Corresponding author: William M. Liefert ( wliefert@ers.usda.gov ) © 2020 Non-profit partnership “Voprosy Ekonomiki”.
This is an open access article distributed under the terms of the Creative Commons Attribution License (CC BY-NC-ND 4.0), which permits to copy and distribute the article for non-commercial purposes, provided that the article is not altered or modified and the original author and source are credited.
Citation:
Liefert WM, Liefert O (2020) Russian agricultural trade and world markets. Russian Journal of Economics 6(1): 56-70. https://doi.org/10.32609/j.ruje.6.50308
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Russia has moved from being a large importer of grain, soybeans, and soybean meal during the late Soviet period to a major grain exporter. The country has become the world’s top wheat exporter, supplying 20–23 percent of total world exports in 2017–2018. This article examines how Russia’s transition from a planned to a market economy that began in the early 1990s has led to substantial restructuring of its agricultural production and trade, especially in its livestock and grain sectors. The article also discusses the consequences of that restructuring for world agricultural markets, and presents outlook for Russia’s agricultural trade. Another key development is that the country’s livestock sector contracted by about half during the 1990s, a result being Russia became a big meat importer. However, since 2000 that sector has rebounded, and meat imports (especially of chicken and pork) have fallen considerably.
Russia, Russian agriculture, agricultural trade, grain trade, economic crises.
During the last decades of the Soviet period, Russia (along with the Soviet Union as a whole) was a major importer of grain, soybeans, and soybean meal, which were needed to feed the expanding livestock sector. However, the severe contraction of that sector during the transition decade of the 1990s virtually terminated those imports. Around 2000, grain production began to increase steadily, creating surpluses for export. By 2017–2018, Russia was supplying 10–13 and 20–23 percent of world exports of total grain and wheat, respectively.
This article examines the extreme fluctuations in Russian agricultural trade since the country began its market-oriented reforms in the early 1990s and how those changes have impacted world agricultural markets, especially for grain and meat. The article also examines the strong interrelationship between the country’s agricultural production and trade. In 2014–2015, Russia experienced an economic crisis, which coincided with Western economic sanctions being imposed against the country stemming from geopolitical conflict, and Russia countering with an agricultural import ban against the sanctions-enacting countries. The article discusses how those events have affected Russian agricultural and food consumers, producers, and trade, as well as foreign exporters to Russia. Lastly, the article assesses the outlook for Russian agricultural trade, and presents projections from the U.S. Dept. of Agriculture for Russian exports of wheat, barley, and corn in the year 2028, generated by its model of world agricultural trade.
The next section discusses the magnitude and structure of Russia’s agricultural trade, while the third, fourth, and fifth sections examine how the country’s agricultural production and trade changed during the 1990s, 2000s, and crisis years of 2014–2015, respectively. The second to last section assesses the outlook for the country’s agricultural trade, before the conclusion.
Fig.
Russian agricultural and food imports and exports, 2000–2018 (billion U.S. dollars).
Note: Trade values do not include fish and seafood. Source: United Nations, Trade Data Monitor.
The main explanation behind the agricultural trade deficit is that Russia is a large exporter of bulk commodities (especially grain), while it is a major importer of high value products (HVP’s). Fig.
Russian agricultural imports, 2013 and 2018 (billion U.S. dollars).
Source: United Nations, Trade Data Monitor.
Fig.
Russian agricultural exports, 2013 and 2018 (billion U.S. dollars).
Source: United Nations, Trade Data Monitor.
In the early 1970s, the Soviet government decided to expand the livestock sector in order to improve the population’s standard of living by providing more meat and dairy products. The fast-growing livestock herds (especially cattle and pigs) required so much feed that the USSR became a major importer of feed grain, soybeans, and soybean meal. Table
Russian grain and meat production and trade (million metric tons).
Grain | Meat | ||||
Production | Net trade | Production | Net trade | ||
1987–1991 | 95 | (20.9) | 7.2 | (1.9) | |
1992–1995 | 84 | (7.9) | 5.4 | (1.4) | |
1996–2000 | 63 | (3.0) | 3.6 | (2.5) | |
2001–2005 | 76 | 8.1 | 3.7 | (2.8) | |
2006–2010 | 82 | 14.4 | 5.4 | (3.1) | |
2011–2013 | 81 | 21.8 | 7.1 | (2.5) | |
2014–2016 | 104 | 33.6 | 8.2 | (1.3) | |
2017–2019 | 116 | 46.6 | 9.2 | (0.7) |
The economic reforms inherent to Russia’s move from a planned to a market economy that began in 1992 largely eliminated both the direct and indirect subsidies to the agricultural sector. This generated a huge drop in the amount of inputs used in production, and thereby a massive downsizing in agricultural output, especially in the livestock sector (
Yet, Russian consumption of meat and dairy products did not fall as much as domestic production, as the country substantially increased its imports of these livestock products (see Fig.
