market.
When the Soviet Union broke up, a large part of the agricultural land in the CIS countries was abandoned and much of it is still out of production. According to a recent report in the Moscow Times, the Russian Grain Union estimates that there are at least 18 million hectares of unused arable land in the country. "And it is affordable," the paper said. "The cost of fertile, black-earth soil in Russia is 10 to 15 times lower than in Argentina and 60 times lower than in Sweden."
THE ANSWER TO GLOBAL FAMINE?Some people certainly think maximizing crop production in the CIS could solve the world’s food problems. In a story headlined, "Russian land boom could avert global famine," the British Daily Telegraph quoted a report by investment bank Troika Dialog that said just 43% of agricultural land in Russia is cultivated. "Across a great arc of the Eurasian steppe from Ukraine through Russia to Kazakhstan lies enough arable land to feed the world for years to come, with spare for biofuels to help plug the energy gap," the newspaper said.
"The consensus view that the world is running out of land is a fallacy," it quoted the bank as saying. "Global population growth has long since peaked. Calorie consumption per capita has peaked in most developed markets and China is at 90% of (Western) calorie levels. Even the switch to meat is a less powerful driver than it was."
The Financial Times highlighted the report’s conclusion that the former Soviet Union had 13% of the world’s arable land, while it produced just 6% of its crops and 3% of its meat. "In contrast to the green revolution that has swept the world, agricultural yields have stagnated since the 1970s, and entrepreneurs with fresh technology and ideas have tremendous scope to increase production dramatically," it said.
BIG GRAIN CROPS ON THE WAYThe CIS is a big grain producer. According to the most recent Grain Market Report from the International Grains Council (IGC), the total grain production from all the CIS countries in 2008 will be 166.9 million tonnes, compared with 151.6 million tonnes in 2007.
Russia is the biggest producer with a predicted 2008 grains crop of 85.6 million tonnes, compared with 80.1 million the year before. Ukraine comes next with 40.6 million tonnes, a big rise from 29.7 million last year.
The biggest CIS crop is wheat, with a total of 100.6 million tonnes predicted by the IGC in 2008, compared with 93.8 million the year before. Russia is the biggest wheat producer with 51.5 million tonnes, compared with 49.4 million the year before.
Ukraine’s wheat crop this year is predicted at 20 million (13.9 million last year), while Kazakhstan’s crop is put at 14.5 million tonnes (16 million a year ago).
The U.S. Department of Agriculture (USDA) has forecast even higher wheat production in Ukraine. A report prepared on the basis of satellite imagery predicted a rise to 21 million tonnes. "The winter wheat crop has benefited from excellent weather throughout the growing season, and the estimated yield of 3.09 tonnes per hectare is among the highest of the past fifteen years," it said.
The IGC expects Kazakhstan’s crop to fall, despite a rise in area of 6% to 13.5 million hectares. "Widespread precipitation is needed in the main northern growing regions," it said.
Russia’s spring wheat area was unchanged, but most of Siberia remained too dry, it said. "Although unseasonably cold weather in the first half of June slowed development, winter wheat crops are in generally good condition, with yield prospects improving," it said. Ukraine has started harvesting and growing conditions have been favorable.
The IGC also raised its predictions for exports by Russia and Ukraine. "Large harvests and competitive prices are expected to boost their shipments," it said. It put Russia’s exports at 12.5 million tonnes, compared with 12 million the year before, while Ukraine’s exports are projected at 6 million tonnes, compared with 1.2 million last year. The IGC noted that this year’s exports from Ukraine will be the highest in three years.
The effect on prices has been bearish. "Anticipated large 2008-09 availabilities maintained pressure on prices in the Black Sea region during June, in spite of rising markets in the U.S. and E.U.," the IGC said. "Increased farmer selling ahead of the harvest weighed on nearby values, while new crop prices were pressured by expectations of strong regional export competition, with Russia and Ukraine both forecast to have large exportable surpluses."
