KANSAS CITY, MISSOURI, US – With geopolitical tensions reaching their highest level since the end of World War II, winds of change are influencing the way the world, including the global grain industry, is doing business.

Traditional grain trade flows, for example, have shifted, with Russia’s invasion of Ukraine and simmering tension between the United States and China playing a significant role. China and Russia have forged stronger political and economic ties with interests that are clearly opposed to those of the United States and Western Europe, which for the last seven decades have dominated global affairs from a political, economic and military standpoint.

With the power of the US and EU showing signs of diminishing, China and Russia have been flexing their muscles on the world stage with an eye toward tipping the balance of power in their favor. As part of its strategy to increase its impact on global affairs, Russia has weaponized food to spread its influence over import-dependent nations. Few things are more essential than grain, and Russia has lots of it, particularly wheat. While hampering Ukraine’s ability to produce and export grain, Russia has elevated its importance as a grain exporter.

The latest attempt to drive a wedge between the East and West, if successful, could have a dramatic impact on the global agricultural market. Russia is urging members of BRICS (Brazil, Russia, India, China and South Africa), a trade alliance of emerging countries that recently added Iran, Egypt, United Arab Emirates and Ethiopia, to establish an inter-bloc grain exchange. The goal of this proposed exchange would be to influence free pricing in the grain market, similar to what OPEC has done in the global energy market since the 1960s.

If the BRICS alliance continues to expand and a new grain exchange is launched that is not based on the US dollar, the world’s primary reserve currency for the last 75 years, it would not only impact global grain markets but achieve one of the alliance’s primary goals: weakening the dollar.

The proposed grain exchange would face numerous hurdles. Among the challenges to creating and regulating the exchange would be ensuring the level of liquidity of exchange trading and attracting participants to trading, including from the private sector. But it would be foolish to dismiss the proposal outright given the geopolitical changes that have rattled the world order in this decade. 

The BRICS alliance accounts for 42% of global grain production and 40% of world consumption. With the inclusion of its four new members, BRICS has an estimated annual grain output of 1.24 billion tonnes with consumption at 1.23 billion tonnes. Russia, China, India and Brazil account for the lion’s share of production and the only major exporters in the group are Russia and Brazil.

The benefits of the proposed grain exchange for BRICS’ agricultural powers are obvious, particularly for Russia, which could trade grain through sanction-proof channels. But how would it benefit the other alliance members? Would a grain exchange, in which prices are regulated through supply manipulation, result in higher or lower prices and function more efficiently than the current free market system? The answer to that question is no. While free markets aren’t perfect, history repeatedly has shown that the alternative is far worse.