Russia challenging U.S. in wheat
Nov. 24, 2015
Observing what some commentators call the poker game over international politics being played by President Barack Obama and Vladimir V. Putin, president of Russia, prompted a look at the real contest between the two nations that is just as important to global well-being as is fighting over Crimea and Syria, where most media attention is centered. The United States and Russia have been battling, albeit fairly quietly, since the start of the 21st century for global leadership in wheat exporting. It is the current season now near its half-way mark that may possibly be the first in which Russia wins. While the attention-grabbing political arguments that threaten military confrontation and revival of Cold War battles merit urgent attention, jousting for leadership in wheat exports impacts a nation’s standing as the principal supplier of essential food to countries that rely on imports to maintain their standard of living.
It now appears that America, which has been the world’s leading wheat exporter for almost a century, may lose that position to Russia in 2015-16. The latest forecast of world trade in wheat and flour by the International Grains Council places likely U.S. exports at 24 million tonnes while Russia is forecast to ship 23.1 million. That would be the narrowest win for America in global wheat exporting, with the fractional margin to first comparing with a gap of 1 million tonnes in 2014-15 and nearly 10 million in 2013-14.
Narrowing in America’s margin has occurred almost from the start of the 21st century. Less than three decades prior to 2000 the Soviet Union, including Russia, became the world’s largest importer of wheat, obtaining a major part of its domestic food needs from U.S. ports. Russia, until 1990 a country under the yoke of Communism, rapidly converted to a barely free system transforming it from dependency on imports to a strong competitor in global markets. This is one of the genuine miracles of modern markets. Yes, governments continue to jiggle with supports to bolster agriculture and, yes, governments seek to influence export activity as well as imports, but it’s allowing market-based prices to operate relatively freely that accounts for this startling outcome.
As the global grain situation shifted from periodic shortages to what is now a grain glut, not only did Russia strive for global leadership as a wheat exporter, but it was joined by two of its neighbors, Ukraine and Kazakhstan, as significant exporters. Thus, the Black Sea emerged as a grain source strikingly similar to America’s Gulf coast. Dominance has been facilitated by the nearness of major importers like Egypt and nations of the Middle East where supply problems are accentuated by internal battling.
Besides geographic proximity and abundant supplies, Russia’s contending to be the leading wheat exporter reflects the weakness of the ruble, especially when compared with the strong U.S. dollar. Russia, its economy under serious pressure due to U.S. trade sanctions and the collapse of world oil prices, has seized upon wheat as one of its major opportunities to earn foreign exchange. This position was underscored by its decision to impose a tax on wheat exports meant to provide funding for the Moscow government at a time when its sources were limited. Whenever the possibility is raised of Russia losing export business, the government hints that the export tax may be reduced or eliminated. Also understood is a commitment to assuring quality that centers on a minimum protein content of 11.5%. That rules out competition from the European Union where the 28-nation bloc is one of its principal adversaries in seeking wheat sales to the Middle East.
Russia’s capacity to continue to meet demand while beating prices offered from the United States and elsewhere depends primarily on the size of crops. It is no surprise that Russia’s ascendance in wheat exporting reflects its newly won role as the third largest wheat producer, behind China and India, and now ahead of America.