Russia and Ukraine are already selling grain. The IGC reported purchases in June by Egypt, which it said, "bought new crop Russian wheat on three occasions, most recently 60,000 tonnes at $350 c&f (about $295-$300 fob). That purchase included a further 90,000 tonnes at the same price from optional origins, likely also to be filled with wheat from Russia."
It also reported that Pakistan purchased 140,000 tonnes of milling wheat from Russia, at $399 c&f (about $300-$320 fob), with Iran taking 80,000 tonnes at a similar price. Ukraine sold 25,000 tonnes of milling wheat from Ukraine at $377 c&f. "Quantities offered by Ukraine under Iran’s tender were reported to have not met quality requirements," it said. "However, given the firm outlook for U.S. maize prices, export demand for Ukraine’s feed grade wheat is expected to be strong in coming months."
GROWING OILSEEDS PRODUCTIONRussia is also a major oilseeds producer. According to an attaché report published in May, its crop of sunflowers, soybeans and rapeseed in 2008 will be up by more than 9% at 7.5 million tonnes. It follows a poor year. In 2007, oilseeds production fell by 15% because of a lower planted area and reduced yields for sunflower seeds and soybeans.
By far the biggest oilseeds crop is sunflower, with production forecast at 6.2 million tonnes in 2008, up from 5.7 million in 2007. The soybean crop is set to reach 695,000 tonnes, up from 600,000 last year, while the rapeseed harvest is forecast at 650,000, compared with 561,000 a year ago.
According to the report’s writers, Yelena Vassilieva and Kimberly Svec, Russia’s oilseed consumption will increase by 8% in marketing year 2008 to 7.82 million tonnes and the crush will reach 7.3 million tonnes, including 5.64 million of sunflower seed, 1.09 million of soybeans and 588,000 million of rapeseed.
"These holdings purchase two-thirds of marketed oilseeds, and they significantly influence oilseeds prices and terms of purchase," it said. "At the same time, many small oil-crushing plants cannot source oilseeds at the price they can afford."
That is not their only problem. "They cannot save on lower costs for crushing, and, being contract-bound, are not able to increase prices of vegetable oil in order to compensate for increased cost of production," it said. "Thus, a shortage of oilseeds and the increased cost of crushing will continue to push small-size crushers from the vegetable oil market."
In Ukraine, the high profitability of oilseeds crops has made them more attractive to farmers than grains. "The profitability of sunflower seed production reached a record high of 75%, a level that has not been seen since 2002," Olena Pereyatenets, agricultural specialist for the USDA in Kiev, said in the most recent annual report on the sector. "Sunflowersown areas are expected to increase by 5% due to the competitiveness of spring crops like barley, corn and rapeseed.
Sunflower seed and sunflower oil prices have reached record-high levels and are expected to remain high next year."
When the report was published, in April, it included an estimate of 2 million tonnes for the rapeseed crop, almost doubling the previous year’s output. However, by late July, with vessels full of Ukrainian rapeseed already heading for Western Europe, traders were talking about 2.5 to 2.8 million tonnes. "They’re going to have a huge exportable surplus," Jonathan Lane, oilseeds trader at U.K. merchants Gleadell Agriculture, told World Grain. "They’re going to put pressure on prices."
But so far, with a big crop and prices high, the outlook for Ukraine in the oilseeds market looks good. "This year we’re going to have a very good harvest," Dmitriy Tarasov of vegetable oil producers and processors Kernel Ukraine, told World Grain. "Prices are going up this year so we have good plans for the year."
Agriculture in Ukraine is dominated by small producers. "We have many farmers working, big and small," he said. "We don’t have very many big ones. Mostly they are very small and private."
He noted that Ukraine officially became a member of the World Trade Organization (WTO) on May 16, 2008, giving it potentially greater access to international markets. "We have demand for good crops," he said. "We will export a lot of cereals, corn, wheat and barley. We process sunflower and sell as oil."
"We can produce two times more than we eat," he said. "It’s the same situation with all the cereals. We’re an agricultural country. We’ve got a lot of land."
Chris Lyddon is World Grain’s European editor. He may be contacted at: firstname.lastname@example.org.
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