Russian meat imports, 1991–2018 (thousand metric tons).
Note: Imports are gross. Source: USDA Production, supply, and distribution online.
The drop in Russia’s domestic demand for animal feed stemming from the contraction of the livestock sector largely ended the country’s imports of grain (as well as soybeans and meal). From 1987–1991 to 1996–2000, the country’s yearly (net) grain imports fell from 21 mmt to just 3 mmt (annual averages; see Table
The severe shrinkage of Russian agriculture during the 1990s caused considerable hardship for producers (especially of livestock goods) and was viewed by the Russian government as a disaster. However, the major restructuring of agricultural production and trade during the decade appears to have been an economically rational and necessary correction of the overexpansion of the sector during the last decades of the Soviet period (and again especially of the livestock industry).
Around 2000, Russian agricultural production started to rebound, both crops and livestock goods. Russian grain output began rising steadily; from 1996–2000 to 2017–2019, yearly production increased from 63 mmt to 116 mmt (annual averages; see Table
Growing grain output created sizeable surpluses for export. Russia moved from being a net grain importer of 3 mmt a year (annual average) during 1996–2000 to a net grain exporter of 47 mmt a year in 2017–2019 (see Table
Russian grain production (and correspondingly exports) has increased mainly because of rising yields rather than area. Russian harvested grain area
Russian production of livestock products also began a major reversal around 2000. From 1996–2000 to 2017–2019, Russian yearly meat production more than doubled — from 3.6 mmt to 9.2 mmt (again using annual averages over the periods; see Table
Farm level changes and improvements have also helped drive the revival of the livestock sector. In 2000, the small household plots (typically only half a hectare in size) maintained by the workers on the large former state and collective farms inherited from the Soviet period (and in the 1990s officially reorganized as corporate farms) accounted for about half of Russian meat production.
However, the livestock sector has benefited from not only input productivity growth but also favorable state policy. In the 2000s, the Russian government took action to reverse the extreme decline of the livestock sector during the 1990s. In 2005, the federal government identified agriculture as a national priority area that would receive increased funding (along with health, education, and housing). From 2005 to 2010, total state support to agriculture rose by 135 percent in real (inflation-adjusted) terms.
Although Russia’s exports of grain and other agricultural products have risen steadily since 2000, so also has the country’s imports, and the country has consistently run deficits in its agricultural trade. Imports increased during the first decade of the 2000s for two main reasons. The first is that the Russian economy grew, with yearly GDP expanding from 2000 to 2008 by 6.6 percent on average.
Russian agricultural imports fell in value terms in 2009 because of the macroeconomic crisis that hit the country that year (as well as much of the rest of the world). In 2009, Russian GDP dropped by 7.8 percent, and the ruble depreciated substantially in both nominal and real terms.
In 2014–2015, Russia encountered geopolitical and economic challenges. Early in 2014 conflict with Ukraine led to strained relations with the United States and other major Western countries, which imposed economic sanctions against Russia. Russia responded by establishing an import ban on many agricultural and food products against the countries that enacted sanctions. In late 2014, world oil prices fell substantially, to less than half the level of a year earlier.
By 2015, these developments had plunged Russia into economic crisis, characterized by both recession and price inflation. The Western sanctions largely terminated international investment in and lending to Russia, and motivated large-scale capital flight, both of which decreased investment (
The oil price collapse also resulted in substantial depreciation of the ruble (about 50 percent) against the U.S. dollar and other major currencies.
The agricultural import ban that Russia imposed in August 2014 applied to the United States, EU, Norway, Australia, and Canada, and covered the products meat, milk, cheese, other dairy goods, fish and other seafood, fruit, vegetables, nuts, and many processed foods. The ban has been renewed every year since 2014 (it is still in place at the time of this article’s writing), and since that year has been extended to Albania, Iceland, Liechtenstein, Montenegro, and Ukraine.
