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. Last Updated: 07/27/2016

Russia Seen Setting World Grain Prices

APDefense Minister Sergei Ivanov smiling as he shakes hands with his Chinese counterpart Cao Gangchuan in Moscow on Tuesday. China is the Russian defense industry's biggest customer.
PARIS -- The drop in Russia's cereals harvest this season should be seen as temporary and within a few years its massive output could become the world benchmark for grain prices, industry experts said.

Speaking at a seminar in Paris organized by promotion group France Export Cereales on Monday, experts were convinced Russia would soon regain its position as a major world exporter.

"Will it be in two years or five years that Russia harvests 100 million tons? I don't know. What is sure, is that you can't say that it cannot do 100, or even 120 million," said Lorraine Bouvier, former director at major trading house Louis Dreyfus.

"That's when it will set the world market price."

After two harvests around 85 million to 87 million tons, Russian production dropped 25 percent in 2003, due to winter frosts and a mix of heavy rains or drought in different growing areas, pushing down exports to a quarter of their previous level.

But despite unpredictable weather, output is expanding as investment in infrastructure and storage facilities cuts costs and previously fallow land is brought into production.

The quality of Russian cereals has often been criticized but France Export Cereales said grain quality was not an obstacle to increased sales abroad and in fact was improving.

"The best wheat is reserved for exports," it said in a report.

Russia's export capacity has in the past been limited by the number of ports and the dilapidated state of the main shipping terminal at Novorossiisk.

But analysts said this did not present an insurmountable problem, noting the country had moved from being an importer to a large exporter in one year, between 2002 and 2003.

Russia's return to the world stage is all the more probable as its livestock industry will not be able to absorb all of its surplus grain, experts said.

"One can dread an increase in the exporting capacity of the Russian grain sector, all the more because the poultry sector is booming, which prefers imported soy meal," said Jean-Jacques Herve, a former agriculture official at the French Embassy in Moscow.

He said higher pig and poultry production -- a priority for Moscow -- would use up less than 5 million tons of cereals more than at present.

"In light of this, any increase in the harvest above 75-80 million tons, would be destined for export," Herve said.

France Export Cereales believes Russia is still far from self-sufficiency in terms of meat products despite the recent import quotas designed to boost domestic production.