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. Last Updated: 07/27/2016

Bumper Harvest Sprouts Export Plans

Photo by ITAR-TASSFarmers harvesting grain on the Dzerzhinsky farm in the Rostov region. Russia expects a 5 million ton surplus this year.
Russia is expecting a grain harvest of 78 million tons in 2001 -- a 19 percent increase over last year -- which would give Russia a surplus of at least 5 million tons and the possibility to export, the government says.

Production had totaled 67 million tons by September, according to the Agriculture Ministry. Half of this will be produced in the main grain-producing regions in the south: Rostov, Stavropol and Krasnodar, said Yury Gnatovsky, an analyst with the OGO food producer.

The grain crop totaled 65.4 million in 2000, when exports passed 1 million tons. About 8 million tons remain from last year's harvest.

Grain production has bounced back considerably since 1998's crop of 47.8 million tons, the lowest harvest in 40 years. Russia made it through the shortage with surplus from 1997's harvest and a little help from the West. In 1999, production was just 54.7 million tons, and exports numbered in the hundreds of tons.

Most analysts say this year's surplus could pass 5 million tons of grain, with one estimate going as high as 8 million or more.

One reason for the increase in grain is a steady decline in livestock breeding. Analysts estimate that the number of cattle and pigs has declined 50 percent in the last 15 years.

But the bumper crop is mostly due to favorable weather conditions, rather than an overall improvement in Russian agriculture, analysts say. Farming equipment is in a state of decay, and a shortage of fertilizer remains a setback. Russia could have tens of millions tons of surplus grain in few years if those problems were solved, Gnatovsky said. "Unfortunately, Russia is still too dependent on the weather."

Agriculture Minister Alexei Gordeyev has said that as much as 5 million to 6 million tons of this year's grain could be exported. One million tons already had been exported by early September, Interfax quoted him as saying.

But analysts disagree, saying Russia probably won't be able to export all of the surplus. "I don't think that more than 2 million tons of this year's grain could be exported," said Irina Ibragimova, an expert with the Agricultural Market Institute. Gnatovsky gave a similar figure.

Long transport distances is one of Russia's biggest hindrances. "Long distances, which means higher costs ... makes Russian grain less competitive," Gnatovsky said.

One ton of grain costs between $60 and $90 in Russia. However, OGO analysts estimate that transport alone costs about $40 per ton -- so in addition to other expenses, exporters can expect to make a maximum of $20 profit on each ton of grain. If Russia exports 2 million tons, profit would only total about $40 million.

The Agriculture Ministry, in an effort to encourage exports, has urged the government to lower railway tariffs to reduce the cost of transporting grain.

Another hindrance is the a lack of ports through which grain can be exported profitably. According to Gnatovsky, the Black Sea port of Novorossiisk is "virtually the only port through which you can transport grain avoiding excessive costs." However, Novorossiisk is not equipped to handle all of the grain that Russia may want to export, Gnatovsky said.

"Port facilities are not adequate, and export mechanisms as such are not in place," said Ibragimova.

Because of poor harvests in the past few years, local grain is a newcomer to foreign markets. Some of the relatively small amount of grain exported in the past few years was sold on international markets by foreign companies, Gnatovsky said. Most of the remaining grain was exported to the Commonwealth of Independent States.

Analysts say some foreign companies try to take advantage of the newcomer and buy Russian grain on the cheap. "Some local authorities don't approve of exports -- saying the grain is being sold at rock-bottom prices," said Gnatovsky.

Furthermore, Western traders use different standards for grain. This does not mean the quality of Russian grain is lower, Gnatovsky said, but criteria for different sorts of grain are not the same, which hampers trade.

Adding to export woes, this year's bumper harvest could bring down prices, which have already began to slide. Meanwhile, Russia's neighbors, such as Kazakhstan, also had a good harvest -- and are keen to compete on international markets.