In 2013, about 40 percent of the food consumed within Russia was imported (in value terms). The import share for meat was around 25 percent, and almost 70 percent for fruit (
Although the import ban and food price inflation hurt Russian consumers, these developments helped Russian agricultural producers. Higher prices and the trade protection created by the ban stimulated production. Some mitigating points are that ruble depreciation also raised prices for imported agricultural inputs, and the fall in state revenue during the economic downturn motivated the government to reduce support to agriculture. In real terms, total Russian state pending on agriculture (including by regional governments) declined from 2013 to 2015 by 16 percent.
These qualifications notwithstanding, the total effect of all these crisis-related developments on agricultural output was positive. During 2011–2013, total Russian agricultural production grew at the average annual rate of 3.9 percent, which then jumped to 5.4 percent (average annual) in 2014–2015.
The crisis-induced drop in food consumption and rise in production resulted in a major fall in Russian agricultural and food imports, which from 2013 to 2015–2016 declined in value (U.S. dollar) terms by about a third, and then rose only marginally in 2017–2018 (see Fig.
Russia’s agricultural import ban and drop in agricultural imports have affected major foreign agricultural exporters unevenly. The EU has been adversely impacted, given that Russia is a major foreign market for its agricultural exports. In 2013, the EU sold $15–16 billion of agricultural and food products to Russia, about 10 percent of total EU agricultural exports, and 35–40 percent of Russia’s total agricultural imports.
Countries that have benefited from Russia’s agricultural import ban are the major exporters of the banned products, especially meat and dairy goods, which were not among the embargoed countries, in particular Brazil. For example, from 2013 to 2016 Brazil increased its annual pork exports to Russia by 200,000 tons, a rise of 75 percent.
A general effect of Russia’s import ban and overall drop in agricultural import demand was to contribute to a reduction in world prices for the banned goods. From 2014 to 2016, the world food price index for meat and dairy products dropped by 21 and 31 percent, respectively (
This section examines the outlook for Russian agricultural trade for about the next 10 years, with a focus on grain exports and meat imports. Using a model of world agriculture, the U.S. Department of Agriculture (USDA) makes projections for the annual volumes of production and trade of key commodities for the major countries and regions of the world 10 years into the future. Both the general and specific projections that we give in this section for future Russian grain and meat production and trade are either directly from, or supported by, this USDA (2019) outlook exercise for Russian and world agriculture, with specific projections given for the out year of 2028.
Russian grain exports are likely to continue to grow over the next decade, as grain production keeps rising and thereby increasing surpluses for export. As in past years, the output growth will probably be driven more by rising yields rather than area.
Some specialists argue that Russia could get a substantial boost to grain production by returning to cultivation the area that was dropped during the 1990s (see
However, rising yields could continue to power growth in Russian grain output and exports. Although Russian grain yields have increased substantially during the last two decades, they still are significantly below levels in developed Western countries with comparable climatic conditions. In a major study on Russian agriculture, the European Commission (2014) finds that in 2007–2009, grain yields in southern European Russia were less than half those in the United States (2.9 versus 6.8 tons per hectare), and just a bit more than half in the Volga, Ural, and Siberian parts of the country compared to Canada (1.6 versus 3.0 tons per hectare). Improving technology, often embodied in inputs such as seeds and machinery, can continue to raise yields, though the decline in Western investment and agricultural contacts resulting from Western economic sanctions and geopolitical tension constrains that process.
Some specialists (
Using its model of world agriculture previously mentioned, the U.S. Department of Agriculture (USDA PS&D; USDA, 2019) projects that Russian yearly output of wheat, barley, and corn will increase from 76, 18, and 13 mmt in 2016–2018 (annual average) to 80, 20, and 14 mmt, respectively, in 2028 (moderate rather than strong growth). USDA also projects that Russian yearly exports (gross) of wheat, barley, and corn will grow from 35, 4.4, and 4.7 mmt in 2016–2018 (annual average) to 37, 6.7, and 5.8 mmt in 2028.
The outlook for Russian agricultural imports seems less clear. Total agricultural imports in value terms will likely continue to rise over the near to medium term, driven largely by GDP growth that increases consumer income and demand for goods, including imported foods. The IMF predicts that from 2020 to 2024, Russian GDP will increase at an average annual rate of 1.9 percent. However, any continued growth in Russian production of agricultural import-competing goods will cut into the import expansion. The further development of new, large, and modern livestock-producing operations will help drive the growth in meat output. As discussed earlier, such enterprises have contributed to the boom in Russian chicken production since 2000, as well as in pork output. In 2001, Russian pork production ended its decline that began in the early 1990s, and from that year to 2019 output has risen by about 150 percent — to 3.2 mmt (USDA PS&D).
