The CIS finds export success

by Meyer Sosland
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Three countries from the Commonwealth of Independent States — Russia, Ukraine and Kazakhstan — have become a force in the global wheat, barely and maize markets

by APK-Ibform

The Commonwealth of Independent States (CIS) was established in December 1991, immediately after official recognition of the Soviet Union’s dissolution. Initially, the CIS was composed of the 11 former Soviet Republics that had become independent states. These were all the Soviet republics except for the three Baltic States and Georgia. Two years later Georgia also joined the CIS.

The CIS was first created to mitigate the negative consequences of the Soviet Union’s disintegration and was aimed at creating conditions for continued close cooperation of the member states in the economic, social and legal spheres. The CIS is not a state and does not possess any supra-national authorities. However, the world often views the CIS as the successor of the Soviet Union in different areas, including that of foreign trade activities.

When it comes to exporting grain, the CIS consists primarily of three different exporting countries: Russia, Ukraine and Kazakhstan. Each has individual grain trading policies, and there are no signs of any coordinated activities. They consider themselves competitors rather than partners. However, the idea of formulating agreed and coordinated policies among the CIS exporting countries is becoming increasingly articulated.

The combined export potential of Russia, Ukraine and Kazakhstan has been growing in recent years, and they are becoming increasingly confident in their ability to penetrate new and unexplored export markets. This trend is based not only on development of marketplace relations in the post-socialist countries, but also on a drop in domestic consumption and a rise in farm production.

After the Soviet Union collapsed, de- cades-long economic relations that had been established began to fall apart, and a private, market-based economy become more prevalent. The transition from a planned socialist economy to a market-based one was accompanied by the decline of a variety of industries.

The farming industry was no exception. A decrease in farming investments led to a drop in yields and the crop production, but the situation has improved in recent years. Also, livestock herds began to decrease, which was leading to cuts in local grain consumption. This latter factor was the major reason why the CIS showed spectacular growth in grain exports in 2001 and 2002 despite having relatively small crops during those years. Shortly thereafter, domestic grain use in the CIS countries began to slowly increase, thanks to the recovery of herds in some branches of the livestock industry.

PRODUCTION POTENTIAL
There continues to be a great potential for increasing grain production in the CIS countries. In recent years, wheat yields have averaged 1.8 tonnes per hectare in Russia and 2.7 tonnes per acre in Ukraine, which is well below the E.U.’s average of six tonnes per hectare.

Growing conditions in Ukraine and Russia are quite good. Ukraine’s black soil is considered some of the most fertile farm land in the world. With this in mind, prospects for further growth as a grain exporter are outstanding for the CIS countries.

A number of competitive advantages enjoyed by Russia, Ukraine and Kazakhstan permit these countries to expect this

potential to eventually be realized. These advantages include geographic proximity to major sales markets and relatively low grain production costs, making it possible to offer very competitive prices.

At the same time, there are limitations such as occasional poor grain quality, logistical restrictions and lack of business links to the new sales markets. Nevertheless, these problems are gradually improving and are considered to be minor. This is demonstrated both by the general dynamics of the CIS grain exports and an expansion of its export markets. Today, the CIS countries hold steady positions among the world’s leaders in wheat, barley and maize exports.

WHEAT EXPORTS
During four of the last five years, the CIS was the world’s second-largest exporter of wheat, shipping 15 to 20 million tonnes per year. In 2002-03, the CIS ranked No. 1 in world wheat exports, shipping more than 25 million tonnes.

The major export markets for CIS wheat are the E.U., North Africa and the Middle East. In addition, considerable volumes are being shipped to countries in eastern Asia, such as South Korea, Indonesia and the Philippines.

Because of the E.U. wheat import quota system, imposed in 2003, the opportunities of sales to this region have narrowed, making the regions of North Africa and the Middle East increasingly important for the CIS grain exporters.

In the 2004-05, the CIS countries shipped nearly 6 million tonnes of wheat to North Africa and the Middle East, which accounts for more than 20% of total wheat sales in that region. Should the trading relations consolidate further, this share may reach more than 30% in the next few years.

BARLEY EXPORTS
The CIS countries play an even greater role in the global barley market, with Ukraine, Russia and Kazakhstan accounting for about one-third of global barley trade. With regard to feed barley, which is the basic variety of barley exported from the CIS, the region’s share of the global market is even greater.

The primary markets for barley sales from the CIS countries are North Africa and the Middle East, with much of the barley going to Saudi Arabia. North Africa and the Middle East has, on average, accounted for about 75% of total CIS barley sales in recent years, reaching as high as 94% in 2004-05. About half of the barley demand for North Africa and the Middle East is met by shipments from the CIS countries.

The CIS is also a large exporter of maize, with its export potential for this crop having significantly increased in recent years, thanks to a rise in overall production. The main producer and exporter of maize within the CIS is Ukraine. Just a few years ago, Ukrai- nian maize was supplied mostly to the other CIS countries. But today, Ukrainian maize is being exported to the E.U. as well as countries in North Africa and the Middle East. Arabian countries are responsible for about a half of Ukrainian maize sales today, and that percentage continues to rise.

Rye, feed peas and millet are also exported from the CIS countries, which have become a large supplier of oilseed products.

The CIS countries’ mainly import rice, but also import malting barley in relatively small amounts. WG

APK-Ibform is an agribusiness information and consulting agency based in Kiev, Ukraine. For more information on this article, send an e-mail to promo@agrimarket.info.

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