It is expected that governmental policy will continue to abet the output growth in the livestock sector, as well as directly reduce imports. The state regime of restrictive tariff rate quotas on meat imports should continue into the future, and the Russian government appears likely to extend indefinitely the agricultural import ban, which strongly restricts imports of livestock goods. These import-constraining policies are consistent with the state’s goal for Russia to become as self-sufficient in agriculture as possible, with the exception of tropical and other warm-weather products that the country cannot economically produce and thereby must import. Central features of the Russian government’s concept of food security are import substitution and self-sufficiency (
It therefore appears quite likely that during the 2020s, Russian imports of meat will continue to decline, an assessment supported by the USDA (2019) projections for Russian agriculture. Any further growth in the Russian livestock sector will also impact the grain sector and exports, in that rising domestic demand for animal feed will cut into the domestic grain surpluses available for export. As discussed earlier, Russia exports mainly low quality food and feed wheat, as well as the feed grains of barley and corn. Mitigating this point, though, is that the Russian livestock sector is improving its animal feed efficiency (which was very low in the Soviet period), so that less feed is needed to produce a given volume of livestock products.
Another factor that might sporadically impede Russia’s grain exports in future years is that the country’s trade policy could continue to favor the livestock sector over grain producers and exporters. In past years, when domestic grain supplies have been low, say because of drought or other bad weather, and/or grain prices high, the Russian government used an array of policies to restrict grain exports. These included export taxes, a complete export ban that lasted from August 2010 to July 2011, and taxing and obstructing the transport of grain to exporting ports (
Russia’s move from a planned to a market economy fundamentally restructured the country’s agricultural production and trade. The country switched from being a large grain importer during the late Soviet period to a current major grain exporter, in 2017–2018 supplying 10–13 and 20–23 percent of world exports of total grain and wheat, respectively. Economic transition and reform during the 1990s severely contracted Russia’s livestock sector, with the ensuing drop in domestic demand for animal feed contributing strongly to the change in the country’s grain trade balance. The country in turn became a large meat importer, taking 17 percent of total world meat imports (of beef, pork, and chicken) in 2008.
During the past two decades, Russia has been a larger agricultural importer than exporter in value terms, because it exports mainly bulk crops while it imports high value products, such as livestock goods (meat and dairy), fruit and vegetables, and processed food. However, the economic crisis and import ban of 2014–2015 cut the country’s agricultural imports by about a third, so that the country currently has only a small agricultural trade deficit. High growth in domestic meat production since 2000, as well as various trade controls, is also reducing imports.
Both Russia’s aggregate agricultural exports and imports are projected by USDA to continue to grow over the next decade in value terms. Further improvements in farm technology and management are expected to continue to drive an increase in grain yields and agricultural productivity as a whole, and as a result Russian annual grain exports (of wheat, barley, and corn) could rise over the next 10 or so years by 10–15 percent (from the 2016–2018 volume). Expected modest growth in Russian GDP and consumer income is projected to increase agricultural and food imports of high value products. However, statements by the Russian government indicate that it is committed to maintaining the agricultural import ban against the EU, United States, and other major Western countries for the indefinite future. More generally, the country is pursuing a national policy to become as agriculturally self-sufficient as possible (though still importing tropical and other warm-climate products, such as fruit and certain vegetables, that it cannot economically produce itself). Continued productivity growth in the chicken, and perhaps also pork, sectors, driven in part by the move to large modern animal-producing operations, would further increase domestic meat production, and thereby reduce meat imports.
Any further expansion of the livestock sector could mitigate to some degree the rise in Russian grain exports, by increasing domestic demand for animal feed. Government policy might also continue to favor the livestock sector over the grain economy, by restricting grain exports when harvests are low and domestic prices high. Combined with volatile weather that can cause major annual variation in the size of grain crops, such policies can hurt Russia’s reliability as a grain exporter.
The authors thank Cheryl Christensen for helpful comments. The findings and conclusions in this article are those of the authors and should not be construed to represent any official USDA or U.S. Government determination or policy. The research in this article was supported by the U.S. Department of Agriculture, Economic Research Service.